<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PROVIDENT BANCORP, INC.
(Exact Name of Registrant as Specified in Its Charter )
FEDERAL 6712 (TO BE APPLIED FOR)
(State or Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Code Identification No.)
Organization) Number)
400 RELLA BOULEVARD
MONTEBELLO, NEW YORK 10901
(914) 369-8040
(Address and Telephone Number of Principal Executive Offices)
GEORGE STRAYTON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
400 RELLA BOULEVARD
MONTEBELLO, NEW YORK 10901
(914) 369-8040
(Name, Address and Telephone Number of Agent for Service)
COPIES TO:
ERIC LUSE, ESQ.
KENNETH R. LEHMAN, ESQ.
LUSE LEHMAN GORMAN POMERENK & SCHICK, P.C.
5335 WISCONSIN AVENUE, N.W., SUITE 400
(202) 274-2000
WASHINGTON, D.C. 20015
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
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 the delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: [_]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==================================================================================================================
PROPOSED PROPOSED
AMOUNT TO BE MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF REGISTERED OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED PER OFFERING REGISTRATION FEE
SHARE/UNIT PRICE (1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.10 par value per share 4,007,175 shares $10.00 $40,071,750 $11,822
Participation Interests (2) 340,000 interests -- -- --
==================================================================================================================
</TABLE>
____________________
(1) Estimated solely for the purpose of calculating the registration fee.
(2) The securities of Provident Bancorp, Inc. to be purchased by the Provident
Savings Bank 401(k) Plan as adopted by Provident Bank are included in the
amount shown for Common Stock. However, pursuant to Rule 457(h) of the
Securities Act of 1933, as amended, no separate fee is required for the
participation interests. Pursuant to such rule, the amount being
registered has been calculated on the basis of the number of shares of
Common Stock that may be purchased with the current assets of such 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 SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
================================================================================
<PAGE>
PROSPECTUS
UP TO 3,484,500 SHARES OF COMMON STOCK
PROVIDENT BANCORP, INC.
400 RELLA BOULEVARD
MONTEBELLO, NEW YORK, 10901
================================================================================
Provident Bancorp, Inc., a federal corporation, is offering for sale up to
3,484,500 shares, or 46.6% of its to-be outstanding common stock, in connection
with the mutual holding company reorganization of Provident Bank. Provident
Bancorp, Inc. will issue the remaining 53.4% of its to-be outstanding common
stock to Provident Bancorp, MHC, a federal mutual holding company. The shares
of common stock of Provident Bancorp, Inc. are being offered to the public under
the terms of a plan of reorganization that must be approved by members of
Provident Bank and by the Office of Thrift Supervision. Because the names of
Provident Bank, Provident Bancorp, Inc. and Provident Bancorp, MHC are so
similar, we will refer to Provident Bank as the "Bank," we will refer to
Provident Bancorp, Inc. as the "Company," and we will refer to Provident
Bancorp, MHC as the "Mutual Holding Company."
================================================================================
OFFERING TERMS
An independent appraiser has estimated that the market value of the Company
after giving effect to the reorganization and offering is between $55,250,000
and $74,750,000. Based on the valuation, the Company will issue between
5,525,000 and 7,475,000 shares of its common stock in the reorganization. The
Company intends to sell 46.6% of these shares, or between 2,575,500 and
3,484,500 shares, to the public, and issue 53.4% of these shares, or between
2,949,500 and 3,990,500 shares, to the Mutual Holding Company. The Company may
increase the shares issued in the reorganization to up to 8,596,250 shares. If
the Company increases the shares issued in the reorganization it will also
increase the shares it sells in the offering to up to 4,007,175 shares. The
number of shares to be issued is subject to approval of the Office of Thrift
Supervision. Based on these estimates, the Company is making the following
offering of shares of common stock.
<TABLE>
<CAPTION>
Adjusted
Minimum Midpoint Maximum Maximum
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
. Price per share........... $ 10.00 $ 10.00 $ 10.00 $ 10.00
. Number of shares.......... 2,575,500 3,030,000 3,484,500 4,007,175
. Offering expenses......... $ 1,250,000 $ 1,250,000 $ 1,250,000 $ 1,250,000
. Net proceeds.............. $24,505,000 $29,050,000 $33,595,000 $38,821,750
. Net proceeds per share.... $ 9.51 $ 9.59 $ 9.64 $ 9.69
</TABLE>
PLEASE REFER TO RISK FACTORS BEGINNING ON PAGE _____ OF THIS DOCUMENT.
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, THE FEDERAL DEPOSIT INSURANCE CORPORATION, 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.
Ryan, Beck & Co., Inc. will use its best efforts to assist in selling at
least the minimum number of shares, but does not guarantee that this number will
be sold. All funds received from subscribers will be held in an interest-bearing
savings account at the Bank until the completion or termination of the offering.
The Company has applied to have the common stock quoted on the Nasdaq National
Market under the symbol "_______"
For information on how to subscribe, call the Stock Information Center at
(914) 369-_____.
RYAN, BECK & CO., INC.
Prospectus dated November __, 1998
<PAGE>
[MAP]
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION AND STOCK OFFERING.... 4
SUMMARY AND OVERVIEW................................................. 7
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA....................... 13
RISK FACTORS......................................................... 15
PROVIDENT BANCORP, MHC............................................... 19
PROVIDENT BANCORP, INC............................................... 20
PROVIDENT BANK....................................................... 21
REGULATORY CAPITAL COMPLIANCE........................................ 22
USE OF PROCEEDS...................................................... 23
DIVIDEND POLICY...................................................... 24
MARKET FOR COMMON STOCK.............................................. 24
CAPITALIZATION....................................................... 25
PRO FORMA DATA....................................................... 26
PROPOSED PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS............... 33
THE REORGANIZATION AND OFFERING...................................... 34
PROVIDENT BANK CONSOLIDATED STATEMENTS OF INCOME..................... 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....................................... 47
BUSINESS OF PROVIDENT BANCORP, INC................................... 62
BUSINESS OF PROVIDENT BANK........................................... 62
TAXATION............................................................. 90
REGULATION............................................................92
MANAGEMENT OF THE COMPANY............................................ 98
MANAGEMENT OF THE BANK...............................................100
RESTRICTIONS ON ACQUISITION OF THE COMPANY...........................109
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY..........................111
TRANSFER AGENT AND REGISTRAR.........................................112
LEGAL AND TAX MATTERS................................................112
EXPERTS..............................................................112
ADDITIONAL INFORMATION...............................................112
CONSOLIDATED FINANCIAL STATEMENTS....................................F-1
GLOSSARY.............................................................G-1
</TABLE>
This document contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" beginning on page ____ of this Prospectus.
You should note as you read this Prospectus that at times capitalized terms
are used. These capitalized terms are generally defined in the glossary that
is at the end of this Prospectus. Defined terms are used to help you
differentiate between the various components of the transaction, to simplify the
discussion and to avoid unnecessary repetition by not having to define or
describe a term each time it is used. For example, to avoid confusion, all of
the steps that are part of the transactions described in this Prospectus are
referred to as the "Reorganization," and the offer and sale of 46.6% of the
Company's common stock is referred to as the "Offering." To further assist you
in reading this Prospectus, in addition to including a glossary, each term
defined in the glossary is also defined the first time that it is used in the
Prospectus.
3
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION AND STOCK OFFERING
Q: WHAT IS THE PURPOSE OF THE REORGANIZATION AND STOCK OFFERING?
A: We are selling shares of common stock so that we can raise capital to grow
and compete more effectively, and so that our depositors, employees,
management and directors may obtain an equity ownership in the Company.
You will have the opportunity to subscribe for stock. Stockholders of the
Company will share indirectly in the future earnings and growth of our
Bank. The offering will increase our capital for lending and investment
activities. This will better enable us to continue the expansion of our
retail banking franchise and product lines and to diversify operations.
Moreover, the capital raised in the offering may be used to acquire new
branch offices or other financial institutions. Also, as a stock bank
operating through a holding company structure, we will improve our future
access to the capital markets.
Q: WHY IS THE BANK FORMING A TWO-TIER MUTUAL HOLDING COMPANY AND CONDUCTING A
MINORITY STOCK OFFERING INSTEAD OF UNDERGOING A FULL CONVERSION TO STOCK
FORM?
A: The Bank is currently a well-capitalized financial institution with
tangible capital equal to 7.3% of total assets at June 30, 1998. 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 to the public at the time of the reorganization, and, as a result,
raises less than half the capital that would be raised in a full
conversion. Management believes that the proceeds from the offering will
provide the Bank with sufficient capital to implement its business
strategy, and that at the present time the Bank would not have a use for
the additional capital that would be raised if all shares were sold.
In addition, because OTS regulations and policy generally prohibit the sale
of a savings association in the mutual holding company structure, the
reorganization and offering will permit the Bank to achieve the benefits of
the stock form of organization without the threat of a change of control,
which may occur following a standard conversion from mutual to stock form.
Q: WHO WILL BE THE MINORITY STOCKHOLDERS OF THE COMPANY?
A: All persons who purchase common stock in the offering, including the
employee stock ownership plan the Bank is adopting in connection with the
reorganization, will be minority stockholders of the Company, and will own
46.6% of the Company's common stock upon completion of the offering. The
Mutual Holding Company will initially own 53.4% of the Company's common
stock, and will remain the majority stockholder of the Company as long as
the Mutual Holding Company remains in existence.
Q: HOW DO I ORDER THE STOCK?
A: You must complete and return the stock order form to us together with your
payment, so that we receive it on or before 10:00 a.m., New York time, on
December __, 1998.
4
<PAGE>
Q: WHO WILL BE PERMITTED TO PURCHASE STOCK?
A: The stock is being offered on a priority basis to the following persons:
. Persons who had aggregate deposit accounts of at least $50 with the
Bank on December 31, 1996 ("Eligible Account Holders"). Any remaining
shares will be offered to:
. The Bank's tax-qualified employee plans. Any remaining shares will be
offered to:
. Persons other than Eligible Account Holders who had aggregate deposit
accounts of at least $50 with the Bank on September 30, 1998
("Supplemental Eligible Account Holders"). Any remaining shares will
be offered to:
. Depositors of the Bank as of ___________, 1998 (the "Voting Record
Date") and borrowers of the Bank as of July 9, 1998 whose borrowings
remained outstanding as of the Voting Record Date, who are not
Eligible Account Holders or Supplemental Eligible Account Holders
("Other Members"). Any remaining shares will be offered to:
. Employees, officers and directors of the Bank.
If the above persons do not subscribe for all of the shares, the remaining
shares may be offered in a Community Offering to certain members of the
general public, with preference given to natural persons residing in
Rockland County, New York.
Q: HOW MUCH STOCK MAY I ORDER?
A: The minimum number of shares that may be purchased is 25 shares. No
Eligible Account Holder, Supplemental Eligible Account Holder or Other
Member may, in their capacities as such, purchase more than 20,000 shares
(or $200,000) of common stock. No person, together with associates of and
persons acting in concert with such person, may purchase in the offering
more than 40,000 shares (or $400,000) of common stock. However, the
maximum purchase limitation may be increased or decreased at the sole
discretion of the Company and the Bank, provided that the aggregate
purchase limitation may not be reduced below 1% of the shares issued in the
offering.
Q: WHAT HAPPENS IF THERE ARE NOT ENOUGH SHARES TO FILL ALL ORDERS?
A: If the offering is oversubscribed, we will allocate shares based on the
purchase priorities described above that are contained in the plan of
reorganization and stock issuance plan. These purchase priorities are in
accordance with regulations of the Office of Thrift Supervision. If the
offering is oversubscribed in a particular category of the offering, then
shares will be allocated among all subscribers in that category based on a
formula that is described in detail in "The Reorganization and Offering."
The categories are described in answer to the second preceding question.
Q: AS A DEPOSITOR OR BORROWER OF THE BANK, WHAT WILL HAPPEN IF I DO NOT ORDER
ANY COMMON STOCK?
A: You are not required to purchase common stock. Your deposit accounts,
certificate accounts and any loans you may have with the Bank will not be
affected by the reorganization.
Q: HOW DO I DECIDE WHETHER TO BUY STOCK IN THE OFFERING?
A: In order to make an informed investment decision, you should read this
entire Prospectus, including the section titled "Risk Factors."
5
<PAGE>
Q: WHO CAN HELP ANSWER ANY QUESTIONS I MAY HAVE ABOUT THE OFFERING?
If you have questions about the offering, you may contact:
STOCK INFORMATION CENTER
PROVIDENT BANK
(800) ____-____
SELLING OR ASSIGNING YOUR SUBSCRIPTION RIGHTS IS ILLEGAL. ALL PERSONS
EXERCISING THEIR SUBSCRIPTION RIGHTS WILL BE REQUIRED TO CERTIFY THAT THEY ARE
PURCHASING SHARES SOLELY FOR THEIR OWN ACCOUNT AND THAT THEY HAVE NO AGREEMENT
OR UNDERSTANDING REGARDING THE SALE OR TRANSFER OF SUCH SHARES. THE COMPANY AND
THE BANK INTEND TO PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE EVENT
IT BECOMES AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS. ORDERS KNOWN TO
INVOLVE THE TRANSFER OF SUBSCRIPTION RIGHTS WILL NOT BE HONORED. IN ADDITION,
PERSONS WHO VIOLATE THE PURCHASE LIMITATIONS MAY BE SUBJECT TO SANCTIONS AND
PENALTIES IMPOSED BY THE OTS.
6
<PAGE>
SUMMARY AND OVERVIEW
This summary highlights selected information from this Prospectus and does
not contain all the information that you need to know before making an informed
investment decision. To understand the Offering fully, you should read the
entire Prospectus carefully, including the consolidated financial statements and
the notes to the consolidated financial statements of the Bank. Certain
financial information contained in the Prospectus has been derived from the
audited and unaudited consolidated financial statements of the Bank.
THE COMPANIES
Provident Bancorp, MHC
400 Rella Boulevard
Montebello, New York 10901
(914) 369-8040
The Mutual Holding Company is not currently an operating company and has
not engaged in any business to date. Upon completion of the Reorganization, the
Mutual Holding Company will be chartered under Federal law and will own 53.4% of
the outstanding Common Stock of the Company. The Mutual Holding Company is not
expected to engage in any business activities other than owning the Common Stock
of the Company. So long as the Mutual Holding Company exists, it will own at
least a majority of the Company's voting stock. Following completion of the
Reorganization, persons who were members of the Bank will become members of the
Mutual Holding Company, so long as their existing borrowings from the Bank
remain outstanding or they continue to maintain a deposit account with the Bank.
Provident Bancorp, Inc.
400 Rella Boulevard
Montebello, New York 10901
(914) 369-8040
The Company is not currently an operating company and has not engaged in
any business to date. After the Reorganization, the Company will own all of the
Bank's common stock. Purchasers in the Offering will own 46.6% of the Company's
common stock and the Mutual Holding Company will own 53.4% of the Company's
common stock. Although these percentages may change in the future, the Mutual
Holding Company must always own a majority of the Company's Common Stock. It is
expected that the Company will make the loan to the ESOP and invest up to 42% of
the net proceeds of the Offering as described in "Use of Proceeds." The holding
company structure will provide us greater flexibility in terms of operations,
expansion and diversification. See page __.
Provident Bank
400 Rella Boulevard
Montebello, New York 10901
(914) 369-8040
The Bank is a community bank that offers financial services to individuals,
families and businesses primarily in Rockland County, New York and communities
in contiguous counties. The Bank is engaged primarily in the business of
offering various FDIC-insured savings and demand deposits to individual and
business customers through eleven full-service offices, and using those
deposits, together with funds generated from operations and borrowings, to make
one- to four-family residential and commercial real estate loans, consumer
loans, construction and land loans, commercial business loans, and multi-family
residential loans. The Bank also invests its funds in mortgage-backed
securities and investment securities. At June 30, 1998, the Bank had total
assets of $679.1 million, total deposits of $580.1 million and total equity of
$53.9 million. See pages __ to __.
7
<PAGE>
THE REORGANIZATION AND OFFERING
The Reorganization and Offering involve a number of steps, including the
following:
. 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.
. The Bank will convert from the mutual form of organization to the
capital stock form of organization and issue 100% of its capital stock
to the Company.
. The Company will issue between 5,525,000 and 7,475,000 shares of its
common stock, par value $0.10 per share (the "Common Stock"), in the
Reorganization; 53.4% of these shares (or between 2,949,500 shares and
3,990,500 shares) will be issued to the Mutual Holding Company, and
46.6% (or between 2,575,500 shares and 3,484,500 shares) will be
offered for sale in the Offering.
. Membership interests that depositors and certain borrowers had in the
Bank will become membership interests in the Mutual Holding Company.
As a result, former members of the Bank who controlled 100% of the
votes eligible to be cast by the Bank's members prior to the
Reorganization will control 100% of the votes eligible to be cast by
members of the Mutual Holding Company immediately after the
Reorganization and, through the Mutual Holding Company, will control
53.4% of the votes eligible to be cast by the Company's stockholders
immediately following the Reorganization.
DESCRIPTION OF THE MUTUAL HOLDING COMPANY STRUCTURE
Following completion of the Reorganization, the corporate structure of the
Bank will be as follows:
--------------------- --------------------------
Minority
Provident Bancorp, Stockholders
MHC (Including ESOP)
--------------------- --------------------------
53.4% of 46.6% of
the the
Common Common
Stock Stock
---------------------------------------------------
Provident Bancorp, Inc.
---------------------------------------------------
100% of the
Common Stock
---------------------------------------------------
Provident Bank
---------------------------------------------------
The mutual holding company structure differs in significant respects from
the holding company structure that is used in a standard mutual-to-stock
conversion. In a standard 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 its reorganization and stock offering. 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 standard mutual to
stock
8
<PAGE>
conversion. The Company is selling 46.6% of its Common Stock in the Offering.
This will enable the Company to issue authorized but unissued shares of Common
Stock, or treasury stock, to finance the acquisition of other financial
institutions in stock-for-stock acquisitions, while still remaining in the
mutual holding company structure. The Company has no current plans,
understandings or agreements regarding any acquisition or merger, and such
transactions would be subject to regulatory approval. The shares that are issued
to the Mutual Holding Company may be subsequently sold to the Bank's customers
in an incremental stock offering or 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, because Office of Thrift Supervision ("OTS") regulations and
policy generally prohibit the sale of a savings institution in the mutual
holding company structure, management believes that the Reorganization and
Offering will permit the Bank to achieve the benefits of a stock company without
the threat of a change of control that may occur following a standard conversion
from mutual to stock form.
Because the Mutual Holding Company is a mutual corporation, its actions
will not necessarily always be in the best interests of the Company's minority
stockholders. In making business decisions, the Mutual Holding Company's Board
of Directors will consider a variety of constituencies, including the customers
and 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 interest of all of its constituencies, including, but not
limited to, the interests of the minority 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 ongoing profitability of the Company
and the Bank and continued service to the communities in which the Bank
operates.
THE STOCK OFFERING
The Company is offering for sale between 2,575,500 and 3,484,500 shares of
its Common Stock, par value $0.10 per share, at a price of $10.00 per share. The
Offering may be increased to 4,007,175 shares without further notice to you if
the estimated pro forma market value of the Common Stock (the "Independent
Valuation") is increased as a result of changes in market or financial
conditions prior to the completion of the Offering. The shares sold in the
Offering will represent a minority ownership interest of 46.6% (the "Minority
Ownership Interest") of the shares of Common Stock of the Company. The
remaining 53.4% of the shares of Common Stock of the Company will be issued to
the Mutual Holding Company.
STOCK PURCHASE PRIORITIES
The Common Stock is being offered for sale in the following order of
priority in a subscription offering (the "Subscription Offering"):
(i) the Bank's Eligible Account Holders (holders of deposit accounts
totaling $50 or more as of December 31, 1996);
(ii) the Bank's tax-qualified employee benefit plans, including the ESOP,
which intends to purchase 8% of the shares sold in the Offering
(however, the ESOP shall have the first priority to purchase any
Common Stock which is sold in excess of 3,484,500 shares);
(iii) the Bank's Supplemental Eligible Account Holders (holders of deposit
accounts totaling $50 or more as of September 30, 1998);
9
<PAGE>
(iv) depositors of the Bank as of the Voting Record Date (November __,
1998), and borrowers of the Bank as of July 9, 1998 whose borrowings
remain outstanding as of the Voting Record Date, who are not Eligible
Account Holders or Supplemental Eligible Account Holders ("Other
Members");
(v) employees, officers and directors of the Bank.
Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered for sale in a community offering (the "Community Offering") and
possibly a syndicated community offering (the "Syndicated Community Offering").
See pages ___ to ___. Ryan, Beck & Co., Inc. ("Ryan Beck") will assist in
selling the Common Stock on a best efforts basis.
PROHIBITION ON TRANSFER OF SUBSCRIPTION RIGHTS
Selling or assigning your subscription rights is illegal. If you exercise
your subscription rights you will be required to certify that you are purchasing
shares solely for your own account and that you have no agreement or
understanding regarding the sale or transfer of such shares. The Company and
the Bank intend to pursue any and all legal and equitable remedies in the event
the Company and the Bank become aware of the transfer of subscription rights,
and the Company and the Bank will not honor orders known to involve the transfer
of such rights. In addition, persons who violate the purchase limitations may
be subject to sanctions and penalties imposed by the OTS. In order to maintain
the appropriate stock purchase priorities, stock order forms submitted in the
Subscription Offering must indicate the name of the Eligible Account Holder or,
Supplemental Eligible Account Holder or Other Member, as the case may be.
Adding the name(s) of other persons who are not account holders, or were account
holders at a later date, will result in a loss of your purchase priority.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
RP Financial, LC., Arlington, Virginia, an appraisal firm independent of
the Bank and experienced in appraisals of savings associations, has estimated
that, in its opinion, as of _______, 1998, the aggregate pro forma market value
of the Company and the Bank ranged from $55.3 million to $74.8 million (the
"Estimated Valuation Range") with a midpoint of $65.0 million. The Company is
offering to sell 46.6% of its Common Stock in the Offering and, based on the
Independent Valuation, 46.6% of the Common Stock ranged in value from $25.8
million to $34.8 million, with a midpoint of $30.3 million (the "Offering
Range"). The Company is offering its Common Stock for sale at $10.00 per share,
representing 2,575,500 shares and 3,484,500 shares at the minimum and maximum of
the Offering Range, respectively, with a midpoint of 3,030,000 shares. The
Independent Valuation was based in part upon the Bank's financial condition and
operations and the effect of the additional capital raised by the sale of Common
Stock in the Offering. In addition to the 2,575,500 to 3,484,500 shares to be
sold in the Offering, between 2,949,500 and 3,990,500 shares will be issued to
the Mutual Holding Company, which will represent 53.4% of the outstanding shares
of Common Stock. The Independent Valuation will be updated prior to the
completion of the Offering. If the Independent Valuation increases, there will
be a corresponding change in the total number of shares issued to the Mutual
Holding Company in the Reorganization and sold to subscribers in the Offering,
but the percentage of shares of the Company's Common Stock owned by the Mutual
Holding Company and the Minority Stockholders will not change as a result of a
change in the Independent Valuation. If the Independent Valuation increases by
15%, or up to $86.0 million, the number of shares sold in the Offering will,
subject to OTS approval, increase to 4,007,175 shares and the number of shares
issued to the Mutual Holding Company will increase to 4,589,075 shares.
Prospective purchasers will be given the opportunity to change or withdraw their
purchase orders only if the Estimated Valuation Range decreases below the
minimum or increases by more than 15% above the maximum of such range, or if
fewer than 2,575,500 shares or more than 4,007,175 shares are sold in the
Offering. See pages __ to __.
10
<PAGE>
TERMINATION OF THE OFFERING
The Subscription Offering will terminate at 10:00 a.m., New York time, on
December __, 1998. The Community Offering, if one is held, is expected to begin
immediately after the termination of the Subscription Offering, but may begin at
any time during the Subscription Offering. The Community Offering may terminate
on or after December __, 1998, but in any event, no later than __________, 1999,
without OTS approval.
BENEFITS TO MANAGEMENT AND EMPLOYEES FROM THE OFFERING
The Bank's full-time employees will be eligible to participate in the ESOP.
The Company also intends to implement a stock recognition plan (the "Recognition
Plan") and a stock option plan (the "Stock Option Plan") following completion of
the Reorganization, which will benefit the Bank's and the Company's officers and
directors. If the Recognition Plan is adopted, certain officers and directors
will be awarded shares of Common Stock at no cost to them. However, the
Recognition Plan and Stock Option Plan may not be adopted until at least six
months after completion of the Reorganization and are subject to shareholder
approval. The Bank will also enter into employment agreements with certain
officers of the Bank, which will provide for benefits and cash payments in the
event of a change in control of the Company or the Bank. See "Management of the
Bank--Benefit Plans."
The following table presents the dollar value of the shares to be granted
pursuant to the proposed stock benefit plans and the percentage of the Company's
outstanding Common Stock which will be represented by these shares.
<TABLE>
<CAPTION>
PERCENTAGE OF
VALUE OF OUTSTANDING
SHARES GRANTED/(1)/ COMMON STOCK
------------------- -------------
<S> <C> <C>
BENEFIT PLAN:
ESOP............... $2,424,000 3.73%
Recognition Plan... 1,212,000 1.86
Stock Option Plan.. --/(2)/ 4.66
---------- -----
$3,636,000 10.25%
========== =====
- -------------------------
</TABLE>
/(1)/ Assumes shares are granted at $10.00 per share and that shares are sold in
the Offering at the midpoint of the Offering Range.
/(2)/ Recipients of stock options realize value only in the event of an increase
in the price of the Common Stock of the Company following the date of
grant of the stock options. Options to purchase 303,000 shares at the
midpoint of the Offering Range may be granted if the Stock Option Plan is
approved by shareholders.
USE OF THE PROCEEDS RAISED FROM THE SALE OF COMMON STOCK
The Company expects to use the net proceeds from the Offering as follows:
. 50% will be used to buy all the capital stock of the Bank.
. 8% will be loaned to the ESOP to fund its purchase of Common Stock.
. 42% will be retained by the Company for general corporate purposes,
and will be invested initially in short- and medium-term investments.
The proceeds to be received by the Bank will be available for general
corporate purposes including continued expansion of the retail banking franchise
through new branch openings or acquisitions, continued growth in the loan
portfolio, and the purchase of investment and mortgage-backed securities. See
pages __ and __.
11
<PAGE>
DIVIDENDS
The decision as to whether or not to declare dividends by the Company will
depend upon a number of factors including investment opportunities available to
the Company or the Bank, and upon the Company's financial condition and results
of operations. If the Company decides to pay dividends on the Common Stock, the
Mutual Holding Company may waive its receipt of cash dividends, subject to
regulatory approval. See pages __ to __.
MARKET FOR THE COMMON STOCK
The Company has never issued capital stock. The Company expects that the
Common Stock will be quoted on the Nasdaq National Market under the symbol
"______", but there can be no assurance that an active and liquid trading market
in the Common Stock will develop or be maintained. The requirements for listing
include a minimum number of publicly traded shares, market makers and record
holders, and a minimum market capitalization. Ryan Beck has indicated its
intention to make a market in the Common Stock, subject to compliance with
applicable provisions of federal and state securities laws and other regulatory
requirements, although Ryan Beck is not required to do so. If you purchase
shares, you may not be able to sell them when you want to at a price that is
equal to or more than the price you paid. See page ____.
CONVERSION OF THE MUTUAL HOLDING COMPANY TO THE STOCK FORM OF ORGANIZATION
OTS regulations and the Bank's Plan of Reorganization from a Mutual Savings
Bank to a Mutual Holding Company and Stock Issuance Plan (the "Plan") permit the
Mutual Holding Company to convert from the mutual to the capital stock form of
organization. There can be no assurance that such a transaction will ever
occur, and the Board of Directors has no current intention or plan to undertake
such a transaction. If the Mutual Holding Company were to convert to the
capital stock form of organization, eligible depositors and borrowers would
receive the right to subscribe for additional shares of the new stock holding
company that would be formed in the transaction. Any such transaction would be
subject to OTS regulations in effect at that time. In such a transaction, under
current OTS policy, each share of Common Stock outstanding and held by persons
other than the Mutual Holding Company would be converted automatically into
shares of common stock of the new stock holding company. The number of shares
that each stockholder would receive would be determined pursuant to an exchange
ratio that ensures that after the transaction (subject only to an adjustment to
reflect any dividends that the Mutual Holding Company may have waived and any
assets that the Mutual Holding Company may have other than common stock of the
Company), the percentage of the to-be outstanding shares of the new stock
holding company received by such stockholder in exchange for his/her Common
Stock equals the percentage of the outstanding shares of Common Stock owned by
such stockholder immediately prior to the conversion transaction.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following selected historical financial data at and for each of the
years in the five-year period ended September 30, 1997 is derived in part from
the audited consolidated financial statements of the Bank. Data at and for the
nine-month periods ended June 30, 1998 and 1997 is derived in part from the
unaudited consolidated financial statements of the Bank. The selected financial
data set forth below is qualified in its entirety by, and should be read in
conjunction with, the unaudited consolidated financial statements as of June 30,
1998 and for the nine months ended June 30, 1998 and 1997, and the audited
consolidated financial statements as of September 30, 1997 and 1996 and for the
years ended September 30, 1997, 1996 and 1995, including the notes thereto,
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30, AT SEPTEMBER 30,
------------------ ----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
SELECTED FINANCIAL CONDITION DATA:
Total assets........................... $679,104 $641,583 $648,742 $634,250 $526,593 $480,478 $470,021
Loans receivable, net.................. 440,360 389,213 404,497 369,487 331,947 315,154 295,077
Mortgage-backed securities (1):
Held to maturity..................... 89,334 104,186 104,071 112,863 80,735 -- --
Available for sale................... 43,775 35,873 36,153 41,482 30,329 -- 1,010
Held for investment.................. -- -- -- -- -- 97,780 96,544
Investment securities (1):
Held to maturity..................... 20,197 27,181 22,195 22,138 37,920 -- --
Available for sale................... 48,629 49,367 48,517 47,313 21,456 -- --
Held for investment.................. -- -- -- -- -- 47,356 58,155
Deposits............................... 580,075 557,934 546,846 545,286 443,667 419,808 413,816
Borrowings............................. 25,048 13,000 24,000 13,000 13,900 10,100 9,800
Equity................................. 53,879 49,141 50,399 45,536 43,828 38,551 33,746
NINE MONTHS
ENDED JUNE 30, YEARS ENDED SEPTEMBER 30,
------------------ ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
SELECTED OPERATING DATA:
Interest and dividend income........... $ 35,739 $ 34,755 $ 46,555 $ 42,566 $ 37,030 $ 32,175 $ 33,543
Interest expense....................... 15,609 15,070 20,179 18,585 15,064 11,556 13,945
-------- -------- -------- -------- -------- -------- --------
Net interest income.................. 20,130 19,685 26,376 23,981 21,966 20,619 19,598
Provision for loan losses.............. 1,347 875 1,058 911 760 452 760
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision
for loan losses..................... 18,783 18,810 25,318 23,070 21,206 20,167 18,838
Non-interest income.................... 2,298 2,212 2,711 2,451 2,100 2,168 2,247
Non-interest expense (excluding special
assessment)........................... 15,642 15,188 20,602 19,436 15,264 13,518 12,154
SAIF special assessment (2)............ -- -- -- 3,298 -- -- --
-------- -------- -------- -------- -------- -------- --------
Income before income tax expense and
cumulative effect of change in
accounting principle................ 5,439 5,834 7,427 2,787 8,042 8,817 8,931
Income tax expense..................... 1,995 2,370 2,829 690 3,239 3,611 3,593
-------- -------- -------- -------- -------- -------- --------
Income before cumulative effect of
change in accounting principle..... 3,444 3,464 4,598 2,097 4,803 5,206 5,338
Cumulative effect of change in
accounting
for income taxes...................... -- -- -- -- -- 401 --
-------- -------- -------- -------- -------- -------- --------
Net income (2)....................... $ 3,444 $ 3,464 $ 4,598 $ 2,097 $ 4,803 $ 4,805 $ 5,338
======== ======== ======== ======== ======== ======== ========
</TABLE>
(Footnotes on next page)
13
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS
ENDED JUNE 30, AT OR FOR THE YEARS ENDED SEPTEMBER 30,
-------------- -------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS (3):
Return on assets (ratio of net income to
average total assets) (2)(4)............... 0.70% 0.73% 0.72% 0.36% 0.96% 1.01% 1.15%
Return on equity (ratio of net income
to average equity) (2)(4).................. 8.72 9.72 9.51 4.60 11.77 13.37 17.54
Average interest rate spread (4)(5)......... 3.80 3.95 3.92 3.88 4.15 4.19 4.06
Net interest margin (4) (6)................. 4.30 4.37 4.36 4.30 4.53 4.46 4.35
Efficiency ratio (7)........................ 69.74 69.36 70.83 73.53 63.43 59.32 55.64
Non-interest expense to average total
assets (4) (8)............................. 3.19 3.20 3.24 3.91 3.06 2.83 2.62
Average interest-earning assets to average
interest-bearing liabilities................ 114.95 112.75 113.07 112.60 112.38 110.86 109.35
ASSET QUALITY RATIOS:
Non-performing assets to total assets....... 0.90 0.67 0.75 1.21 1.29 0.94 1.17
Non-performing loans to total loans......... 1.30 0.89 1.16 1.72 1.99 1.19 1.46
Allowance for loan losses to
non-performing loans....................... 79.27 112.08 80.80 52.87 52.59 75.55 59.49
Allowance for loan losses to total loans
receivable, net............................ 1.03 1.00 0.93 0.91 1.05 0.90 0.87
CAPITAL RATIOS:
Equity to total assets at end of period..... 7.93 7.66 7.77 7.18 8.32 8.02 7.18
Average equity to average assets............ 8.05 7.51 7.59 7.83 8.17 7.53 6.56
OTHER DATA:
Number of full-service offices.............. 11 11 11 11 9 9 9
</TABLE>
_______________________________
/(1)/ The Bank has classified its securities as "held to maturity" or "available
for sale" since October 1, 1994, when it adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." Prior thereto, substantially all securities were
classified as "held for investment."
/(2)/ The SAIF special assessment in fiscal 1996 represents the Bank's share of
an assessment imposed on all financial institutions with deposits insured
by the Savings Association Insurance Fund (the "SAIF"). On an after-tax
basis, the special assessment reduced net income for fiscal 1996 by
approximately $2.0 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Comparison of Operating
Results for the Years Ended September 30, 1997 and 1996" and Note 8 of the
Notes to Consolidated Financial Statements.
/(3)/ Ratios for the nine-month periods have been annualized.
/(4)/ Ratio is based on average monthly balances during the indicated periods.
/(5)/ The average interest rate spread represents the difference between the
weighted-average yield on interest-earning assets and the weighted-average
cost of interest-bearing liabilities for the period.
/(6)/ The net interest margin represents net interest income as a percent of
average interest-earning assets for the period.
/(7)/ The efficiency ratio represents non-interest expense (other than the SAIF
special assessment in fiscal 1996) divided by the sum of net interest
income and non-interest income.
/(8)/ Excluding the SAIF special assessment, the ratio of non-interest expense
to average total assets for fiscal 1996 was 3.34%.
14
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, you should
consider carefully the following risk factors in evaluating an investment in the
Common Stock.
POTENTIAL EFFECTS OF CHANGES IN INTEREST RATES AND THE CURRENT INTEREST RATE
ENVIRONMENT
The Bank's net income and financial condition are significantly affected by
changes in market interest rates, and its results of operations substantially
depend on its net interest income. Net interest income is the difference
between the interest income earned on the Bank's interest-earning assets and the
interest expense paid on its interest-bearing liabilities. The Bank's interest-
bearing liabilities reprice or mature sooner than the contractual repricing
dates or maturities of its interest-earning assets. Thus, if interest rates
were to rise quickly, interest-bearing liabilities would reprice to higher rates
sooner than would the interest-earning assets. However, repayment options are
available to residential loan borrowers. Should interest rates fall
precipitously, many borrowers would tend to refinance, and interest rates on
interest earning assets could fall as quickly, and perhaps lower, than the
interest rates on the Bank's liabilities. As a result, large fluctuations in
interest rates in either direction would likely result in a decrease in the
Bank's average interest rate spread and net interest income. Net interest
income could also be negatively impacted by a flat or inverted yield curve. The
Bank has sought to manage its interest rate risk exposure by emphasizing bi-
weekly fixed-rate mortgage loans, residential and commercial adjustable-rate
mortgage loans and consumer loans. Depending on market interest rates and the
Bank's capital and liquidity position, the Bank may retain all of its newly
originated longer-term fixed-rate, fixed-term residential mortgage loans or may
decide to sell all or a portion of such loans on a servicing-retained basis.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management of Market Risk."
Changes in interest rates also affect the value of the Bank's interest-
earning assets, and in particular the Bank's securities portfolios. Generally,
the value of debt securities fluctuates inversely with changes in interest
rates. That is, an increase in interest rates would result in a decrease in the
value of debt securities. At June 30, 1998, the Bank's investment securities
and mortgage-backed securities portfolios totaled $201.9 million, and included
$92.4 million of securities available for sale. After-tax unrealized gains and
losses on securities available for sale are reported as a separate component of
equity. Decreases in the fair value of securities available for sale therefore
could have an adverse effect on stockholders' equity. See "Business of the
Bank--Investment Activities."
The Bank is also subject to reinvestment risk relating to interest rate
movements. Changes in interest rates can affect the average life of loans and
mortgage-backed securities. Decreases in interest rates can result in increased
prepayments of loans and mortgage-backed securities, as borrowers refinance to
reduce borrowing costs. Under these circumstances, the Bank is subject to
reinvestment risk to the extent that it is not able to reinvest such prepayments
at rates that are comparable to the rates on the maturing loans or securities.
Moreover, volatility in interest rates can also result in the flow of funds away
from the Bank into investments such as U.S. Government and corporate securities
and other investments that generally pay higher rates of return than the rates
paid on deposits by financial institutions.
LENDING RISKS ASSOCIATED WITH COMMERCIAL AND MULTI-FAMILY REAL ESTATE,
CONSTRUCTION AND LAND AND COMMERCIAL BUSINESS LENDING
At June 30, 1998, the Bank's portfolio of commercial and multi-family real
estate loans totaled $70.8 million or 15.5% of total loans, its portfolio of
construction and land loans totaled $27.8 million or 6.1% of total loans and its
portfolio of commercial business loans totaled $24.0 million or 5.3% of total
loans. As part of management's strategy of operating the Bank as a community
bank, it is expected that these loans will increase as a percentage of the
Bank's total loan portfolio. These types of loans generally expose a lender to
a greater risk of loss than one- to four-family residential loans. See
"Business of the Bank--Lending Activities" and "Business of the Bank--Lending
Activities--Non-performing Assets and Delinquencies."
15
<PAGE>
GEOGRAPHIC CONCENTRATION OF LOANS
The Bank's mortgage loans are secured by residential and commercial real
estate properties located primarily in Rockland County, New York. If the local
economy, national economy or real estate market weakens, the financial condition
and results of operations of the Bank could be adversely affected. A weakening
in the local real estate market or a decline in the local economy could increase
the number of delinquent or non-performing loans and reduce the value of the
collateral securing such loans, which would reduce the Bank's net income.
COMPETITION
Numerous commercial banks and savings institutions have branches in the
immediate vicinity of the Bank. There is strong competition from financial
institutions and mortgage brokers in the Bank's local market, as well as from
mutual funds, in both originating loans and attracting funds. The Bank's
primary competitors are commerical banks, other savings institutions, commercial
banks, mortgage banking companies and mortgage brokers. Trends toward the
consolidation of the financial institutions industry and removal of restrictions
on interstate banking and branching may make it more difficult for smaller
institutions such as the Bank to compete effectively with large national and
regional banking institutions. Such competition may have an adverse effect on
the Bank's growth and profitability in the future. See "Competition."
DECREASED RETURN ON AVERAGE EQUITY IMMEDIATELY AFTER REORGANIZATION
At June 30, 1998, the Bank's equity as a percentage of assets was 7.93%,
and for the nine months ended June 30, 1998 the Bank's annualized return on
average equity (net income divided by average equity) was 8.72%. The Company's
consolidated equity as a percentage of assets will significantly increase as a
result of its receipt of the net proceeds received in the Offering. On a pro
forma basis as of June 30, 1998, the Company's equity as a percentage of
consolidated assets would be approximately 12.31% at the adjusted maximum of the
Offering Range. Management believes that it will take time to prudently deploy
the capital raised in the Offering. As a result, until the Company has
leveraged the capital raised in the Offering by increasing the Company's
interest-earning assets (and its interest-bearing liabilities) and reducing its
equity as a percentage of assets, the Company's return on average equity is
expected to be below the Bank's historical returns. There can be no assurances
that the Company will be able to successfully leverage the capital raised in
the Offering, or that the Company will be successful in generating future
returns on equity equal to the Bank's historical returns or industry averages.
MINORITY PUBLIC OWNERSHIP AND CERTAIN ANTI-TAKEOVER PROVISIONS
VOTING CONTROL OF THE MUTUAL HOLDING COMPANY. Under regulations of the
OTS, the Plan, and the Company's governing corporate instruments, a majority of
the Company's voting shares must be owned by the Mutual Holding Company, and the
Mutual Holding Company will own 53.4% of the Common Stock outstanding at the
completion of the Offering. The Mutual Holding Company will be controlled by
its executive officers and directors, who initially will consist of persons who
are executive officers and directors of the Company. The Mutual Holding Company
will elect all members of the Board of Directors of the Company, and, with
certain exceptions, will control the outcome of matters presented to the
stockholders of the Company for resolution by vote. The situations in which
the Mutual Holding Company may not control the outcome of such vote include any
stockholder vote to approve a restricted stock plan or stock option plan
instituted within one year of the Offering (which would require the approval of
a majority of the shares other than shares held by the Mutual Holding Company),
any stockholder vote relating to the Mutual Holding Company's conversion from
the mutual to the stock form of organization (which would require the approval
of a majority of shares other than shares held by the Mutual Holding Company and
of two-thirds of all shares including shares held by the Mutual Holding
Company), or any other stockholder vote in which the OTS may impose such a
requirement. The Mutual Holding Company, acting through its Board of Directors,
will be able to control the business and operations of the Company and the Bank
and will be able to prevent any challenge to the ownership or control of the
Company by stockholders other than the Mutual Holding Company ("Minority
16
<PAGE>
Stockholders"). Although OTS regulations and the Plan permit the Mutual Holding
Company to convert from the mutual to the capital stock form of organization,
there can be no assurance when, if ever, a conversion of the Mutual Holding
Company will occur.
PROVISIONS IN THE COMPANY'S AND THE BANK'S GOVERNING INSTRUMENTS. In
addition, certain provisions of the Company's charter and bylaws, particularly a
provision limiting voting rights, as well as certain federal regulations will
assist the Company in maintaining its status as an independent publicly-owned
corporation. These provisions provide for, among other things, staggered boards
of directors, no cumulative voting for directors, limits on the calling of
special meetings of shareholders, and limits on the ability to vote Common Stock
in excess of 10% of outstanding shares (except as to shares held by the Mutual
Holding Company and the ESOP).
POSSIBLE DILUTION IN OWNERSHIP INTEREST
DIVIDEND WAIVERS BY THE MUTUAL HOLDING COMPANY. It has been the policy of
many mutual holding companies to waive the receipt of dividends declared by
their subsidiaries. OTS regulations require that mutual holding companies
request OTS approval before they waive dividends. The OTS has generally
permitted mutual holding companies to waive dividends under certain conditions,
including that in the event the Mutual Holding Company converts to stock form in
the future (a "Conversion Transaction"), any waived dividends would reduce the
percentage of the resulting entity's shares of common stock issued to Minority
Stockholders in exchange for their shares of Common Stock. The reduction would
be calculated by multiplying the Minority Ownership Interest (expressed as a
percentage) immediately prior to the Conversion Transaction by the following
fraction:
(Company stockholders' equity immediately prior to Conversion Transaction) -
----------------------------------------------------------------------------
(aggregate amount of dividends waived by Mutual Holding Company)
---------------------------------------------------------------
Company stockholders' equity immediately prior to Conversion Transaction
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 declared by the Company and there is no
assurance that the OTS would approve any request by the Mutual Holding Company
to waive dividends.
TERMS OF ANY CONVERSION TRANSACTION. If the Mutual Holding Company
conducts a Conversion Transaction, the stock offering that would be conducted as
part of the Conversion Transaction would include maximum purchase limitations
that restrict the amount of stock that a person could purchase. Minority
Stockholders would be likely to receive shares of the resulting entity in
exchange for their shares of Common Stock. Under current OTS policy, the shares
of the resulting entity that Minority Stockholders receive in exchange for their
shares of Common Stock will be included in the maximum purchase limitations that
apply to the stock offering. This means that certain Minority Stockholders may
not be able to exercise subscription rights to purchase shares of common stock
sold in the Conversion Transaction.
POSSIBLE DILUTIVE EFFECT OF ISSUANCE OF ADDITIONAL SHARES
Various possible and planned issuances of additional shares of Common Stock
could dilute the interests of prospective stockholders of the Company following
consummation of the Offering, as noted below.
The number of shares to be sold in the Offering may be increased as a
result of an increase in the Estimated Valuation Range of up to 15% to reflect
changes in the market and financial conditions and demand for the stock
following the commencement of the Offering. In the event that the Estimated
Valuation Range is so increased, it is expected that the Company will issue up
to 8,596,250 shares of Common Stock. An increase in the number of shares will
decrease net income per share and stockholders' equity per share on a pro forma
basis and will increase the Company's consolidated stockholders' equity and net
income. See "Capitalization" and "Pro Forma Data."
The Recognition Plan that the Bank intends to implement no earlier than six
months after the Reorganization intends to acquire an amount of Common Stock
equal to 4% of the shares of Common Stock sold in the Offering.
17
<PAGE>
Such shares of Common Stock may be acquired in the open market with funds
provided by the Company, if permissible, or from authorized but unissued shares
of Common Stock. See "Pro Forma Data" and "Management of the Bank--Recognition
Plan." Moreover, the Company's Stock Option Plan will reserve for future
issuance pursuant to such plan a number of shares of Common Stock equal to 10%
of the Common Stock sold in the Offering (303,000 shares, based on the midpoint
of the Offering Range). See "Pro Forma Data" and "Management of the Bank--
Executive Compensation--Stock Option Plan."
If the Company issues additional shares of Common Stock in a supplemental
offering to increase the Minority Ownership Interest to 49.9% of the outstanding
Common Stock, the additional shares of Common Stock to be issued would be
received from the Mutual Holding Company and, as a result, no dilution of
Minority Stockholders would occur as a result of such an incremental stock
offering.
EXPENSES ASSOCIATED WITH ESOP AND RECOGNITION PLAN
The Bank will recognize material employee compensation and benefit expenses
assuming the ESOP and the Recognition Plan are implemented. The actual
aggregate amount of these new expenses cannot be predicted at the present time
because applicable accounting practices require that such expenses be measured
based on the fair market value of the shares of Common Stock. In the case of
the ESOP, fair market value would be measured when shares are committed to be
released for allocation to the ESOP participants; in the case of the Recognition
Plan, fair market value would be measured at the grant date and amortized over
the award's vesting period. These expenses have been reflected in the pro forma
financial information under "Pro Forma Data" assuming the Purchase Price ($10.00
per share) represents the fair market value for accounting purposes. Actual
expenses, however, will be based on the fair market value of the Common Stock at
future dates, which may be higher or lower than the Purchase Price. See
"Management of the Bank--Executive Compensation--Benefits--Employee Stock
Ownership Plan and Trust" and "--Benefits--Recognition Plan."
CAPABILITY OF THE BANK'S DATA PROCESSING TO ACCOMMODATE THE YEAR 2000
The Bank, like all companies that utilize computer technology, is facing
the significant challenge of ensuring that its computer systems will be able to
process time-sensitive data accurately beyond the Year 1999 (referred to as the
"Year 2000 issue"). The Year 2000 issue has arisen since many existing computer
programs use two digits rather than four in data fields that define the year.
Such computer programs may recognize a data field using "00" as the Year 1900
rather than the Year 2000. If the Bank's computer systems are not adequately
changed to properly identify the Year 2000, computer applications could fail or
create erroneous results, and the Bank could experience a temporary inability to
process transactions and engage in other normal business activities. The Year
2000 issue could have a significant adverse impact on the Bank's products,
services and competitive condition.
The Bank has conducted a comprehensive review of its computer systems to
identify systems that could be affected by the Year 2000 issue, and has
developed an implementation plan (including establishing priorities for mission-
critical applications) to modify or replace the affected systems and test them
for Year 2000 compliance. The Bank's most significant mission-critical
applications are those that compromise its "core" data processing system for
loans, deposits and the general ledger. The Bank plans to convert to a new core
system by December 31, 1998, which it believes will enhance the quality of its
information technology and result in improved customer service. Like the Bank's
present core system, the new system is maintained by a third-party vendor. The
Bank plans to begin Year 2000 testing on the new core system promptly following
the conversion, with a targeted testing completion date of March 31, 1999.
The Bank presently believes that, with modifications to existing software
and conversions to new software, the Year 2000 issue will be mitigated without
causing a material adverse impact on its operations. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 issue could have a material adverse impact on the Bank's operations.
Monitoring and managing the Year 2000 issue will result in additional direct and
indirect costs for the Bank. Costs incurred to date have not been material, and
management does not expect that
18
<PAGE>
additional costs to be incurred in connection with the Year 2000 issue will have
a material impact on the Bank's financial condition or results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Capability of the Bank's Data Processing to Accommodate the Year
2000."
RECENT MARKET VOLATILITY
In recent months, stock markets in the United States and worldwide have
been extremely volatile. The securities of individual companies have, in many
instances, experienced significant fluctuations in price for reasons unrelated
to the specific company's financial condition, results of operations or business
prospects. In particular, the value of all financial institution securities has
been adversely affected by weakening economies worldwide, even though local
community-based financial institutions may not have any credit exposure outside
the United States. An investor should understand that, in the short-term, the
value of an investment in the Common Stock is subject to fluctuation, including
loss, due to volatility in stock markets generally.
INTENT TO REMAIN INDEPENDENT
The Bank has operated as an independent community-oriented savings
institution since 1888. The Bank intends to continue to operate as an
independent community-oriented savings institution following the Reorganization.
The Bank and the Company will be controlled by the Mutual Holding Company, and,
under current OTS policy, control of the Mutual Holding Company may not be sold
to a third party. Accordingly, you are urged not to subscribe for shares of
Common Stock if you are anticipating a sale of control of the Bank or the
Company. See "Business of the Bank."
MARKET FOR THE COMMON STOCK
The Company has never issued capital stock to the public, and there can be
no assurance that an active and liquid trading market for the Common Stock will
develop or be maintained. It is anticipated that the Common Stock will be
quoted on the Nasdaq National Market under the symbol "____." Ryan Beck has
indicated its intention to make a market in the Common Stock, subject to
compliance with applicable provisions of federal and state securities laws and
other regulatory requirements, although Ryan Beck is not required to do so. If
you purchase shares of Common Stock, you may not be able to sell them when you
want to at a price that equals or exceeds the price you paid for the Common
Stock.
RISK OF DELAYED OFFERING
Although the Reorganization and Offering are expected to be completed
within the time periods indicated in this Prospectus, it is possible that
adverse market, economic or other factors may significantly delay the completion
of the Reorganization and Offering, which could significantly increase the costs
of the Reorganization and Offering. See "The Reorganization and Offering."
PROVIDENT BANCORP, MHC
The Mutual Holding Company will be formed as a federal mutual holding
company and will initially own 53.4% of the Common Stock. The Company has not
yet been formed, although the OTS has approved an application for the Mutual
Holding Company to become a savings and loan holding company. The Mutual
Holding Company will have all of the powers set forth in its federal charter,
and federal law and OTS regulations. The Mutual Holding Company initially will
not conduct any active business other than activities relating to its investment
in a majority of the Common Stock and maintenance of books and records relating
to its members. The Mutual Holding Company does not intend to employ any
persons other than its officers, although it may use the Bank's support staff
from time to time. Federal law and OTS regulations, and the Plan, require that
as long as the Mutual Holding Company is in existence it must own a majority of
the Company's common stock. Federal law and OTS regulations, and the Plan,
permit the Mutual Holding Company to convert to the capital stock form of
organization. The manner in which such
19
<PAGE>
a transaction would be conducted and the regulations and policy affecting such a
transaction are described in "Regulation--Holding Company Regulation."
Although many federal mutual holding companies waive the receipt of cash
dividends declared by their subsidiaries, the Mutual Holding Company has not
determined whether or not it will do so, and intends to make such a
determination at the time the Company declares a dividend. OTS regulations
require the Mutual Holding Company to give the OTS prior written notice of any
such waiver, and the conditions pursuant to which the OTS generally approves
dividend waivers are described in "Regulation--Holding Company Regulation." The
Mutual Holding Company's Board of Directors will waive dividends paid by the
Company if the Board determines that such a waiver is in the Mutual Holding
Company's members' best interest because, among other reasons: (i) the Mutual
Holding Company has no need for the dividend considering its business
operations; (ii) the cash that would be received could be invested by the
Company or the Bank at a more favorable rate of return; (iii) such waiver may
increase the capital of the Bank and enhance its business so that members will
continue to have access to the offices and services of the Bank; and (iv) such
waiver preserves the net worth of the Mutual Holding Company through its
principal asset (the Company, and indirectly, 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 and
creditors. The Board of Directors may consider other factors in determining
whether such waiver is consistent with its fiduciary duties to members of the
Mutual Holding Company. Any waiver of dividends by the Mutual Holding Company
is likely to result in a downward adjustment to the ratio pursuant to which
shares of Common Stock are exchanged for shares of the resulting company in a
Conversion Transaction.
The Mutual Holding Company's Board of Directors will accept dividends paid
by the Company in an amount necessary to pay the Mutual Holding Company's
expenses, and will accept additional dividends if it determines that accepting
such dividends is in the Mutual Holding Company's best interest because, among
other reasons: (i) the Mutual Holding Company may increase its direct ownership
of the Company, and indirect ownership of the Bank, by using cash dividends to
purchase additional shares of Common Stock in the open market from time to time;
and (ii) such dividends may be used to promote activities that are in the
interest of members and the Bank's community. Any purchases of Common Stock by
the Mutual Holding Company will increase the percentage of the outstanding
shares of Common Stock held by the Mutual Holding Company and, in a Conversion
Transaction, will decrease the aggregate number of shares of the resulting
company issued to Minority Stockholders in exchange for their shares of Common
Stock.
The Mutual Holding Company's executive office will located at the executive
offices of the Bank, at 400 Rella Boulevard, Montebello, New York 10901. Its
telephone number will be (914) 369-8040.
PROVIDENT BANCORP, INC.
The Company will be formed as a federal corporation and will own 100% of
the Bank's common stock. The Company has not yet been formed, and, accordingly,
no financial statements of the Company are included in this Prospectus. The OTS
has approved an application for the Company to become a savings and loan holding
company through the acquisition of all of the capital stock of the Bank to be
issued and outstanding upon completion of the Reorganization. The Company will
have all of the powers set forth in its federal charter and federal law and OTS
regulations.
The Company will retain up to 50% of the net proceeds of the offering.
Part of the net proceeds will be used to fund a loan to the Bank's ESOP, which
is expected to purchase up to 8% of the Common Stock sold in the Offering. The
remainder of the net proceeds will be used for general corporate purposes. The
holding company structure will provide the Company with greater flexibility than
is currently available to the Bank to diversify its business activities, either
through newly-formed subsidiaries or through acquisitions. The business
activities of the Company will be subject to the same restrictions under federal
law as the Mutual Holding Company. The Company has no present plans regarding
diversification, acquisitions or expansion. The Company initially will not
conduct any
20
<PAGE>
active business and does not intend to employ any persons other than its
officers, although it may utilize the Bank's support staff from time to time.
The Company's executive office will be located at the executive offices of
the Bank, at 400 Rella Boulevard, Montebello, New York 10901. Its telephone
number will be (914) 369-8040.
PROVIDENT BANK
The Bank was organized in 1888 as a New York-chartered mutual savings and
loan association and adopted a federal mutual charter in _______. The Bank's
deposits are insured by the Savings Association Insurance Fund (the "SAIF"), as
administered by the FDIC, up to the maximum amount permitted by law. The Bank
is engaged primarily in the business of offering various FDIC-insured savings
and demand deposits to customers through its eleven full-service offices, and
using those deposits, together with funds generated from operations and
borrowings, to originate one-to four-family residential and commercial real
estate loans, consumer loans, construction and land loans, commercial business
loans, and multi-family residential loans. The Bank also invests in investment
securities and mortgage-backed securities. At June 30, 1998, the Bank had total
assets of $679.1 million, total deposits of $580.1 million and total equity of
$53.9 million.
The Bank's executive office is located at 400 Rella Boulevard, Montebello,
New York 10901. Its telephone number is (914) 369-8040.
21
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At June 30, 1998, the Bank exceeded each of its regulatory capital
requirements. Set forth below is a summary of the Bank's compliance with the OTS
capital standards as of June 30, 1998, on an historical and pro forma basis
assuming that the indicated number of shares were sold as of such date and
receipt by the Bank of 50% of the net proceeds from the Offering. For purposes
of the table below, the entire amount expected to be borrowed by the ESOP and
the cost of all shares expected to be acquired by the Recognition Plan are
deducted from pro forma regulatory capital. See "Management of the Bank."
<TABLE>
<CAPTION>
PRO FORMA AT JUNE 30, 1998, BASED UPON THE SALE OF
---------------------------------------------------------------------------
4,007,175 SHARES/(1)/
2,575,500 SHARES 3,030,000 SHARES 3,484,500 SHARES AT ADJUSTED
HISTORICAL AT AT MINIMUM OF AT MIDPOINT OF AT MAXIMUM OF MAXIMUM OF
JUNE 30, 1998 OFFERING RANGE OFFERING RANGE OFFERING RANGE OFFERING RANGE
---------------- ------------------- ------------------ ---------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ --------- ------ ------- ------ ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity under generally
accepted accounting
principles................ $53,879 7.93% $62,942 9.12% $64,668 9.34% $66,395 9.56% $68,381 9.81%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Tangible capital/(2)/:
Tangible capital/ (3)/... $49,402 7.32% $58,465 8.53% $60,191 8.75% $61,918 8.97% $63,904 9.23%
Requirement.............. 10,120 1.50 10,286 1.50 10,318 1.50 10,349 1.50 10,385 1.50
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess................. $39,282 5.82% $48,179 7.03% $49,873 7.25% $51,569 7.47% $53,519 7.73%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Core capital/(2)/:
Core capital /(3)/....... $49,402 7.32% $58,465 8.53% $60,191 8.75% $61,918 8.97% $63,904 9.23%
Requirement /(4)/........ 20,239 3.00 20,573 3.00 20,636 3.00 20,698 3.00 20,771 3.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess................. $29,163 4.32% $37,892 5.53% $39,555 5.75% $41,220 5.97% $43,133 6.23%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Risk-based capital/(2)/:
Risk-based capital
/(3)(5)/................. $53,950 14.23% $63,013 16.38% $64,739 16.79% $66,466 17.19% $68,452 17.65%
Requirement.............. 30,331 8.00 30,771 8.00 30,855 8.00 30,939 8.00 31,035 8.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess................. $23,619 6.23% $32,242 8.38% $33,884 8.79% $35,527 9.19% $37,417 9.65%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
___________________________
/(1)/ As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Offering Range of up to 15% as a
result of regulatory considerations, demand for the shares, or changes in
market conditions or general financial and economic conditions following
the commencement of the Offering.
/(2)/ Tangible capital levels are shown as a percentage of tangible assets. Core
capital levels are shown as a percentage of total adjusted assets. Risk-
based capital levels are shown as a percentage of risk-weighted assets.
/(3)/ Pro forma capital levels assume that (i) the Bank funds the
Recognition Plan through purchases in the open market of a number of
shares equal to 4% of the Common Stock sold in the Offering, (ii) the ESOP
purchases 8% of the shares sold in the Offering and (iii) the Mutual
Holding Company is capitalized with $100,000. See "Management of the Bank"
for a discussion of the Recognition Plan and ESOP.
/(4)/ The current core capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements that
would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and
soundness and a 4% to 5% core capital ratio requirement for all other
thrifts. See "Regulation--Federal Regulation of Savings Institutions--
Capital Requirements.
/(5)/ Assumes net proceeds are invested in assets that carry a 50% risk-
weighting.
22
<PAGE>
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock cannot
be determined until the Offering is completed, it is presently anticipated
(based on the assumptions set forth in "Pro Forma Data") that the net proceeds
from the sale of the Common Stock will be as set forth in the following table.
<TABLE>
<CAPTION>
NET OFFERING PROCEEDS
BASED UPON THE SALE FOR $10.00 PER SHARE OF
-------------------------------------------------
<S> <C> <C> <C> <C>
4,007,175
2,575,500 3,030,000 3,484,500 SHARES AT
SHARES AT SHARES AT SHARES AT ADJUSTED
MINIMUM OF MIDPOINT OF MAXIMUM OF MAXIMUM OF
OFFERING OFFERING OFFERING OFFERING
RANGE RANGE RANGE RANGE
---------- ---------- ---------- -------
(IN THOUSANDS)
Gross proceeds.......... $ 25,755 $ 30,300 $ 34,845 $40,072
Offering expenses....... 1,250 1,250 1,250 1,250
---------- ---------- ---------- -------
Estimated net proceeds.. $ 24,505 $ 29,050 $ 33,595 $38,822
========== ========== ========== =======
</TABLE>
The Company will use 50% of the net proceeds of the Offering to purchase
all of the Common Stock to be issued by the Bank. Such portion of net proceeds
received by the Bank from the Company will be added to the Bank's general funds
which the Bank currently intends to use for general corporate purposes,
including increasing its origination of mortgage, consumer and commercial
business loans and purchasing investment and mortgage-backed securities. The
Bank may also use such funds for the expansion of its retail banking franchise
through new branch openings or acquisitions. To the extent that the stock-based
benefit programs which the Company intends to adopt subsequent to the Offering
are not funded with authorized but unissued shares of Common Stock, the Company
or Bank may use net proceeds from the Offering to fund the purchase of stock to
be awarded under such stock benefit programs. See "Risk Factors--Possible
Dilutive Effect of Issuance of Additional Shares" and "Management of the Bank--
Stock Option Plan" and "--Recognition Plan."
The Company intends to use a portion of the net proceeds it retains to make
a loan directly to the ESOP to enable the ESOP to purchase 8% of the shares sold
in the Offering. See "Management of the Bank--Employee Stock Ownership Plan and
Trust." The remaining net proceeds retained by the Company will be invested
initially in short-and medium-term investments. The net proceeds retained by
the Company may also be used to support the future expansion of operations,
including the acquisition of other financial institutions or diversification
into other banking related businesses. However, the Company and the Bank have no
current arrangements, understandings or agreements regarding any such
transactions. Upon completion of the Reorganization, the Company will be
regulated as a mutual holding company under the Home Owners' Loan Act (the
"HOLA") and regulations of the OTS. See "Regulation --Holding Company
Regulation."
Upon completion of the Reorganization, the Board of Directors of the
Company will have the authority to repurchase stock, subject to statutory and
regulatory requirements. Based upon facts and circumstances following the
Reorganization and subject to applicable regulatory requirements, the Board of
Directors may determine to repurchase stock in the future. Such facts and
circumstances may include but not be limited to (i) market and economic factors
such as the price at which the stock is trading in the market, the volume of
trading, the attractiveness of other investment alternatives in terms of the
rate of return and risk involved in the investment, and the opportunity to
improve the Company's return on equity; (ii) the avoidance of dilution to
stockholders by not having to issue additional shares to cover the exercise of
stock options or to fund employee stock benefit plans; and (iii) any other
circumstances in which repurchases would be in the best interests of the Company
and its shareholders. In the event the Company determines to repurchases stock,
such repurchases may be made at market prices which may be in excess of the
Subscription Price in the Offering. To the extent that the Company repurchases
stock at market prices in excess of the per share book value, such repurchases
may have a dilutive effect upon stockholders' equity per share of Common Stock.
23
<PAGE>
DIVIDEND POLICY
Upon completion of the Offering, the Board of Directors of the Company will
have the authority to declare dividends on the Common Stock, subject to
statutory and regulatory requirements. While the Board of Directors may
consider a policy of paying cash dividends on the Common Stock in the future,
there can be no assurance that dividends will be paid or, if paid, what the
amounts of dividends will be, or whether such dividends, once paid, will
continue to be paid.
Dividends will be subject to determination and declaration by the Board of
Directors in its discretion, which will take into account the Company's
consolidated financial condition and results of operations, tax considerations,
industry standards, economic conditions, capital levels, regulatory restrictions
on dividend payments by the Bank to the Company, general business practices and
other factors. The Company will not be subject to OTS regulatory restrictions on
the payment of dividends although the source of such dividends depends in part
upon the receipt of dividends from the Bank. The Bank must provide the OTS with
30 days prior notice of its intention to make a capital distribution to the
Company. OTS regulations in certain circumstances limit the amount of any
capital distribution by federal savings associations. In addition, the portion
of the Bank's earnings which has been appropriated for bad debt reserves and
deducted for federal income tax purposes cannot be used by the Bank to pay cash
dividends to the Company without the payment of federal income taxes by the Bank
at the then current income tax rate on the amount deemed distributed, which
would include the amount of any federal income taxes attributable to the
distribution. The Company does not contemplate any distribution by the Bank that
would result in a recapture of the Bank's bad debt reserve or otherwise create
federal tax liabilities. See "Federal and State Taxation--Federal Taxation,"
Note 10 to the Consolidated Financial Statements, and "Regulation--Federal
Regulation of Savings Institutions--Limitations on Capital Distributions."
If permitted by regulatory authorities, the Mutual Holding Company may
waive the receipt of any cash dividends declared on the Common Stock if the
Mutual Holding Company's Board of Directors determines that such waiver is in
the best interests of the Mutual Holding Company. The Board of Directors may
conclude that such waiver, which permits retention of capital by the Company, is
in the best interests of the Mutual Holding Company because, among other
reasons, (i) the Mutual Holding Company has no need for the dividend considering
its current business operations, and (ii) the cash that would be received could
be invested by the Company at a more favorable rate of return. The Board of
Directors may consider other factors in determining whether such waiver is
consistent with its fiduciary duties to the Mutual Holding Company. A waiver of
dividends by the Mutual Holding Company will result in a greater likelihood that
dividends will be paid to stockholders other than the Mutual Holding Company.
There is no assurance that the Mutual Holding Company will waive the receipt of
dividends.
Additionally, in connection with the Reorganization, the Company and Bank
have committed to the OTS that during the one-year period following the
consummation of the Reorganization, the Company will not declare an
extraordinary dividend to stockholders which would be treated by recipient
stockholders as a tax-free return of capital for federal income tax purposes
without prior approval of the OTS.
MARKET FOR COMMON STOCK
The Company has received conditional approval to have the Common Stock
quoted on the Nasdaq National Market System under the symbol "______" subject to
the completion of the Offering and compliance with certain conditions including
the presence of at least three registered and active market makers. Ryan Beck
has indicated its intention to make a market in the Common Stock, and based on
the Bank's analysis of the results of recent conversion stock offerings, it is
anticipated that the Company will satisfy the listing requirements.
The existence of a public trading market will depend upon the presence in
the market of both willing buyers and willing sellers at any given time. The
presence of a sufficient number of buyers and sellers at any given time is a
factor over which neither the Company nor any broker or dealer has control. The
absence of an active and liquid trading market may make it difficult to sell the
Common Stock and may have an adverse effect on the price of the
24
<PAGE>
Common Stock. Purchasers should consider the potentially illiquid and long-term
nature of their investment in the Common Stock.
CAPITALIZATION
The following table presents the historical capitalization of the Bank at
June 30, 1998, and the pro forma consolidated capitalization of the Company as
of that date, giving effect to the Offering based upon the sale of the number of
shares indicated in the table and the other assumptions set forth below and
under "Pro Forma Data."
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED CAPITALIZATION
BASED UPON THE SALE FOR $10.00 PER SHARE OF
---------------------------------------------------
4,007,175
2,575,500 3,030,000 3,484,500 SHARES AT
SHARES AT SHARES AT SHARES AT ADJUSTED
MINIMUM OF MIDPOINT OF MAXIMUM MAXIMUM OF
HISTORICAL OFFERING OFFERING OFFERING OFFERING
CAPITALIZATION RANGE RANGE RANGE RANGE /(1)/
-------------- ---------- -------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposits /(2)/.................................... $ 580,075 $ 580,075 $580,075 $580,075 $580,075
Borrowings........................................ 25,048 25,048 25,048 25,048 25,048
---------- ---------- -------- -------- --------
Total deposits and borrowings................... $ 605,123 $ 605,123 $605,123 $605,123 $605,123
========== ========== ======== ======== ========
Stockholders' equity:
Preferred stock, $0.10 par value, per share;
10,000,000 shares authorized; none to be
issued /(3)/.................................... $ -- $ -- $ -- $ -- $ --
Common stock, $0.10 par value per share;
20,000,000 shares authorized; shares to be
issued as shown /(3)/........................... -- 553 650 748 860
Additional paid-in capital /(3)/................. -- 23,952 28,400 32,847 37,962
Retained earnings /(4)/.......................... 53,493 53,393 53,393 53,393 53,393
Net unrealized gain on securities available for
sale, net of income taxes....................... 386 386 386 386 386
Less:
Common Stock acquired by ESOP /(5)/............. -- (2,060) (2,424) (2,788) (3,206)
Common Stock acquired by
Recognition Plan /(6)/......................... -- (1,030) (1,212) (1,394) (1,603)
---------- ---------- -------- -------- --------
Total stockholders' equity..................... $ 53,879 $ 75,194 $ 79,193 $ 83,192 $ 87,792
========== ========== ======== ======== ========
Total stockholders' equity as a percentage of
total assets.................................... 7.93% 10.74% 11.24% 11.74% 12.31%
========== ========== ======== ======== ========
- --------------------------------------
</TABLE>
/(1)/ As adjusted to give effect to an increase in the number of shares which
could occur due to a 15% increase in the Estimated Valuation Range to
reflect changes in market or general financial conditions following the
commencement of the Offering.
/(2)/ Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock in the Offering. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
/(3)/ Reflects the sale of shares in the Offering. Does not include proceeds
from the Offering that the Company intends to lend to the ESOP to enable
it to purchase shares of Common Stock in the Offering. No effect has been
given to the issuance of additional shares of Common Stock pursuant to the
Stock Option Plan that the Company expects to adopt. If such plan is
approved by stockholders, an amount equal to 10% of the shares of Common
Stock issued in the Offering will be reserved for issuance upon the
exercise of options. See "Management of the Bank."
/(4)/ The retained earnings of the Bank will be substantially restricted after
the Reorganization. See "Dividend Policy" and "Regulation--Federal
Regulation of Savings Institutions--Limitations on Capital Distributions."
Pro forma amounts are reduced by the $100,000 that will be used to
capitalize the Mutual Holding Company.
/(5)/ Assumes that 8% 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. The Common Stock acquired by the ESOP is
reflected as a reduction of stockholders' equity. As the ESOP debt is
repaid, shares will be released and allocated to participants' accounts,
and a corresponding reduction in the charge against stockholders' equity
will occur. See "Executive Compensation and Related Transactions of the
Bank-- Employee Stock Ownership Plan and Trust."
/(6)/ Assuming the receipt of shareholder approval, the Company intends to
implement the Recognition Plan. Assuming such implementation, the
Recognition Plan will purchase an amount of shares equal to 4% of the
shares of Common Stock sold in the Offering if the Recognition Plan is
implemented within one year of the completion of the Reorganization or up
to 5% of the shares of Common Stock sold in the Offering if the
Recognition Plan is implemented more than one year after the
Reorganization. Such shares may be purchased from authorized but unissued
shares or in the open market. Under the terms of the Recognition Plan,
assuming it is implemented within one year of the Reorganization, shares
awarded to officers and directors will vest at the rate of 20% per year.
The Common Stock to be purchased by the Recognition Plan
25
<PAGE>
represents unearned compensation and is, accordingly, reflected as a
reduction to pro forma stockholders' equity. As shares of the Common Stock
granted pursuant to the Recognition Plan vest, a corresponding reduction in
the charge against stockholders' equity will occur.
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Offering is completed. The following estimated pro forma
information is based upon assumptions, including that: (i) the ESOP will
purchase 8% of the Common Stock sold in the Offering, and the remaining shares
will be sold in the Subscription and/or Community Offering; (ii) Ryan Beck will
receive a fee of $450,000; (iii) Offering expenses, excluding the fee paid to
Ryan Beck, will be approximately $800,000; and (iv) the Mutual Holding Company
will be capitalized with $100,000 which will be contributed by the Bank from
equity. Actual Offering expenses may vary from those estimated. Additional
assumptions are described in the footnotes to the table.
Pro forma consolidated net income of the Company for the nine months ended
June 30, 1998 and for the fiscal year ended September 30, 1997 has been
calculated as if the Common Stock had been sold at the beginning of the
respective periods and the net proceeds had been invested at 5.37% and 5.44%,
respectively (the one year U.S. Treasury bill rate as of June 30, 1998 and
September 30, 1997, respectively). The U.S. Treasury bill rate was used on the
reinvestment of proceeds because it more appropriately reflects a market rate of
return, as compared to using the rate equal to the arithmetic average of the
average yield on the Bank's interest-earning assets and its average cost of
deposits. The tables do not reflect the effect of withdrawals from deposit
accounts for the purchase of Common Stock. The pro forma after-tax yield on
reinvestment of the net proceeds is assumed to be 3.22% for the nine months
ended June 30, 1998 and 3.26% for the fiscal year ended September 30, 1997 (in
both cases, based on an assumed tax rate of 40%). Historical and pro forma per
share amounts have been calculated by dividing historical and pro forma amounts
by the indicated number of shares of Common Stock, as adjusted to give effect to
the purchase of shares by the ESOP. No effect has been given in the pro forma
stockholders' equity calculations for the assumed earnings on the net proceeds.
As discussed under "Use of Proceeds," the Company will retain 50% of the net
proceeds of the Offering.
The pro forma information derived from the above assumptions 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 considered
indicative of future results of operations. Pro forma consolidated stockholders'
equity represents the difference between the stated amount of assets and
liabilities of the Company. The pro forma stockholders' equity is not intended
to represent the fair market value of the Common Stock and may be greater than
amounts that would be available for distribution to stockholders in the event of
liquidation.
26
<PAGE>
The following tables set forth pro forma data of the Company at or for the
nine months ended June 30, 1998 and at or for the fiscal year ended September
30, 1997, based on the assumptions set forth above and in the footnotes to the
tables, and should not be used as a basis for projections of market value of the
common stock following the Offering. The tables below give effect to the
Recognition Plan, which is expected to be adopted by the Company following the
Offering and presented to stockholders for approval. See "Management of the
Bank--Recognition Plan." No effect has been given in the tables to the possible
issuance of additional shares reserved for future issuance pursuant to the Stock
Option Plan to be adopted by the Board of Directors of the Company and presented
to stockholders for approval, nor does book value as presented give any effect
to the liquidation account to be established for the benefit of Eligible Account
Holders or Supplemental Eligible Account Holders, or the tax effect of the bad
debt reserve and other factors.
<TABLE>
<CAPTION>
AT OR FOR THE NINE MONTHS ENDED JUNE 30, 1998
BASED UPON THE SALE FOR $10.00 PER SHARE OF
------------------------------------------------------------------
4,007,175
2,575,500 3,030,000 3,484,500 SHARES/(1)/
SHARES SHARES SHARES AT ADJUSTED
AT MINIMUM OF AT MIDPOINT OF AT MAXIMUM OF MAXIMUM OF
OFFERING RANGE OFFERING RANGE OFFERING RANGE OFFERING RANGE
-------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Gross proceeds................................................. $ 25,755 $ 30,300 $ 34,845 $ 40,072
Less offering expenses......................................... 1,250 1,250 1,250 1,250
---------- ---------- ---------- ----------
Estimated net proceeds........................................ 24,505 29,050 33,595 38,822
Less common stock acquired by ESOP............................. (2,060) (2,424) (2,788) (3,206)
Less common stock acquired by Recognition Plan................. (1,030) (1,212) (1,394) (1,603)
---------- ---------- ---------- ----------
Estimated net proceeds, as adjusted.......................... $ 21,415 $ 25,414 $ 29,413 $ 34,013
========== ========== ========== ==========
FOR THE NINE MONTHS ENDED JUNE 30, 1998
Consolidated net income:
Historical net income......................................... $ 3,444 $ 3,444 $ 3,444 $ 3,444
Pro forma income on net proceeds /(2)/........................ 515 612 708 820
Less pro forma ESOP adjustment /(3)/.......................... (93) (109) (125) (144)
Less pro forma Recognition Plan adjustment /(4)/.............. (93) (109) (125) (144)
---------- ---------- ---------- ----------
Pro forma net income......................................... $ 3,773 $ 3,838 $ 3,902 $ 3,976
========== ========== ========== ==========
Net income per share:
Historical.................................................... $ 0.65 $ 0.55 $ 0.48 $ 0.42
Pro forma income on net proceeds /(2)/........................ 0.10 0.10 0.10 0.10
Less pro forma ESOP adjustment/ (3)/.......................... (0.02) (0.02) (0.02) (0.02)
Less pro forma Recognition Plan adjustment /(4)/.............. (0.02) (0.02) (0.02) (0.02)
---------- ---------- ---------- ----------
Pro forma net income per share/ (3)(4)(5)/................... $ 0.71 $ 0.61 $ 0.54 $ 0.48
========== ========== ========== ==========
Number of shares used in calculating earnings per share /(6)/.. 5,326,687 6,266,690 7,206,694 8,287,698
========== ========== ========== ==========
AT JUNE 30, 1998
Stockholders' equity:
Historical /(7)/.............................................. $ 53,879 $ 53,879 $ 53,879 $ 53,879
Estimated net proceeds /(8)/.................................. 24,505 29,050 33,595 38,822
Less capitalization of the Mutual Holding Company............. (100) (100) (100) (100)
Less common stock acquired by ESOP /(3)/...................... (2,060) (2,424) (2,788) (3,206)
Less common stock acquired by Recognition Plan /(4)/.......... (1,030) (1,212) (1,394) (1,603)
---------- ---------- ---------- ----------
Pro forma stockholders' equity /(5)/......................... $ 75,194 $ 79,193 $ 83,192 $ 87,792
========== ========== ========== ==========
Stockholders' equity per share:
Historical /(7)/.............................................. $ 9.75 $ 8.29 $ 7.21 $ 6.27
Estimated net proceeds /(8)/.................................. 4.44 4.47 4.49 4.52
Less capitalization of the Mutual Holding Company............. (0.02) (0.02) (0.02) (0.01)
Less common stock acquired by ESOP /(3)/...................... (0.37) (0.37) (0.37) (0.37)
Less common stock acquired by Recognition Plan /(4)/.......... (0.19) (0.19) (0.19) (0.19)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per share/(4)(5)/............ $ 13.61 $ 12.18 $ 11.12 $ 10.22
========== ========== ========== ==========
Number of shares used in calculating
stockholders' equity per share................................ 5,525,000 6,500,000 7,475,000 8,596,250
========== ========== ========== ==========
Offering price as a multiple of pro forma net earnings
per share (annualized)........................................ 10.56x 12.30x 13.89x 15.63x
========== ========== ========== ==========
Offering price as a percentage of pro forma stockholders'
equity per share.............................................. 73.48% 82.10% 89.93% 97.85%
========== ========== ========== ==========
</TABLE>
(Footnotes begin on next page)
27
<PAGE>
_________________________
/(1)/ As adjusted to give effect to an increase in the number of shares which
could occur due to a 15% increase in the Estimated Valuation Range to
reflect changes in market or general financial conditions following the
commencement of the Offering.
/(2)/ No effect has been given to withdrawals from deposit accounts for the
purpose of purchasing Common Stock. Since funds on deposit at the Bank may
be withdrawn to purchase shares of Common Stock (which will reduce
deposits by the amount of such purchases), the net amount of additional
funds available to the Bank for investment following receipt of the net
proceeds of the Offering will be reduced by the amount of such
withdrawals.
/(3)/ It is assumed that 8% of the shares sold in the Offering will be purchased
by the ESOP. For purposes of this table, the funds used to acquire such
shares are assumed to have been borrowed by the ESOP from the Company. The
amount to be borrowed is reflected as a reduction of stockholders' equity.
The Bank intends to make annual contributions to the ESOP in an amount at
least equal to the principal and interest requirement of the debt. The
Bank's payment of the ESOP debt is based upon equal principal installments
plus interest over a 10-year period. Assuming the Company makes the ESOP
loan, interest income earned by the Company on the ESOP debt will offset
the interest paid by the Bank. Accordingly, only the principal payments on
the ESOP debt are recorded as an expense (tax-effected) to the Company on
a consolidated basis. The pro forma net earnings information makes the
following assumptions: (i) the Bank's contribution to the ESOP is
equivalent to the debt service requirement for a nine-month period and was
made at the end of the period; (ii) 7,726, 9,090, 10,453 and 12,022 shares
at the minimum, midpoint, maximum and adjusted maximum of the Offering
Range, respectively, were committed to be released during the nine months
ended June 30, 1998, on a weighted average basis, at an average fair value
of $10.00 per share 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. See "Management of the Bank--Employee Stock Ownership Plan
and Trust."
/(4)/ Gives effect to the Recognition Plan expected to be adopted by the Company
following the Offering. This plan intends to acquire a number of shares of
common stock equal to 4% of the shares sold in the Offering, or 103,020,
121,200, 139,380 and 160,287 shares of common stock at the minimum,
midpoint, maximum and adjusted maximum of the Offering Range,
respectively, either through open market purchases, or from authorized but
unissued shares of common stock or treasury stock of the Company, if any.
Funds used by the Recognition Plan to purchase the shares will be
contributed to the plan by the Company. In calculating the pro forma
effect of the Recognition Plan, it is assumed that the shares were
acquired by the plan in open market purchases at the beginning of the
period presented for a purchase price equal to the Subscription Price, and
that 20% of the amount contributed was an amortized expense during the
period. The issuance of authorized but unissued shares of the common stock
to the Recognition Plan instead of open market purchases would dilute the
voting interests of existing stockholders by approximately 1.9% and pro
forma net earnings per share would be $0.69, $0.60, $0.53 and $0.47 at the
minimum, midpoint, maximum and adjusted maximum of the Offering Range,
respectively, and pro forma stockholders' equity per share would be
$13.55, $12.14, $11.11 and $10.21 at the minimum, midpoint, maximum and
adjusted maximum of the Offering Range, respectively. The actual purchase
price of the shares granted under the Recognition Plan may be higher or
lower than the Subscription Price. See "Management of the Bank--
Recognition Plan."
/(5)/ No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plan expected to be adopted by the
Company following the Offering. An amount equal to 10% of the common stock
sold in the Offering, or 257,550, 303,000, 348,450 and 400,718 shares at
the minimum, midpoint, maximum and adjusted maximum of the Offering Range,
respectively, will be reserved for future issuance upon the exercise of
options to be granted under the Stock Option Plan. The issuance of common
stock pursuant to the exercise of options under the Stock Option Plan will
result in the dilution of existing stockholders' interests. Assuming all
options were exercised at the end of the period at an exercise price equal
to the Subscription Price, existing stockholders' voting interest would be
diluted by 4.5%, and at the minimum, midpoint, maximum and adjusted
maximum of the Offering Range, the pro forma net earnings per share would
be $0.68, $0.58, $0.52 and $0.47, respectively, and the pro forma
stockholders' equity per share would be $13.44, $12.09, $11.07 and $10.20,
respectively. See "Management of the Bank--Stock Option Plan."
/(6)/ Such number of shares includes shares sold in the Offering and shares
issued to the Mutual Holding Company in the Reorganization. The number of
shares outstanding excludes shares to be acquired by the ESOP amounting to
198,314, 233,310, 268,307 and 308,552 at the minimum, midpoint, maximum
and adjusted maximum of the Offering Range, respectively. The number of
shares outstanding includes ESOP shares committed to be released
28
<PAGE>
of 7,726, 9,090, 10,453 and 12,022 at the minimum, midpoint, maximum and
adjusted maximum, respectively. No effect has been given to the issuance
of additional shares of Common Stock pursuant to the Stock Option Plan
(which will not be established within the first year after the conclusion
of the Offering unless approved by Minority Stockholders). Recognition
Plan shares are assumed to be fully vested for purposes of computing net
earnings per share.
/(7)/ Stockholders' equity represents the excess of the carrying value of the
assets of the Bank over its liabilities. The amounts shown do not reflect
the federal income tax consequences of the potential restoration to income
of the bad debt reserves for income tax purposes, which would be required
in the event of liquidation. Retained earnings will be substantially
restricted following the Reorganization. See "Dividends" and Note 10 of
Notes to the Consolidated Financial Statements. For purposes of
calculating pro forma stockholders' equity per share, shares outstanding
represent total shares issued in the Offering and to the Mutual Holding
Company of 5,525,000, 6,500,000, 7,475,000 and 8,596,250 at the minimum,
midpoint, maximum and adjusted maximum of the Offering Range,
respectively.
/(8)/ Includes assumed proceeds from sale to the Recognition Plan for $10.00 per
share of a number of authorized but unissued shares equal to 4% of the
Minority Ownership Interest. Purchases by the Recognition Plan will be
made at the fair market value of such shares at the time of purchase,
which may be more or less than $10.00.
29
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED SEPTEMBER 30, 1997
BASED UPON THE SALE FOR $10.00 PER SHARE OF
-----------------------------------------------------------------
4,007,175
2,575,500 3,030,000 3,484,500 SHARES/(1)/
SHARES SHARES SHARES AT ADJUSTED
AT MINIMUM OF AT MIDPOINT OF AT MAXIMUM OF MAXIMUM OF
OFFERING RANGE OFFERING RANGE OFFERING RANGE OFFERING RANGE
-------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Gross proceeds................................................. $ 25,755 $ 30,300 $ 34,845 $ 40,072
Less offering expenses......................................... 1,250 1,250 1,250 1,250
---------- ---------- ---------- ----------
Estimated net proceeds........................................ 24,505 29,050 33,595 38,822
Less common stock acquired by ESOP............................. (2,060) (2,424) (2,788) (3,206)
Less common stock acquired by Recognition Plan................. (1,030) (1,212) (1,394) (1,603)
---------- ---------- ---------- ----------
Estimated net proceeds, as adjusted.......................... $ 21,415 $ 25,414 $ 29,413 $ 34,013
========== ========== ========== ==========
FOR THE YEAR ENDED SEPTEMBER 30, 1997
Consolidated net income:
Historical net income......................................... $ 4,598 $ 4,598 $ 4,598 $ 4,598
Pro forma income on net proceeds /(2)/........................ 696 826 957 1,107
Less pro forma ESOP adjustment /(3)/.......................... (124) (145) (167) (192)
Less pro forma Recognition Plan adjustment /(4)/.............. (124) (145) (167) (192)
---------- ---------- ---------- ----------
Pro forma net income......................................... $ 5,046 $ 5,134 $ 5,221 $ 5,321
========== ========== ========== ==========
Net income per share:
Historical.................................................... $ 0.86 $ 0.73 $ 0.64 $ 0.55
Pro forma income on net proceeds /(2)/........................ 0.13 0.13 0.13 0.13
Less pro forma ESOP adjustment/ (3)/.......................... (0.02) (0.02) (0.02) (0.02)
Less pro forma Recognition Plan adjustment /(4)/.............. (0.02) (0.02) (0.02) (0.02)
---------- ---------- ---------- ----------
Pro forma net income per share/ (3)(4)(5)/................... $ 0.95 $ 0.82 $ 0.73 $ 0.64
========== ========== ========== ==========
Number of shares used in calculating earnings per share /(6)/.. 5,329,262 6,269,720 7,210,178 8,291,705
========== ========== ========== ==========
AT SEPTEMBER 30, 1997
Stockholders' equity:
Historical /(7)/.............................................. $ 50,399 $ 50,399 $ 50,399 $ 50,399
Estimated net proceeds /(8)/.................................. 24,505 29,050 33,595 38,822
Less capitalization of the Mutual Holding Company............. (100) (100) (100) (100)
Less common stock acquired by ESOP /(3)/...................... (2,060) (2,424) (2,788) (3,206)
Less common stock acquired by Recognition Plan /(4)/.......... (1,030) (1,212) (1,394) (1,603)
---------- ---------- ---------- ----------
Pro forma stockholders' equity /(5)/......................... $ 71,714 $ 75,713 $ 79,712 $ 84,312
========== ========== ========== ==========
Stockholders' equity per share:
Historical /(7)/.............................................. $ 9.12 $ 7.75 $ 6.74 $ 5.86
Estimated net proceeds /(8)/.................................. 4.44 4.47 4.49 4.52
Less capitalization of the Mutual Holding Company............. (0.02) (0.01) (0.01) (0.01)
Less common stock acquired by ESOP/(3)/....................... (0.37) (0.37) (0.37) (0.37)
Less common stock acquired by Recognition Plan/(4)/........... (0.19) (0.19) (0.19) (0.19)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per share/(4)(5)/............ $ 12.98 $ 11.65 $ 10.66 $ 9.81
========== ========== ========== ==========
Number of shares used in calculating
stockholders' equity per share................................ 5,525,000 6,500,000 7,475,000 8,596,250
========== ========== ========== ==========
Offering price as a multiple of pro forma net earnings
per share..................................................... 10.53x 12.20x 13.70x 15.63x
========== ========== ========== ==========
Offering price as a percentage of pro forma stockholders'
equity per share.............................................. 77.04% 85.84% 93.81% 101.94%
========== ========== ========== ==========
</TABLE>
(Footnotes begin on next page)
30
<PAGE>
_________________________
/(1)/ As adjusted to give effect to an increase in the number of shares which
could occur due to a 15% increase in the Estimated Valuation Range to
reflect changes in market or general financial conditions following the
commencement of the Offering.
/(2)/ No effect has been given to withdrawals from deposit accounts for the
purpose of purchasing Common Stock. Since funds on deposit at the Bank may
be withdrawn to purchase shares of Common Stock (which will reduce
deposits by the amount of such purchases), the net amount of additional
funds available to the Bank for investment following receipt of the net
proceeds of the Offering will be reduced by the amount of such
withdrawals.
/(3)/ It is assumed that 8% of the shares sold in the Offering will be purchased
by the ESOP. For purposes of this table, the funds used to acquire such
shares are assumed to have been borrowed by the ESOP from the Company. The
amount to be borrowed is reflected as a reduction of stockholders' equity.
The Bank intends to make annual contributions to the ESOP in an amount at
least equal to the principal and interest requirement of the debt. The
Bank's payment of the ESOP debt is based upon equal principal installments
plus interest over a 10-year period. Assuming the Company makes the ESOP
loan, interest income earned by the Company on the ESOP debt will offset
the interest paid by the Bank. Accordingly, only the principal payments on
the ESOP debt are recorded as an expense (tax-effected) to the Company on
a consolidated basis. The pro forma net earnings information makes the
following assumptions: (i) the Bank's contribution to the ESOP is
equivalent to the debt service requirement for a full year and was made at
the end of the period; (ii) 10,302, 12,120, 13,938 and 16,029 shares at
the minimum, midpoint, maximum and adjusted maximum of the Offering Range,
respectively, were committed to be released during the year ended
September 30, 1997 on a weighted average basis, at an average fair value
of $10.00 per share in accordance with 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. See "Management of
the Bank--Employee Stock Ownership Plan and Trust."
/(4)/ Gives effect to the Recognition Plan expected to be adopted by the Company
following the Offering. This plan intends to acquire a number of shares of
common stock equal to 4% of the shares sold in the Offering, or 103,020,
121,200, 139,380 and 160,287 shares of common stock at the minimum,
midpoint, maximum and adjusted maximum of the Offering Range,
respectively, either through open market purchases, or from authorized but
unissued shares of common stock or treasury stock of the Company, if any.
Funds used by the Recognition Plan to purchase the shares will be
contributed to the plan by the Company. In calculating the pro forma
effect of the Recognition Plan, it is assumed that the shares were
acquired by the plan in open market purchases at the beginning of the
period presented for a purchase price equal to the Subscription Price, and
that 20% of the amount contributed was an amortized expense during the
period. The issuance of authorized but unissued shares of the common stock
to the Recognition Plan instead of open market purchases would dilute the
voting interests of existing stockholders by approximately 1.9% and pro
forma net earnings per share would be $0.94, $0.82, $0.73 and $0.64 at the
minimum, midpoint, maximum and adjusted maximum of the Offering Range,
respectively, and pro forma stockholders' equity per share would be
$12.93, $11.62, $10.66 and $9.81 at the minimum, midpoint, maximum and
adjusted maximum of the Offering Range, respectively. The actual purchase
price of the shares granted under the Recognition Plan may be higher or
lower than the Subscription Price. See "Management of the Bank--
Recognition Plan."
/(5)/ No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plan expected to be adopted by the
Company following the Offering. An amount equal to 10% of the common stock
sold in the Offering, or 257,550, 303,000, 348,450 and 400,718 shares at
the minimum, midpoint, maximum and adjusted maximum of the Offering Range,
respectively, will be reserved for future issuance upon the exercise of
options to be granted under the Stock Option Plan. The issuance of common
stock pursuant to the exercise of options under the Stock Option Plan will
result in the dilution of existing stockholders' interests. Assuming all
options were exercised at the end of the period at an exercise price equal
to the Subscription Price, existing stockholders' voting interest would be
diluted by 4.5%, and at the minimum, midpoint, maximum and adjusted
maximum of the Offering Range, the pro forma net earnings per share would
be $0.92, $0.80, $0.71 and $0.63, respectively, and the pro forma
stockholders' equity per share would be $12.84, $11.57, $10.63 and $9.81,
respectively. See "Management of the Bank--Stock Option Plan."
/(6)/ Such number of shares includes shares sold in the Offering and shares
issued to the Mutual Holding Company in the Reorganization. The number of
shares outstanding excludes shares to be acquired by the ESOP amounting to
195,738, 230,280, 264,822 and 304,545 at the minimum, midpoint, maximum
and adjusted maximum of the Offering Range, respectively. The number of
shares outstanding includes ESOP shares committed to be released
31
<PAGE>
of 10,302, 12,120, 13,938 and 16,029 at the minimum, midpoint, maximum and
adjusted maximum, respectively. No effect has been given to the issuance
of additional shares of Common Stock pursuant to the Stock Option Plan
(which will not be established within the first year after the conclusion
of the Offering unless approved by Minority Stockholders). Recognition
Plan shares are assumed to be fully vested for purposes of computing net
earnings per share.
/(7)/ Stockholders' equity represents the excess of the carrying value of the
assets of the Bank over its liabilities. The amounts shown do not reflect
the federal income tax consequences of the potential restoration to income
of the bad debt reserves for income tax purposes, which would be required
in the event of liquidation. Retained earnings will be substantially
restricted following the Reorganization. See "Dividends" and Note 10 of
Notes to the Consolidated Financial Statements. For purposes of
calculating pro forma stockholders' equity per share, shares outstanding
represent total shares issued in the Offering and to the Mutual Holding
Company of 5,525,000, 6,500,000, 7,475,000 and 8,596,250 at the minimum,
midpoint, maximum and adjusted maximum of the Offering Range,
respectively.
/(8)/ Includes assumed proceeds from sale to the Recognition Plan for $10.00 per
share of a number of authorized but unissued shares equal to 4% of the
Minority Ownership Interest. Purchases by the Recognition Plan will be
made at the fair market value of such shares at the time of purchase,
which may be more or less than $10.00.
32
<PAGE>
PROPOSED PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding intended Common Stock
subscriptions by each of the Directors and executive officers of the Bank and
the Company and their associates, and by all such Directors and executive
officers as a group. In the event the individual maximum purchase limitation is
increased, persons subscribing for the maximum amount may increase their
purchase order. This table excludes shares to be purchased by the ESOP, and any
Recognition Plan awards or Stock Option Plan grants that may be made no earlier
than six months after the completion of the Reorganization. See "Management of
the Bank--Recognition Plan" and "--Stock Option Plan."
<TABLE>
<CAPTION>
PERCENT OF
INTENDED SUBSCRIPTIONS SHARES ISSUED
POSITION ---------------------------------- IN THE
NAME WITH THE BANK TOTAL SHARES/(1)/ AGGREGATE PRICE OFFERING/(2)/
- -------------------------------- ---------------------------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C>
William F. Helmer Chairman of the Board 40,000 $ 400,000 1.1%
George Strayton President, Chief Executive Officer 40,000 400,000 1.1
and Director
Dennis L. Coyle Vice Chairman of the Board 40,000 400,000 1.1
Murray L. Korn Director 40,000 400,000 1.1
Donald T. McNelis Director 20,000 200,000 *
Richard A. Nozell Director 7,500 75,000 *
William R. Sichol, Jr. Director 20,000 200,000 *
Wilbur C. Ward Director 7,500 75,000 *
F. Gary Zeh Director 40,000 400,000 1.1
Daniel G. Rothstein Executive Vice President, 35,000 350,000 1.0
Chief Credit Officer
and Regulatory Counsel
Robert J. Sansky Executive Vice President and 10,000 100,000 *
Director of Human Resources
Katherine A. Dering Senior Vice President and 10,000 100,000 *
Chief Financial Officer
Stephen G. Dormer Senior Vice President and 10,000 100,000 *
Director of Business Activity
John F. Fitzpatrick Senior Vice President and 10,000 100,000 *
Director of Support Services
------- ----------
All Directors and executive
officers as a group (14 persons) 330,000 $3,300,000 9.5%
======= ========== ===
- ----------------
</TABLE>
* Less than 1%.
/(1)/ The maximum number of shares for which any officer or director may
subscribe is 40,000 shares.
/(2)/ At the maximum of the Offering Range.
33
<PAGE>
THE REORGANIZATION AND OFFERING
THE OTS HAS APPROVED THE PLAN AND THE OFFERING OF THE COMMON STOCK SUBJECT
TO THE APPROVAL OF THE BANK'S MEMBERS AND THE SATISFACTION OF CERTAIN CONDITIONS
IMPOSED BY THE OTS. HOWEVER, SUCH APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION
OR ENDORSEMENT OF THE OFFERING OR THE PLAN BY THE OTS.
DESCRIPTION OF AND REASONS FOR THE REORGANIZATION
Pursuant to the Plan, which has been approved unanimously by the Board of
Directors, the Bank will reorganize into what is called a "two-tier" mutual
holding company structure. It is a two-tier structure because it will have two
levels of holding companies--a "mid-tier" stock holding company and a "top-tier"
mutual holding company. Under the terms of the Plan (i) the Bank will form the
Company as a federal corporation; (ii) the Bank will form the Mutual Holding
Company as a federal mutual holding company; (iii) the Bank will reorganize into
the capital stock form of organization and issue 100% of the Bank's to-be
outstanding common stock to the Company; and (iv) the Company will issue shares
of Common Stock to the public and the Mutual Holding Company. The number of
shares of Common Stock sold to the public pursuant to this Prospectus will be
equal to 46.6% of the shares issued in the Reorganization, and the number of
shares issued to the Mutual Holding Company will be equal to 53.4% of the shares
issued in the Reorganization.
In adopting the Plan, the Bank's Board of Directors determined that the
Reorganization is in the best interest of the Bank. The primary purpose of the
Reorganization is to establish a structure that will enable the Bank to compete
and expand more effectively in the financial services marketplace, and that will
enable the Bank's depositors, certain borrowers, employees, management and
directors to obtain an indirect equity ownership interest in the Bank. The new
structure will permit the Company to issue capital stock, which is a source of
capital not available to mutual savings banks, and the Company will take
advantage of this new ability by issuing Common Stock in the Offering. Since the
Company is not offering all of its Common Stock for sale in the Offering (but is
issuing a majority of its stock to the Mutual Holding Company), the
Reorganization will result in less capital raised in comparison to a standard
mutual-to-stock conversion. The Reorganization, however, also will offer the
Bank the opportunity to raise additional capital since the stock held by the
Mutual Holding Company will be available for sale in the future in the event the
Company sells additional shares to depositors and others in one or more
incremental stock offerings, or if the Mutual Holding Company converts to the
capital stock form of organization in a Conversion Transaction. See
"Regulation--Holding Company Regulation--Conversion of the Mutual Holding
Company to Stock Form."
The Reorganization will also give the Bank greater flexibility to structure
and finance the expansion of its operations, including the potential acquisition
of other financial institutions, and to diversify into other financial services.
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,
subject to regulatory limitations and the Company's financial position, to take
advantage of any such opportunities that may arise. Lastly, the Reorganization
will enable the Bank to better manage its capital by giving the Bank broader
investment opportunities through the holding company structure, and enable the
Company to distribute capital to its stockholders in the form of dividends and
stock repurchases. Because only a minority of the Common Stock will be offered
for sale in the Offering, the Bank's ability to remain an independent savings
bank and to provide community-oriented financial services will be preserved
through the mutual holding company structure.
The Board of Directors believes that these advantages outweigh the
potential disadvantages of the mutual holding company structure, which may
include: (i) the inability of stockholders other than the Mutual Holding Company
to obtain majority ownership of the Company and the Bank, which may result in
the perpetuation of the management and Board of Directors of the Bank and the
Company; and (ii) that the mutual holding company structure is a relatively new
form of corporate ownership, and new regulatory policies relating to the mutual
interest in the Mutual Holding Company that may be adopted from time-to-time may
have an adverse impact on minority stockholders. A majority of the voting stock
of the Company will be owned by the Mutual Holding Company, which is a mutual
corporation that will be controlled by members. While this structure will
permit management to focus
34
<PAGE>
on the Company's and the Bank's long-term business strategy for growth and
capital redeployment without excessive pressure from stockholders, it will also
serve to perpetuate the existing management and directors of the Bank. The
Mutual Holding Company will be able to elect all members of the Board of
Directors of the Company, and will be able to control the outcome of all matters
presented to the stockholders of the Company for resolution by vote except for
certain matters that must be approved by more than a majority of stockholders of
the Company. No assurance can be given that the Company will not take action
adverse to the interests of the Minority Stockholders.
Following the completion of the Reorganization, all depositors of the Bank
as of the effective date of the Reorganization and all borrowers of the Bank as
of July 9, 1998 will become members of the Mutual Holding Company so long as
they continue to hold deposit accounts or their loans remain outstanding with
the Bank. In addition, all persons who become depositors subsequent to the
Reorganization will become members of the Mutual Holding Company.
All insured deposit accounts of the Bank that are transferred to the Bank
in stock form will continue to be federally insured by the FDIC and the SAIF up
to the legal maximum limit in the same manner as deposit accounts existing in
the Bank immediately prior to the Reorganization. Upon completion of the
Reorganization, the Bank may exercise any and all powers, rights and privileges
of, and shall be subject to all limitations applicable to, capital stock savings
banks under federal law and OTS regulations. Although the Company will have the
power to issue shares of capital stock to persons other than the Mutual Holding
Company, as long as the Mutual Holding Company is in existence, the Mutual
Holding Company will be required to own a majority of the voting stock of the
Company. The Company may issue any amount of non-voting stock to persons other
than the Mutual Holding Company and the Company must own 100% of the voting
stock of the Bank. The Bank and the Company may issue any amount of non-voting
stock or debt to persons other than the Mutual Holding Company.
Completion of the Reorganization is subject to the approval of the Plan by
the Bank's members. The Plan is being presented for a vote of the Bank's
members at a special meeting to be held on December __, 1998.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE REORGANIZATION AND
OFFERING
The Plan and federal and state regulations require that the aggregate
purchase price of the Common Stock issued in the Offering must be based on the
appraised pro forma market value of the Common Stock, as determined by an
independent valuation. The Bank has retained RP Financial, which has prepared
the Independent Valuation. For its services in making such appraisal, RP
Financial will receive a fee of $______ (which amount does not include a fee of
$______ to be paid to RP Financial for assistance in preparation of a business
plan). The Bank and the Company have agreed to indemnify RP Financial and its
employees and affiliates against certain losses (including any losses in
connection with claims under the federal securities laws) arising out of its
services as appraiser, except where RP Financial's liability results from its
negligence or bad faith.
The Independent Valuation was prepared by RP Financial in reliance upon the
information contained in the Prospectus, including the Consolidated Financial
Statements. RP Financial also considered the following factors, among others:
the present and projected operating results and financial condition of the Bank
and the economic and demographic conditions in the Bank's existing marketing
area; certain historical, financial and other information relating to the Bank;
a comparative evaluation of the operating and financial statistics of the Bank
with those of other publicly traded savings institutions located in the
Northeast and Mid-Atlantic regions and on a national basis; the aggregate size
of the Offering; the impact of the Reorganization on the Bank's stockholders'
equity and earnings potential; the proposed dividend policy of the Company; and
the trading market for securities of comparable institutions and general
conditions in the market for such securities.
The Board of Directors reviewed the Independent Valuation and, in
particular, considered (i) the Bank's financial condition and results of
operations for the nine 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 Independent Valuation.
The Board also reviewed the methodology and the assumptions used by RP Financial
in preparing the Independent Valuation.
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The Independent Valuation states that as of ____________, 1998, the
estimated pro forma market value of the Common Stock ranged from a minimum of
$55,250,000 to a maximum of $74,750,000 with a midpoint of $65,000,000 (the
"Estimated Valuation Range"). The Bank's Board of Directors determined to offer
the shares in the Offering for the Subscription Price of $10.00 per share.
Based on the Estimated Valuation Range and the Subscription Price, the number of
shares of Common Stock that the Company will issue will range from 5,525,000
shares to 7,475,000 shares, with a midpoint of 6,500,000 shares. The Bank's
Board of Directors determined to offer 46.6% of such shares in the Offering, or
between 2,575,500 shares and 3,484,500 shares with a midpoint of 3,030,000
shares (the "Offering Range"). The 53.4% of the to-be outstanding shares of
Common Stock that are not sold in the Offering will be issued to the Mutual
Holding Company.
Following commencement of the Subscription Offering, the maximum of the
Estimated Valuation Range may be increased by up to 15% to up to $85,962,500,
which will result in a corresponding increase in the maximum of the Offering
Range to up to 4,007,175 shares to reflect changes in market and financial
conditions, without the resolicitation of subscribers. The minimum of the
Estimated Valuation Range and the minimum of the Offering Range may not be
decreased without a resolicitation of subscribers. The Subscription Price of
$10.00 per share will remain fixed. See "--Limitations Upon Purchases of Common
Stock" as to the method of distribution and allocation of additional shares that
may be issued in the event of an increase in the Offering Range to fill unfilled
orders in the Subscription and Community Offerings. In the event the
Independent Valuation is updated to increase the pro forma market value of the
Common Stock to more than $85,962,500 or less than $55,250,000, such appraisal
will be filed with the Securities and Exchange Commission (the "SEC") by post-
effective amendment.
THE INDEPENDENT VALUATION, HOWEVER, IS NOT INTENDED, AND MUST NOT BE
CONSTRUED, AS A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING
SUCH SHARES. RP FINANCIAL DID NOT INDEPENDENTLY VERIFY THE CONSOLIDATED
FINANCIAL STATEMENTS AND OTHER INFORMATION PROVIDED BY THE BANK, NOR DID RP
FINANCIAL VALUE INDEPENDENTLY THE ASSETS OR LIABILITIES OF THE BANK. THE
INDEPENDENT VALUATION CONSIDERS THE BANK AS A GOING CONCERN AND SHOULD NOT BE
CONSIDERED AS AN INDICATION OF THE LIQUIDATION VALUE OF THE BANK. 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 PURCHASING SUCH SHARES IN THE OFFERING WILL
THEREAFTER BE ABLE TO SELL SUCH SHARES AT PRICES AT OR ABOVE THE SUBSCRIPTION
PRICE.
The Independent Valuation will be updated at the time of the completion of
the Offering. If the update to the Independent Valuation at the conclusion of
the Offering results in an increase in the maximum of the Estimated Valuation
Range to more than $85,962,500 and a corresponding increase in the Offering
Range to more than 4,007,175 shares, or a decrease in the minimum of the
Estimated Valuation Range to less than $55,250,000 and a corresponding decrease
in the Offering Range to fewer than 2,575,500 shares, then the Company, after
consulting with the OTS, may terminate the Plan and return all funds promptly
with interest or resolicit subscribers relative to a new Estimated Valuation
Range and Offering Range, or take such other actions as permitted by the OTS in
order to complete the Reorganization and the Offering. If a resolicitation is
commenced, unless subscribers respond affirmatively within a designated period
of time, all funds will be promptly returned with interest to subscribers as
described above. A resolicitation, if any, following the conclusion of the
Subscription and Community Offerings would not exceed 45 days unless further
extended by the OTS for periods of up to 90 days not to exceed 24 months
following the special meeting of the Bank's members at which the Plan is
presented for member approval, or December __, 2000.
An increase in the Independent Valuation and the number of shares to be
issued in the Offering would decrease both a subscriber's ownership interest and
the Company's pro forma earnings and stockholders' equity on a per share basis
while increasing pro forma earnings and stockholder's equity on an aggregate
basis. A decrease in the Independent Valuation and the number of shares to be
issued in the Offering would increase both a subscriber's ownership interest and
the Company's pro forma earnings and stockholders' equity on a per share basis
while decreasing pro forma net income and stockholders' equity on an aggregate
basis. For a presentation of the effects of such changes, see "Pro Forma Data."
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Copies of the appraisal report of RP Financial and the detailed memorandum
of the appraiser setting forth the method and assumptions for such appraisal are
available for inspection at the main office of the Bank and the other locations
specified under "Additional Information."
No sale of shares of Common Stock may be consummated unless, prior to such
consummation, RP Financial confirms to the Bank and the OTS that, to the best of
its knowledge, nothing of a material nature has occurred that, taking into
account all relevant factors, would cause RP Financial to conclude that the
Independent Valuation is incompatible with its estimate of the pro forma market
value of the Common Stock of the Company at the conclusion of the Offering. Any
change that would result in an aggregate purchase price that is below the
minimum or above the maximum of the Estimated Valuation Range would be subject
to OTS approval. If such confirmation is not received, the Bank may extend the
Offering, reopen or begin a new offering, establish a new Estimated Valuation
Range and begin a resolicitation of all purchasers with the approval of the OTS
or take such other actions as permitted by the OTS in order to complete the
Offering.
PURCHASE PRIORITIES AND METHOD OF OFFERING SHARES IN THE OFFERING
Concurrent with the Reorganization, the Company is offering shares of
Common Stock to persons other than the Mutual Holding Company. The Company is
offering between 2,575,500 and 3,484,500 shares of the Common Stock (subject to
adjustment to up to 4,007,175 shares in the event of an increase in the maximum
of the Estimated Valuation Range). The shares of Common Stock that will be sold
in the Offering will constitute no more than 46.6% of the shares that will be
outstanding immediately at the conclusion of the Offering. Following the
Reorganization and the Offering, the Company also will be authorized to issue
additional Common Stock or preferred stock to persons other than the Mutual
Holding Company, without prior approval of the holders of the Common Stock.
Subject to the limitations set forth in the "--Limitations Upon Purchases of
Common Stock" section, the priorities for the purchase of shares are as follows:
PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each depositor with aggregate
deposit account balances of $50 or more (a "Qualifying Deposit") as of December
31, 1996 (the "Eligibility Record Date," and such account holders, "Eligible
Account Holders") will receive nontransferable subscription rights to subscribe
for up to the greater of 20,000 shares or 15 times the product (rounded down to
the next whole number) obtained by multiplying the total number of shares to be
issued in the Offering by a fraction of which the numerator is the amount of the
Eligible Account Holder's Qualifying Deposit and the denominator is the total
amount of Qualifying Deposits of all Eligible Account Holders, in each case on
the Eligibility Record Date, subject to the overall purchase limitation and
exclusive of shares purchased by the ESOP from any increase in the shares
offered pursuant to an increase in the maximum of the Offering Range. See "--
Limitations Upon Purchases of Common Stock." If there are not sufficient shares
available to satisfy all subscriptions, shares first will be allocated so as to
permit each subscribing Eligible Account Holder to purchase a number of shares
sufficient to make his total allocation equal to the lesser of 100 shares or the
number of shares for which he subscribed. Thereafter, unallocated shares
(except for additional shares issued to the ESOP upon an increase in the maximum
of the Offering Range) will be allocated to each subscribing Eligible Account
Holder whose subscription remains unfilled in the proportion that the amount of
his aggregate Qualifying Deposit bears to the total amount of Qualifying
Deposits of all subscribing Eligible Account Holders whose subscriptions remain
unfilled.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his Order Form all deposit accounts in which he or she has an ownership
interest on the Eligibility Record Date. Failure to list an account could
result in fewer shares being allocated than if all accounts had been disclosed.
Neither the Company nor the Bank nor any of their agents shall be responsible
for orders on which all Qualifying Deposit Accounts have not been fully and
accurately disclosed. The subscription rights of Eligible Account Holders who
are also directors or officers of the Bank or their associates will be
subordinated to the subscription rights of other Eligible Account Holders to the
extent attributable to increased deposits in the twelve months preceding the
Eligibility Record Date. For allocation purposes, Qualifying Deposits will be
divided in the case of multiple orders.
PRIORITY 2: EMPLOYEE PLANS. To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by Eligible Account Holders, the
tax-qualified employee plans, including the ESOP, will receive
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nontransferable subscription rights to purchase Common Stock in the Offering on
behalf of participants subject to the purchase limitations described herein. The
ESOP intends to subscribe for 8% of the Common Stock issued in the Offering,
including 8% of the total number of shares issued if the maximum of the Offering
Range is increased. The priority right of the ESOP to purchase shares is
subordinate to the rights of Eligible Account Holders to subscribe for shares,
except that the ESOP shall have first priority to purchase shares issued in
excess of the maximum of the offering range in the event of an increase in the
maximum of the initial Estimated Valuation Range and the Offering Range.
PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent that
there are sufficient shares remaining after satisfaction of subscriptions by
Eligible Account Holders and the ESOP, each depositor with a Qualifying Deposit
as of September 30, 1998 (the "Supplemental Eligibility Record Date") who is not
an Eligible Account Holder ("Supplemental Eligible Account Holder") will receive
nontransferable subscription rights to subscribe for the greater of up to 20,000
shares, or 15 times the product (rounded down to the next whole number) obtained
by multiplying the number of shares issued in the Offering by a fraction of
which the numerator is the amount of the Supplemental Eligible Account Holder's
Qualifying Deposit and the denominator is the total amount of Qualifying
Deposits of all Supplemental Eligible Account Holders, in each case on the
Supplemental Eligibility Record Date, subject to the overall purchase
limitation. See "--Limitations Upon Purchases of Common Stock." If there are
not sufficient shares available to satisfy all subscriptions, shares first will
be allocated so as to permit each subscribing Supplemental Eligible Account
Holder to purchase a number of shares sufficient to make his total allocation
equal to the lesser of 100 shares or the number of shares for which he
subscribed. Thereafter, unallocated shares will be allocated to each
subscribing Supplemental Eligible Account Holder whose subscription remains
unfilled in the proportion that the amount of his or her Qualifying Deposit
bears to the total amount of Qualifying Deposits of all subscribing Supplemental
Eligible Account Holders whose subscriptions remain unfilled.
To ensure proper allocation of stock, each Supplemental Eligible Account
Holder must list on his Order Form all deposit accounts in which he or she has
an ownership interest on the Supplemental Eligibility Record Date. Failure to
list an account could result in less shares being allocated than if all accounts
had been disclosed. For allocation purposes, Qualifying Deposits will be
divided in the case of multiple orders. Neither the Company nor the Bank nor
any of their agents shall be responsible for orders on which all Qualifying
Deposit Accounts have not been fully and accurately disclosed.
PRIORITY 4: OTHER MEMBERS. To the extent that there are shares remaining
after satisfaction of subscriptions by Eligible Account Holders, the Employee
Plans, and Supplemental Eligible Account Holders, each depositor as of the
Voting Record Date and borrowers as of July 9, 1998 whose borrowings remained
outstanding as of the Voting Record Date ("Other Members") who is not an
Eligible Account Holder or Supplemental Eligible Account Holder will receive
nontransferable subscription rights to subscribe for 20,000 shares subject to
the overall purchase limitation. See "--Limitations on Stock Purchases." If
there are not sufficient shares available to satisfy all subscriptions,
available shares will be allocated in proportion to the amounts of the
subscriptions.
PRIORITY 5: DIRECTORS, OFFICERS AND EMPLOYEES. To the extent that shares
remain available for purchase after satisfaction of all subscriptions of the
Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible
Account Holders, and Other Members, employees, officers and directors of the
Bank who are not Eligible Account Holders, Supplemental Eligible Account Holders
or Other Members shall have the opportunity to purchase up to 20,000 shares. In
the event that directors, officers and employees subscribe for a number of
shares, which, when added to the shares subscribed for by Eligible Account
Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders,
and Other Members is in excess of the total shares offered in the Stock
Offering, the subscriptions of such persons will be allocated among directors,
officers and employees on a pro rata basis based on the size of each person's
orders.
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COMMUNITY OFFERING
Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered for sale in a Community Offering. This will involve an offering
of unsubscribed shares directly to the general public for the Subscription Price
of $10.00 per share. If a Community Offering is conducted, it will be for a
period of not more than 45 days unless extended by the Company and the Bank, and
may begin concurrently with, during or promptly after the Subscription Offering.
The Common Stock will be offered and sold in the Community Offering, in
accordance with OTS regulations, so as to achieve the widest distribution of the
Common Stock. No person, by himself or herself, or with an associate or group
of persons acting in concert, may subscribe for or purchase more than $400,000
of Common Stock offered in the Community Offering. Further, the Company may
limit total subscriptions so as to assure that the number of shares available
for a syndicated community offering may be up to a specified percentage of the
number of shares of Common Stock. The Company may reserve shares offered in the
Community Offering for sales to institutional investors.
In the event of an oversubscription for shares in the Community Offering,
shares may be allocated in the sole discretion of the Bank (to the extent shares
remain available) first to natural persons residing in the Bank's local
community of Rockland County, New York (the "Community"), then to any other
persons subscribing for shares in the Community Offering so that each such
person may receive the lesser of the number of shares subscribed for or 1,000
shares, and thereafter, on a pro rata basis to such persons based on the amount
of their respective subscriptions.
The terms "residence," "reside," "resided" or "residing" as used herein
with respect to any person shall mean any person who occupied a dwelling within
the Bank's Community, has an intent to remain within the Community for a period
of time, and manifests the genuineness of that intent by establishing an ongoing
physical presence within the Community together with an indication that such
presence within the Community is something other than merely transitory in
nature. To the extent the person is a corporation or other business entity, the
principal place of business or headquarters shall be in the Community. To the
extent a person is a personal benefit plan, the circumstances of the beneficiary
shall apply with respect to this definition. In the case of all other benefit
plans, the circumstances of the director shall be examined for purposes of this
definition. The Bank may use deposit or loan records or such other evidence
provided to it to determine whether a person is a resident. In all cases,
however, such a determination shall be in the sole discretion of the Bank.
The Bank and the Company, in their sole discretion, may reject
subscriptions, in whole or in part, received from any person in the Community
Offering.
SYNDICATED COMMUNITY OFFERING
Depending on market conditions, the Common Stock may be offered for sale
(for $10.00 per share) to the general public on a best efforts basis in the
Syndicated Community Offering by a selling group of broker-dealers ("Selected
Dealers") to be managed by Ryan Beck. Ryan Beck, in its discretion, will
instruct Selected Dealers as to the number of shares to be allocated to each
Selected Dealer. Only upon allocation of shares to Selected Dealers may
Selected Dealers take orders from their customers. Investors who desire to
purchase shares in the Community Offering directly through a Selected Dealer,
which may include Ryan Beck, are advised that Selected Dealers are required
either: (a) upon receipt of an executed Order Form or direction to execute an
Order Form on behalf of an investor, to forward the appropriate purchase price
to the Bank for deposit in a segregated account on or before twelve noon,
prevailing time, of the business day next following such receipt or execution;
or (b) upon receipt of confirmation of an investor's interest in purchasing
shares, and following a mailing of an acknowledgment by such member to such
investor on the business day next following receipt of confirmation, to debit
the account of such investor on the third business day next following receipt of
confirmation and to forward the appropriate purchase price to the Bank for
deposit in the segregated account on or before twelve noon, prevailing time, of
the business day next following such debiting.
It is expected that the Syndicated Community Offering will begin during or
as soon as practicable after termination of the Community Offering, if any. The
Syndicated Community Offering shall be completed within 45 days after the
termination of the Subscription Offering, unless such period is extended as
provided herein. If for any
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reason a Syndicated Community Offering of unsubscribed shares of Common Stock
cannot be effected or is deemed inadvisable, the Boards of Directors of the
Company and the Bank will seek to make other arrangements for the sale of the
remaining shares. Such other arrangements will be subject to the approval of the
OTS and to compliance with applicable state and federal securities laws.
RESTRICTIONS ON AGREEMENTS OR UNDERSTANDINGS REGARDING TRANSFER OF COMMON STOCK
TO BE PURCHASED IN THE OFFERING
Prior to the completion of the Offering, no depositor may transfer or enter
into an agreement or understanding to transfer the legal or beneficial ownership
of the shares of Common Stock to be purchased by such person in the Offering.
Each depositor who submits an Order Form will be required to certify that the
purchase of Common Stock by such person is solely for the purchaser's own
account and there is no agreement or understanding regarding the sale or
transfer of such shares. The Bank intends to pursue any and all legal and
equitable remedies in the event it becomes aware of any such agreement or
understanding, and will not honor orders reasonably believed by the Bank to
involve such an agreement or understanding.
PROCEDURE FOR PURCHASING SHARES
To ensure that each purchaser receives a Prospectus at least 48 hours
before the Expiration Date, Prospectuses will not be mailed any later than five
days prior to such date or hand delivered any later than two days prior to such
date. Order forms may only be distributed with a Prospectus.
EXPIRATION DATE. The Offering will terminate at 10:00 a.m., New York time
on December __, 1998, unless extended by the Bank for up to an additional 45
days or, if approved by the OTS, for an additional period after such 45-day
extension (as so extended, the "Expiration Date"). The Bank is not required to
give purchasers notice of any extension unless the Expiration Date is later than
__________, 1999, in which event purchasers will be given the right to increase,
decrease, confirm, or rescind their orders. If the minimum number of shares
offered in the Offering (2,575,500 shares) is not sold by the Expiration Date,
the Bank may terminate the Offering and promptly refund all orders for Common
Stock. If the number of shares is reduced below the minimum of the Estimated
Valuation Range or increased more than 15% above the Offering Range, purchasers
will be given an opportunity to increase, decrease, or rescind their orders.
USE OF ORDER FORMS. In order to purchase the Common Stock, each purchaser
must complete and sign an Order Form, except for certain persons purchasing in
the Syndicated Community Offering as more fully described above. Any person
receiving an Order Form who desires to purchase Common Stock may do so by
delivering (by mail or in person) to the Bank a properly executed and completed
Order Form, together with full payment for the shares purchased. The Order Form
must be received prior to 10:00 a.m., New York time on December __, 1998. ONCE
TENDERED, AN ORDER FORM CANNOT BE MODIFIED OR REVOKED WITHOUT THE CONSENT OF THE
BANK. Each person ordering shares is required to represent that they are
purchasing such shares for their own account. The interpretation by the Bank of
the terms and conditions of the Plan and of the acceptability of the Order Forms
will be final. The Bank is not required to accept copies or facsimiles of Order
Forms. Order Forms cannot and will not be accepted without the execution of the
certification appearing on the Order Form. Neither the Bank, the Company, nor
Ryan Beck is obligated to deliver a Prospectus and an Order Form by any means
other than the U.S. Postal Service.
PAYMENT FOR SHARES. Payment for all shares will be required to accompany
all completed Order Forms for the purchase to be valid. Payment for shares may
be made by (i) check or money order, or (ii) authorization of withdrawal from
passbook accounts or certificates of deposit maintained with the Bank.
Appropriate means by which such withdrawals may be authorized are provided in
the Order Forms. Once such a withdrawal amount has been authorized, a hold will
be placed on such funds, making them unavailable to the depositor until the
Offering has been completed or terminated. The withdrawal will be made upon
consummation of the Offering. In the case of payments authorized to be made
through withdrawal from deposit accounts, all funds authorized for withdrawal
will continue to earn interest at the contract rate until the Offering is
completed or terminated. Interest penalties for early withdrawal applicable to
certificate accounts will not apply to withdrawals authorized for the purchase
of shares; however, if a withdrawal results in a certificate account with a
balance less than the applicable minimum balance
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requirement, the certificate shall be canceled at the time of withdrawal without
penalty, and the remaining balance will earn interest at the Bank's passbook
rate subsequent to the withdrawal. In the case of payments made by check or
money order, such checks and money orders shall be made payable to "Provident
Bank." Such funds will be placed in a segregated savings account and interest
will be paid by the Bank at the Bank's passbook rate, from the date payment is
received until the Offering is completed or terminated. Such interest will be
paid by check, on all funds held, promptly upon completion or termination of the
Offering. An executed Order Form, once received by the Bank, may not be
modified, amended or rescinded without the consent of the Bank, unless the
Offering is not completed by ___________, 1998, in which event subscribers may
be given the opportunity to increase, decrease, confirm or rescind their orders
for a specified period of time.
Owners of self-directed IRAs may use the assets of such IRAs to purchase
shares of Common Stock in the Offering. Individuals who are participants in
self-directed tax qualified plans maintained by self-employed individuals
("Keogh Plans") may use the assets in their self-directed Keogh Plan accounts to
purchase shares of Common Stock in the Offering. In addition, the provisions of
ERISA and Internal Revenue Service ("IRS") regulations require that executive
officers, directors, and 10% stockholders who use self-directed IRA funds and/or
Keogh Plan accounts to purchase shares of Common Stock in the Offering, make
such purchase for the exclusive benefit of the IRA and/or Keogh Plan
participant.
If the ESOP purchases shares of Common Stock, such plan will not be
required to pay for such shares until consummation of the Offering. A depositor
interested in using his or her IRA funds to purchase Common Stock must do so
through a self-directed IRA. Since the Bank does not offer such accounts, it
will allow a depositor to make a trustee-to-trustee transfer of the IRA funds to
a trustee offering a self-directed IRA program without early withdrawal
penalties with the agreement that such funds will be used to purchase the Common
Stock in the Offering. There will be no early withdrawal or IRS penalties for
such transfers. The new trustee would hold the Common Stock in a self-directed
account in the same manner as the Bank now holds the depositor's IRA funds. An
annual administrative fee may be payable to the new trustee. Depositors
interested in using funds in a Bank IRA to purchase Common Stock should contact
the Stock Information Center at the Bank as soon as possible so that the
necessary forms may be forwarded for execution and returned prior to the
Expiration Date.
DELIVERY OF STOCK CERTIFICATES. Certificates representing Common Stock
issued in the Offering will be mailed by the Company to the persons entitled
thereto at the registration address noted on the Order Form, as soon as
practicable following consummation of the Offering. Any certificates returned
as undeliverable will be held by the Company until claimed by persons legally
entitled thereto or otherwise disposed of in accordance with applicable law.
Until certificates for the Common Stock are available and delivered to
purchasers, purchasers may not be able to sell the shares of stock which they
ordered. Subscribers are at their own risk if they sell shares before receiving
the certificates or determining whether their subscription has been accepted.
PLAN OF DISTRIBUTION AND SELLING COMMISSIONS
Offering materials for the Offering initially have been distributed to
certain persons by mail, with additional copies made available at the Bank's
offices and by Ryan Beck.
To assist in the marketing of the Common Stock, the Bank has retained Ryan
Beck, a broker-dealer registered with the NASD. Ryan Beck will assist the Bank
in the Offering as follows: (i) in training and educating the Bank's employees
regarding the mechanics and regulatory requirements of the Offering; (ii) in
conducting informational meetings for employees, customers and the general
public; (iii) in coordinating the selling efforts in the Bank's local
communities; and (iv) keeping records of all orders for Common Stock. For these
services, Ryan Beck will receive an advisory and a management fee of $450,000.
The Bank also will reimburse Ryan Beck for its reasonable out-of-pocket
expenses, the estimated maximum of which are $60,000 (including legal fees and
expenses up to a maximum of $40,000) associated with its marketing effort. The
Bank has made an advance payment to Ryan Beck in the amount of $25,000. The
Bank will indemnify Ryan Beck against liabilities and expenses (including legal
fees) incurred in connection with certain claims or litigation
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arising out of or based upon untrue statements or omissions contained in the
offering materials for the Common Stock, including liabilities under the
Securities Act of 1933.
Directors and executive officers of the Bank may participate in the
solicitation of offers to purchase Common Stock. Other trained employees of the
Bank may participate in the Offering in ministerial capacities, providing
clerical work in effecting a sales transaction or answering questions of a
ministerial nature. Other questions of prospective purchasers will be directed
to executive officers or registered representatives. The Bank will rely on Rule
3a4-1 of the Securities Exchange Act of 1934 (the "Exchange Act"), so as to
permit officers, directors, and employees to participate in the sale of the
Common Stock. No officer, director, or employee of the Bank will be compensated
for his participation by the payment of commissions or other remuneration based
either directly or indirectly on the transactions in the Common Stock.
A Stock Information Center will be established at the Bank's administrative
office, in an area separated from the Bank's banking operations. Employees will
inform prospective purchasers to direct their questions to the Stock Information
Center and will provide such persons with the telephone number of the Center.
Notwithstanding any other provision of the Plan, no person is entitled to
purchase any Common Stock to the extent such purchase would be illegal under any
federal or state law or regulation (including state "blue-sky" laws and
regulations), or would violate regulations or policies of the NASD, particularly
those regarding free riding and withholding. The Bank and/or its agents may ask
for an acceptable legal opinion from any purchaser as to the legality of such
purchase and may refuse to honor any such purchase order if such opinion is not
timely furnished. The Plan prohibits the Bank from lending funds or extending
credit to any persons to purchase Common Stock in the Offering.
LIMITATIONS UPON PURCHASES OF COMMON STOCK
The following additional limitations have been imposed upon purchases of
shares of Common Stock. Defined terms used in this section and not otherwise
defined in this Prospectus shall have the meaning set forth in the Plan. In all
cases, the Bank shall have the right, in its sole discretion, to determine
whether prospective purchasers are "Associates," or "Acting in Concert" as
defined by the Plan and in interpreting any and all other provisions of the
Plan. All such determinations are in the sole discretion of the Bank, and may
be based on whatever evidence the Bank chooses to use in making any such
determination.
1. The aggregate amount of outstanding Common Stock owned or controlled
by persons other than Mutual Holding Company at the close of the
Offering shall not exceed 50% of the total outstanding Common Stock.
2. No Person, Associate thereof, or group of persons Acting in Concert,
may purchase more than $400,000 of Common Stock issued in the Offering
to Persons other than the Mutual Holding Company, except that: (i)
the Company may, in its sole discretion and without further notice to
or solicitation of subscribers or other prospective purchasers,
increase such maximum purchase limitation to up to 5% or decrease it
to 1% of the number of shares issued in the Offering; (ii) Tax-
Qualified Employee Plans may purchase up to 10% of the shares issued
in the Offering; and (iii) for purposes of this paragraph shares to be
held by any Tax-Qualified Employee Plan and attributable to a person
shall not be aggregated with other shares purchased directly by or
otherwise attributable to such person.
3. The aggregate amount of Common Stock acquired in the Offering by all
Management Persons and their Associates, exclusive of any stock
acquired by such persons in the secondary market, shall not exceed 25%
of the outstanding shares of Common Stock held by persons other than
the Mutual Holding Company at the close of the Offering. In
calculating the number of shares held by Management Persons and their
Associates under this paragraph or under the provisions of paragraph 4
below, shares held by any Tax-Qualified Employee Benefit Plan or any
Nontax-Qualified Employee Benefit Plan of the Bank that are
attributable to such persons shall not be counted.
42
<PAGE>
4. The Boards of Directors of the Bank and the Company may, in their sole
discretion, increase the maximum purchase limitation to up to 9.9%,
provided that orders for Common Stock in excess of 5% of the number of
shares of Common Stock issued in the Offering shall not in the
aggregate exceed 10% of the total shares of Common Stock issued in the
Offering (except that this limitation shall not apply to purchases by
Tax-Qualified Employee Plans). If such 5% limitation is increased,
subscribers for the maximum amount will be, and certain other large
subscribers in the sole discretion of the Company and the Bank may be,
given the opportunity to increase their subscriptions up to the then
applicable limit. Requests to purchase additional shares of Common
Stock under this provision will be determined by the Board of
Directors of the Company, in its sole discretion. The minimum number
of shares that can be subscribed for is 25 shares.
5. Notwithstanding any other provision of the Plan, no person shall be
entitled to purchase any Common Stock to the extent such purchase
would be illegal under any federal law or state law or regulation or
would violate regulations or policies of the National Association of
Securities Dealers, Inc., particularly those regarding free riding and
withholding. The Company and/or its agents may ask for an acceptable
legal opinion from any purchaser as to the legality of such purchase
and may refuse to honor any purchase order if such opinion is not
timely furnished.
6. The Board of Directors of the Company has the right in its sole
discretion to reject any order submitted by a person whose
representations the Board of Directors believes to be false or who it
otherwise believes, either alone or acting in concert with others, is
violating, circumventing, or intends to violate, evade or circumvent
the terms and conditions of the Plan.
The Company, in its sole discretion, may make reasonable efforts to comply
with the securities laws of any state in the United States in which its
depositors reside, and will only offer and sell the Common Stock in states in
which the offers and sales comply with such states' securities laws. However,
no person will be offered or allowed to purchase any Common Stock under the Plan
if they resides in a foreign country or in a state of the United States with
respect to which any of the following apply: (i) a small number of persons
otherwise eligible to purchase shares under the Plan reside in such state or
foreign county; (ii) the offer or sale of shares of Common Stock to such persons
would require the Bank or its employees to register, under the securities laws
of such state or foreign country, as a broker or dealer or to register or
otherwise qualify its securities for sale in such state or foreign country; or
(iii) such registration or qualification would be impracticable for reasons of
cost or otherwise.
OTS regulations define "acting in concert" as (i) knowing participation in
a joint activity or interdependent conscious parallel action towards a common
goal whether or not pursuant to an express agreement, or (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. THE BANK WILL PRESUME THAT
CERTAIN PERSONS ARE ACTING IN CONCERT BASED UPON VARIOUS FACTS, INCLUDING THE
FACT THAT PERSONS HAVE JOINT ACCOUNT RELATIONSHIPS OR THE FACT THAT SUCH PERSONS
HAVE FILED JOINT SCHEDULES 13D WITH THE SEC WITH RESPECT TO OTHER COMPANIES.
Directors are not treated as Associates of one another solely because of
their board membership. Compliance with the foregoing limitations does not
necessarily constitute compliance with other regulatory restrictions on
acquisitions of the Common Stock. For a further discussion of limitations on
purchases of the Common Stock during and subsequent to Reorganization, see "--
Restrictions on Sale of Stock by Directors and Officers," "--Restrictions on
Purchase of Stock by Directors and Officers Following the Offering," and
"Restrictions on Acquisition of the Company."
43
<PAGE>
RESTRICTIONS ON REPURCHASE OF STOCK BY THE COMPANY
OTS regulations and policy currently prohibit the Company from repurchasing
any of its shares within three years following the Offering unless the
repurchase is (i) part of a general repurchase made on a pro rata basis pursuant
to an offer approved by the OTS and made to all stockholders (except the Mutual
Holding Company may be excluded from the repurchase with OTS approval), (ii)
limited to the repurchase of qualifying shares of a director, or (iii) in open
market transactions by a tax-qualified or nontax-qualified employee benefit plan
of the Bank (but not the Company) in an amount reasonable and appropriate to
fund such plan.
RESTRICTIONS ON SALE OF STOCK BY DIRECTORS AND OFFICERS
All shares of the Common Stock purchased by directors and officers and
associates of directors and officers of the Bank or the Stock Company in the
Offering will be subject to the restriction that such shares may not be sold or
otherwise disposed of for value for a period of one year following the date of
purchase, except for any disposition of such shares (i) following the death of
the original purchaser or (ii) by reason of an exchange of securities in
connection with a merger or acquisition approved by the applicable regulatory
authorities. Sales of shares of the Common Stock by the Company's directors and
officers will also be subject to certain insider trading and other transfer
restrictions under the federal securities laws. See "Regulation--Federal
Securities Laws" and "Description of Capital Stock of the Company."
Each certificate for such restricted shares will bear a legend prominently
stamped on its face giving notice of the restrictions on transfer, and
instructions will be issued to the Company's transfer agent to the effect that
any transfer within such time period of any certificate or record ownership of
such shares other than as provided above is a violation of the restriction. Any
shares of Common Stock issued pursuant to a stock dividend, stock split or
otherwise with respect to restricted shares will be subject to the same
restrictions on sale.
RESTRICTIONS ON PURCHASE OF STOCK BY DIRECTORS AND OFFICERS FOLLOWING THE
OFFERING
OTS regulations provide that for a period of three years following the
Reorganization, without prior written approval of the OTS, neither directors nor
officers of the Bank or the Company nor their associates may purchase shares of
the Common Stock, except from a dealer registered with the SEC. This restriction
does not, however, apply to negotiated transactions involving more than 1% of
the outstanding Common Stock, to shares purchased pursuant to stock option or
other incentive stock plans approved by the Company's shareholders, or to shares
purchased by employee benefit plans maintained by the Company which may be
attributable to individual officers or directors.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND COMMON STOCK
Prior to the completion of the Reorganization, OTS regulations and the Plan
prohibit any person with subscription rights 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 exercising
such subscription rights will be required to certify that he or she is
purchasing shares solely for his or her own account and that he or she 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 Reorganization and
Offering. THE BANK INTENDS TO PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES
IN THE EVENT IT BECOMES AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS AND WILL
NOT HONOR ORDERS KNOWN TO INVOLVE THE TRANSFER OF SUCH RIGHTS. IN ADDITION,
PERSONS WHO VIOLATE THE PURCHASE LIMITATIONS MAY BE SUBJECT TO SANCTIONS AND
PENALTIES IMPOSED BY THE OTS.
FEDERAL AND STATE TAX CONSEQUENCES OF THE REORGANIZATION
The Bank intends to proceed with the Reorganization on the basis of an
opinion from its special counsel, Luse Lehman Gorman Pomerenk & Schick, P.C.,
Washington, D.C., as to certain tax matters that are material to the
44
<PAGE>
Reorganization. The opinion is based, among other things, on certain factual
representations made by the Bank, including the representation that the exercise
price of the subscription rights to purchase the Common Stock will be
approximately equal to the fair market value of the stock at the time of the
completion of the Reorganization. With respect to the subscription rights, the
Bank has received an opinion of RP Financial which, based on certain
assumptions, concludes that the subscription rights to be received by Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members do not
have any economic value at the time of distribution or the time the subscription
rights are exercised, whether or not a Community Offering takes place, and Luse
Lehman Gorman Pomerenk & Schick, P.C.'s opinion is given in reliance thereon.
The opinion of Luse Lehman Gorman Pomerenk & Schick, P.C., provides
substantially as follows:
1. The change in form from a mutual savings bank ("Mutual Bank") to a
stock savings bank (the "Stock Bank") will qualify as a reorganization
under Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended
(the "Code"), and no gain or loss will be recognized by the Bank in either
its mutual form or stock form by reason of the Reorganization.
2. No gain or loss will be recognized by the Mutual Bank upon the transfer
of the Mutual Bank's assets to the Stock Bank solely in exchange for shares
of Stock Bank stock and the assumption by the Stock Bank of the liabilities
of the Mutual Bank.
3. No gain or loss will be recognized by Stock Bank upon the receipt of
the assets of the Mutual Bank in exchange for shares of Stock Bank common
stock.
4. Stock Bank's holding period in the assets received from the Mutual Bank
will include the period during which such assets were held by the Mutual
Bank.
5. Stock Bank's basis in the assets of the Mutual Bank will be the same as
the basis of such assets in the hands of the Mutual Bank immediately prior
to the Reorganization.
6. The Stock Bank will succeed to and take into account the Mutual Bank
earnings and profits or deficit in earnings and profits, as of the date of
the Reorganization.
7. The Stock Bank depositors will recognize no gain or loss solely by
reason of the Reorganization.
8. The Mutual Holding Company and Minority Stockholders will recognize no
gain or loss upon the transfer of Stock Bank stock and cash, respectively,
to the Company in exchange for Common Stock.
9. The Company will recognize no gain or loss upon its receipt of Stock
Bank stock and cash from the Mutual Holding Company and Minority
Stockholders, respectively, in exchange for Common Stock.
10. The basis of the Common Stock to Minority Stockholders will be the
Subscription Price and a shareholder's holding period for Common Stock
acquired through the exercise of subscription rights will begin on the date
the rights are exercised.
The opinion of Luse Lehman Gorman Pomerenk & Schick, P.C., unlike a letter
ruling issued by the Internal Revenue Service (the "IRS"), is not binding on the
IRS and the conclusions expressed therein may be challenged at a future date.
The IRS has issued favorable rulings for transactions substantially similar to
the proposed Reorganization, but any such ruling may not be cited as precedent
by any taxpayer other than the taxpayer to whom the ruling is addressed. The
Bank does not plan to apply for a letter ruling concerning the Reorganization.
The Bank has also received an opinion from KPMG Peat Marwick LLP that
the New York State Franchise Tax on banking corporations and New York State
personal income tax consequences of the proposed transaction are consistent with
the federal income tax consequences.
45
<PAGE>
PROVIDENT BANK
CONSOLIDATED STATEMENTS OF INCOME
The Consolidated Statements of Income for the years ended September 30,
1997 and 1996 have been audited by KPMG Peat Marwick LLP, independent auditors,
whose report appears elsewhere in this Prospectus. The Consolidated Statement of
Income for the year ended September 30, 1995 has been audited by Deloitte &
Touche LLP, independent auditors, whose report appears elsewhere in this
Prospectus. The Consolidated Statements of Income for the nine-month periods
ended June 30, 1998 and 1997 are unaudited but, in the opinion of management,
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of such results for such unaudited periods have been made. The
results of operations for the nine months ended June 30, 1998 are not
necessarily indicative of results that may be expected for the year ending
September 30, 1998. The Consolidated Statements of Income should be read in
conjunction with the other Consolidated Financial Statements and the Notes
thereto included in this Prospectus beginning on page F-1.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
JUNE 30, SEPTEMBER 30,
-------------------- ---------------------------
1998 1997 1997 1996 1995
-------- -------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans.............................. $25,962 $24,249 $32,544 $29,210 $26,740
Interest on mortgage-backed securities................. 6,748 7,118 9,398 9,008 6,687
Interest and dividends on investment securities and
other earning assets.................................. 3,029 3,388 4,613 4,348 3,603
------- ------- ------- ------- -------
Total interest and dividend income.................. 35,739 34,755 46,555 42,566 37,030
------- ------- ------- ------- -------
Interest expense:
Deposits (Note 8)....................................... 14,315 13,889 18,692 17,113 14,440
Borrowings.............................................. 1,294 1,181 1,487 1,472 624
------- ------- ------- ------- -------
Total interest expense................................. 15,609 15,070 20,179 18,585 15,064
------- ------- ------- ------- -------
Net interest income.................................... 20,130 19,685 26,376 23,981 21,966
Provision for loan losses (Note 4)...................... 1,347 875 1,058 911 760
------- ------- ------- ------- -------
Net interest income after provision for
loan losses........................................ 18,783 18,810 25,318 23,070 21,206
------- ------- ------- ------- -------
Non-interest income:
Loan servicing.......................................... 443 445 583 648 676
Banking service fees and other income................... 1,855 1,767 2,128 1,803 1,424
------- ------- ------- ------- -------
Total non-interest income........................... 2,298 2,212 2,711 2,451 2,100
------- ------- ------- ------- -------
Non-interest expense:
Compensation and employee benefits (Note 12)............ 7,501 7,328 9,915 9,063 7,601
Occupancy and office operations (Notes 6 and 13)........ 2,346 2,287 3,167 2,936 2,430
Advertising and promotion............................... 825 748 1,038 1,251 700
Federal deposit insurance costs, including a special
assessment of $3,298 in 1996 (Note 11)................. 246 336 409 4,373 996
Data processing......................................... 612 435 580 573 491
Foreclosed real estate expense (income),
net (Note 7)........................................... 66 (109) (40 ) 441 100
Amortization of branch purchase premiums (Note 8)....... 1,200 1,129 1,506 691 --
Other................................................... 2,846 3,034 4,027 3,406 2,946
------- ------- ------- ------- -------
Total............................................... 15,642 15,188 20,602 22,734 15,264
------- ------- ------- ------- -------
Income before income tax expense.................... 5,439 5,834 7,427 2,787 8,042
------- ------- ------- ------- -------
Income tax expense (Note 10)............................ 1,995 2,370 2,829 690 3,239
------- ------- ------- ------- -------
Net income......................................... $ 3,444 $ 3,464 $ 4,598 $ 2,097 $ 4,803
======= ======= ======= ======= =======
</TABLE>
- -------------------------
Note references are to the Notes to Consolidated Financial Statements beginning
on page F-8.
46
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Bank's results of operations depend primarily on its net interest
income, which is the difference between the interest income on its earning
assets, such as loans and securities, and the interest expense paid on its
deposits and borrowings. Results of operations are also affected by non-
interest income and expense, the provision for loan losses and income tax
expense. Non-interest income consists primarily of banking service fees and
income from loan servicing. The Bank's non-interest expense consists primarily
of salaries and employee benefits, occupancy and office expenses, amortization
of branch purchase premiums, advertising and promotion expense, data processing
expenses and federal deposit insurance costs. Results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
The Bank's equity position (as well as its regulatory capital) will
significantly increase as a result of the net proceeds that it receives in the
Offering. Management expects to leverage the new capital by increasing the
Bank's interest-earning assets thereby reducing the Bank's equity as a
percentage of assets. Until such leverage is achieved, however, the Bank's
return on average equity is expected to be below the Bank's historical levels
and industry averages. The net proceeds of the Offering are expected to be used
for general corporate purposes, including the origination of residential and
commercial real estate loans, commercial business loans, and consumer loans.
The net proceeds also will be invested in investment securities and mortgage-
backed securities. The Bank may also use such funds for the expansion of its
retail banking franchise through new branch openings or acquisitions.
MANAGEMENT STRATEGY
Management intends to continue the Bank's growth as a major independent
community bank offering a broad range of customer-focused services as an
alternative to money center banks in its market area. The majority of the
Bank's senior management have extensive backgrounds with commercial banking
institutions. In recent years, management determined that the long-term growth
and success of the Bank would be enhanced by operating as a community bank
rather than a traditional thrift institution, and as a result, management
implemented a business strategy that included: (i) creating an infrastructure
for commercial and consumer banking, such as an experienced commercial loan
department and delivery systems to accommodate the needs of business and
individual customers; and (ii) placing a greater emphasis on commercial real
estate and business lending, as well as checking and other transaction accounts.
Highlights of the Bank's business strategy are as follows:
. Community banking and customer service. As an independent community bank,
a principal objective of the Bank is to anticipate the financial services
needs of its customers, and to meet those needs in an effective and
personalized manner. The Bank continually receives input from customers
through its branch office network and marketing surveys, and is committed
to implementing new programs and services designed to attract new customers
and strengthen existing relationships. The Bank intends to use new
technologies to offer customers new financial products and services as
market and regulatory conditions permit, including PC banking, cash
management and sweep accounts, although the Bank does not currently offer
these products or services. The Bank also expects to offer asset
management, trust services and personal financial planing in the near
future. The Bank's branch offices are operated on a full-service basis, and
branch office personnel are authorized to accept applications for mortgage
and consumer loans and approve consumer loans.
. Growing and diversifying the loan portfolio. The Bank offers retail
customers a broad range of residential mortgage and consumer loans, and has
grown its loan portfolio by $145.3 million, or 49.2%, to $440.4 million at
June 30, 1998 from $295.1 million at September 30, 1993. At June 30, 1998,
the Bank's loan portfolio represented 64.8% of total assets. The Bank
continues to target commercial business and commercial real estate lending
as a means of improving the yield on its loan portfolio and shortening the
average maturity of its assets. The Bank also has established experienced
commercial loan and credit administration departments that management
believes are critical to the success of its commercial banking
47
<PAGE>
strategy. The Bank's commercial loans include commercial mortgages, multi-
family mortgages, construction loans to builders and business loans. Total
outstanding balances in these commercial loan categories increased by $45.2
million, or 69.9%, to $109.9 million at June 30, 1998 from $64.7 million at
September 30, 1993.
. Expanding the retail banking franchise. The Bank intends to continue to
expand its retail banking franchise and to increase the number of
households served in its market area. The Bank fosters a sales culture in
its branch offices that emphasizes transaction accounts. At June 30, 1998,
core deposits (demand, NOW, savings and money market deposits) represented
58.1% of the Bank's total deposits, and the weighted average rate on the
Bank's total deposits was 3.31%. Since 1993, the Bank has opened two full-
service branch offices, including the first supermarket branch in Rockland
County, and also has purchased two existing branches from other banks.
The Bank intends to pursue opportunities to expand its branch network as
market conditions permit. Two of the Bank's branch offices are now open
seven days a week, and additional branch offices will offer seven-day
banking to accommodate all customers. The Bank has 12 automated teller
machines ("ATMs") and participates in networks that permit customers to
access their accounts through ATMs worldwide.
. Maintaining asset quality. Strong asset quality is a critical component of
the Bank's long-term growth and financial success. Accordingly, management
is committed to maintaining conservative underwriting standards in
originating loans. For example, the credit review of each commercial loan
is performed by a department independent of the department that originates
the loan. At the end of the past five fiscal years and at June 30, 1998,
non-performing assets averaged 1.04% of total assets. At June 30, 1998,
the Bank's non-performing loans totaled $5.7 million, representing 1.30% of
the loan portfolio, and non-performing assets totaled $6.1 million, or
0.90% of total assets. The Bank's allowance for loan losses was $4.5
million at June 30, 1998, representing 1.03% of total loans and 79.27% of
non-performing loans.
. Managing interest rate risk. The Bank, like most financial institutions,
is subject to interest rate risk since its liabilities generally have
shorter terms to repricing or maturity than its assets. As a result, its
liabilities are more sensitive to changes in market interest rates.
Management has reduced the Bank's exposure to interest rate risk by
originating and retaining adjustable rate mortgage ("ARM") loans,
commercial real estate and commercial business loans, and consumer loans.
Management also manages interest rate risk by investing a portion of the
Bank's assets in shorter duration investment securities and mortgage-backed
securities. Depending upon market interest rates and the Bank's capital
and liquidity positions, the Bank from time to time sells (on a servicing-
retained basis) fixed-rate long term mortgage loans. As of June 30, 1998,
securities available for sale totaled $92.4 million, or 13.6% of total
assets. The Bank's securities held to maturity totaled $109.5 million, or
16.1% of total assets.
MANAGEMENT OF MARKET RISK
Like other financial institutions, the Bank's most significant form of
market risk is interest rate risk. The general objective of the Bank's interest
rate risk management is to determine the appropriate level of risk given the
Bank's business strategy, and then manage that risk in a manner that is
consistent with the Bank's policy to reduce the exposure of the Bank's net
interest income to changes in market interest rates. The Bank's asset/liability
management committee ("ALCO"), which consists of senior management, evaluates
the interest rate risk inherent in certain assets and liabilities, the Bank's
operating environment, and capital and liquidity requirements, and modifies
lending, investing and deposit gathering strategies accordingly. A committee
of the Board of Directors reviews the ALCO's activities and strategies, the
effect of those strategies on the Bank's net interest margin, and the effect
that changes in market interest rates would have on the value of the Bank's loan
and securities portfolios. See "Risk Factors--Potential Effects of Changes in
Interest Rates and the Current Interest Rate Environment."
The Bank actively evaluates interest rate risk concerns in connection with
its lending, investing, and deposit activities. The Bank emphasizes the
origination of residential monthly and bi-weekly fixed-rate mortgage loans,
residential and commercial ARM loans, and consumer loans. Depending on market
interest rates and the Bank's capital and liquidity position, the Bank may
retain all of its newly originated fixed-rate, fixed-term residential
48
<PAGE>
mortgage loans or may decide to sell all or a portion of such longer-term loans
on a servicing-retained basis. The Bank also invests in short-term securities,
which generally have lower yields compared to longer-term investments.
Shortening the maturities of the Bank's interest-earning assets by increasing
investments in shorter-term loans and securities helps to better match the
maturities and interest rates of the Bank's assets and liabilities, thereby
reducing the exposure of the Bank's net interest income to changes in market
interest rates. These strategies may adversely impact net interest income due to
lower initial yields on these investments in comparison to longer term, fixed-
rate loans and investments. The Bank has also purchased interest rate caps to
synthetically extend the duration of its portfolio of short-term certificates of
deposit. The counterparty in the transaction has agreed to make interest
payments to the Bank, based on a $20 million notional amount, to the extent that
the three-month LIBOR rate exceeds 6.5% over the term of the cap agreement,
which has a five year term ending in March 2003. By purchasing shorter term
assets and extending the duration of its liabilities, management believes that
the corresponding reduction in interest rate risk will enhance long-term
profitability.
The Bank monitors interest rate sensitivity primarily through the use of a
model that simulates net interest income under varying interest rate
assumptions. The Bank also evaluates this sensitivity through a net portfolio
value model that estimates the change in the Bank's net portfolio value ("NPV")
over a range of interest rate scenarios. NPV is the present value of expected
cash flows from assets, liabilities and off-balance sheet contracts. Both
models assume estimated loan prepayment rates, reinvestment rates and deposit
decay rates which seem most likely based on historical experience during prior
interest rate changes.
The table below sets forth, as of June 30, 1998, the estimated changes in
the Bank's NPV and its net interest income that would result from the designated
instantaneous changes in the U.S. Treasury yield curve.
<TABLE>
<CAPTION>
NPV NET INTEREST INCOME
------------------------------------------------------- ---------------------------------------------------
ESTIMATED INCREASE INCREASE (DECREASE) IN
CHANGE IN (DECREASE) IN NPV ESTIMATED ESTIMATED NET INTEREST INCOME
INTEREST RATES ESTIMATED ------------------------------------- NET INTEREST ---------------------------------
(BASIS POINTS) NPV AMOUNT PERCENT INCOME AMOUNT PERCENT
- -------------- ---------------- ------------------ ------------------ ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
+300 $59,095 $(15,067) (20)% $24,496 $ 675 3%
+200 65,916 (8,246) (11) 24,526 705 3
+100 70,039 (4,123) (6) 24,173 352 1
0 74,162 -- -- 23,821 -- --
-100 76,736 2,574 3 23,315 (506) (2)
-200 79,310 5,148 7 22,809 (1,012) (4)
-300 80,281 6,119 8 22,319 (1,502) (6)
</TABLE>
The table set forth above indicates that at June 30, 1998, in the event of
an abrupt 200 basis point decrease in interest rates, the Bank would be expected
to experience a 7% increase in NPV. In the event of an abrupt 200 basis point
increase in interest rates, the Bank would be expected to experience an 11%
decrease in NPV. Since June 30, 1998, there have been no significant changes in
the Bank's interest rate risk exposures or how those exposures would be managed.
Computations of prospective effects of hypothetical interest rate changes are
based on numerous assumptions including relative levels of market interest
rates, loan prepayments and deposit decay, and should not be relied upon as
indicative of actual results. Further, the computations do not reflect any
actions management may undertake in response to changes in interest rates.
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV requires making certain
assumptions that may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. The NPV table presented above
assumes that the composition of the Bank's interest sensitive assets and
liabilities existing at the beginning of a period remains constant over the
period being measured. It also assumes that a particular change in interest
rates is reflected uniformly across the yield curve regardless of the duration
to maturity or the repricing characteristics of specific assets and liabilities.
Accordingly, although the NPV table provides an indication of the Bank's
sensitivity to interest rate changes at a particular point in time, such
measurements are not intended to and do not provide a precise forecast of the
effect of changes in market interest rates on the Bank's net interest income and
will differ from actual results.
49
<PAGE>
ANALYSIS OF NET INTEREST INCOME
Net interest income is the difference between interest income on interest-
earning assets and interest expense on interest-bearing liabilities. Net
interest income depends on the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them,
respectively.
The following tables set forth balance sheets, average yields and costs,
and certain other information at June 30, 1998, for the nine-month periods ended
June 30, 1998 and 1997, and for the years ended September 30, 1997, 1996 and
1995. No tax-equivalent yield adjustments were made, as the effect thereof was
not material. All average balances are monthly average balances which, in the
opinion of management, are not materially different from daily average balances.
Non-accrual loans were included in the computation of average balances, but have
been reflected in the table as loans carrying a zero yield. The yields set
forth below include the effect of deferred fees, discounts and premiums which
are included in interest income.
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
------------------------------------------------------------------------
AT JUNE 30, 1998 1998 1997
----------------------- ----------------------------------- -----------------------------------
AVERAGE AVERAGE
ACTUAL AVERAGE OUTSTANDING AVERAGE OUTSTANDING AVERAGE
BALANCE YIELD/RATE BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
----------- ---------- ----------- ---------- ---------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable (1)...... $440,360 8.22% $420,683 $25,962 8.25% $381,695 $24,249 8.49%
Mortgage-backed
securities (2)........... 133,109 6.49 138,328 6,748 6.52 146,094 7,118 6.51
Investment securities (2). 68,826 5.81 63,164 2,806 5.94 70,480 3,223 6.11
Other..................... 8,690 5.43 4,194 223 7.11 3,457 165 6.38
-------- -------- ------- -------- -------
Total interest-earning
assets.................. 650,985 7.57 626,369 35,739 7.63 601,726 34,755 7.72
------- -------
Non-interest-earning assets 28,119 29,733 32,675
-------- -------- --------
Total assets............ $679,104 $656,102 $634,401
======== ======== ========
INTEREST-BEARING
LIABILITIES:
Savings deposits (3)...... $174,502 2.23 $163,407 2,731 2.23 $162,418 2,713 2.23
Money market and
NOW deposits........... 120,405 2.38 112,301 2,016 2.40 108,646 1,992 2.45
Certificates of deposit... 243,335 5.22 240,210 9,568 5.33 237,175 9,184 5.18
Borrowings................ 25,048 6.13 29,009 1,294 5.96 25,451 1,181 6.20
-------- -------- ------- -------- -------
Total interest-bearing
liabilities............ 563,290 3.73 544,927 15,609 3.83 533,690 15,070 3.77
------- -------
Non-interest-bearing
liabilities............... 61,935 58,373 53,041
-------- -------- --------
Total liabilities........ 625,225 603,300 586,731
Equity..................... 53,879 52,802 47,670
-------- -------- --------
Total liabilities and
equity.................. $679,104 $656,102 $634,401
======== ======== ========
Net interest income........ $20,130 $19,685
======= =======
Net interest rate
spread (4)................ 3.84% 3.80% 3.95%
Net earning assets (5)..... 87,695 $ 81,442 $ 68,036
======== ======== ========
Net interest margin (6).... 4.30% 4.37%
Ratio of interest-earning
assets to interest-bearing
liabilities.............. 115.57% 114.95% 112.75%
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------------------------------
1997 1996 1995
--------------------------------- --------------------------------- ---------------------------------
AVERAGE AVERAGE AVERAGE
OUTSTANDING AVERAGE OUTSTANDING AVERAGE OUTSTANDING AVERAGE
BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
----------- -------- ---------- ----------- -------- ---------- ----------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable (1)...... $385,355 $32,544 8.45% $348,155 $29,210 8.39% $321,727 $26,740 8.31%
Mortgage-backed
securities (2)........... 144,252 9,398 6.52 137,772 9,008 6.54 102,314 6,687 6.54
Investment securities (2). 71,826 4,385 6.11 66,554 4,020 6.04 56,821 3,309 5.82
Other..................... 3,526 228 6.47 5,681 328 5.77 4,101 294 7.17
-------- ------- -------- ------- -------- -------
Total interest-earning
assets.................. 604,959 46,555 7.70 558,162 42,566 7.63 484,963 37,030 7.64
------- ------- -------
Non-interest-earning assets 31,861 24,009 14,541
-------- -------- --------
Total assets............. $636,820 $582,171 $499,504
======== ======== ========
INTEREST-BEARING
LIABILITIES:
Savings deposits (3)...... $164,726 3,670 2.23 $161,215 3,592 2.23 $167,910 3,741 2.23
Money market and
NOW deposits............. 109,289 2,675 2.45 99,344 2,480 2.50 83,763 2,136 2.55
Certificates of deposit... 237,262 12,347 5.20 212,476 11,041 5.20 170,737 8,563 5.02
Borrowings................ 23,730 1,487 6.27 22,686 1,472 6.49 9,139 624 6.83
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities............. 535,007 20,179 3.78 495,721 18,585 3.75 431,549 15,064 3.49
------- ------- -------
Non-interest-bearing
liabilities............... 53,489 40,880 27,150
-------- -------- --------
Total liabilities........ 588,496 536,601 458,699
Equity..................... 48,324 45,570 40,805
-------- -------- --------
Total liabilities and
equity.................. $636,820 $582,171 $499,504
======== ======== ========
Net interest income........ $26,376 $23,981 $21,966
======= ======= =======
Net interest rate
spread (4)................ 3.92% 3.88% 4.15%
Net earning assets (5)..... $ 69,952 $ 62,441 $ 53,414
======== ======== ========
Net interest margin (6).... 4.36% 4.30% 4.53%
Ratio of interest-earning
assets to interest-bearing
liabilities.............. 113.07% 112.60% 112.38%
</TABLE>
- ---------------
(1) Balances include the effect of net deferred loan origination fees and
costs, loans in process and the allowance for loan losses.
(2) Average outstanding balances are based on amortized cost.
(3) Includes club accounts and interest-bearing mortgage escrow balances.
(4) Net interest rate spread represents the difference between the yield on
average interest-earning assets and the cost of average interest-bearing
liabilities.
(5) Net earning assets represents total interest-earning assets less total
interest-bearing liabilities.
(6) Net interest margin represents net interest income divided by average total
interest-earning assets.
51
<PAGE>
The following table presents the dollar amount of changes in interest income
and interest expense for the major categories of the Bank's interest-earning
assets and interest-bearing liabilities. Information is provided for each
category of interest-earning assets and interest-bearing liabilities with
respect to (i) changes attributable to changes in volume (i.e., changes in
average balances multiplied by the prior-period average rate) and (ii) changes
attributable to rate (i.e., changes in average rate multiplied by prior-period
average balances). For purposes of this table, changes attributable to both
rate and volume, which cannot be segregated, have been allocated proportionately
to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30, YEARS ENDED SEPTEMBER 30,
-------------------------------- ------------------------------------------------------------------
1998 VS. 1997 1997 VS. 1996 1996 VS. 1995
-------------------------------- -------------------------------- --------------------------------
INCREASE (DECREASE) INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO TOTAL DUE TO TOTAL DUE TO TOTAL
-------------------- INCREASE -------------------- INCREASE -------------------- INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
-------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable.......... $2,422 $(709) $1,713 $3,141 $193 $3,334 $2,216 $254 $2,470
Mortgage-backed securities (379) 9 (370) 422 (32) 390 2,318 3 2,321
Investment securities..... (327) (90) (417) 322 43 365 584 127 711
Other..................... 38 20 58 (135) 35 (100) 98 (64) 34
------ ----- ------ ------ ---- ------ ------ ---- ------
Total interest-earning
assets.................. 1,754 (770) 984 3,750 239 3,989 5,216 320 5,536
------ ----- ------ ------ ---- ------ ------ ---- ------
INTEREST-BEARING
LIABILITIES:
Savings deposits.......... 17 1 18 78 -- 78 (149) -- (149)
Money market and NOW
deposits................ 66 (42) 24 244 (49) 195 390 (46) 344
Certificates of deposit... 119 265 384 1,290 16 1,306 2,159 319 2,478
Borrowings................ 160 (47) 113 66 (51) 15 879 (31) 848
------ ----- ------ ------ ---- ------ ------ ---- ------
Total interest-bearing
liabilities............. 362 177 539 1,678 (84) 1,594 3,279 242 3,521
------ ----- ------ ------ ---- ------ ------ ---- ------
Change in net interest
income.................... $1,392 $(947) $ 445 $2,072 $323 $2,395 $1,937 $ 78 $2,015
====== ===== ====== ====== ==== ====== ====== ==== ======
</TABLE>
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1998 AND SEPTEMBER 30, 1997
Total assets increased by $30.4 million, or 4.7%, to $679.1 million at
June 30, 1998 from $648.7 million at September 30, 1997. The growth in assets
was primarily attributable to a $35.9 million increase in loans receivable,
partially offset by a $9.0 million decline in investment and mortgage-backed
securities, as the Bank's asset mix continued to shift from investment and
mortgage-backed securities into loans. Asset growth was funded primarily from
deposit inflows through the Bank's existing branch network. Investment
securities at June 30, 1998 totaled $68.8 million, a decrease of $1.9 million,
from $70.7 million at September 30, 1997. Mortgage-backed securities at June 30,
1998 totaled $133.1 million, a decrease of $7.1 million from September 30, 1997.
One-to four-family residential mortgage loans increased by $29.7 million to
$271.6 million at June 30, 1998 from $241.9 million at September 30, 1997,
reflecting the continuation of the strong market for new mortgage loans and loan
refinancings. Due to the significant increase in loan refinancings, the Bank
reentered the secondary mortgage sales market after an absence of three years by
selling substantially all of its 30 year fixed-rate loans originated between
December 1, 1997 and June 30, 1998. On a combined basis, total outstanding
balances in the Bank's commercial loan categories (commercial mortgages, multi-
family mortgages, construction loans to builders and business loans) increased
by $4.8 million, or 4.6%, to $109.9 million at June 30, 1998 from $105.1 million
at September 30, 1997. Other assets of the Bank decreased to $6.2 million at
June 30, 1998 from $7.2 million at September 30, 1997, primarily due to
$1.2 million in amortization of core deposit purchase premiums.
Total deposits at June 30, 1998 were $580.1 million, an increase of
$33.3 million, or 6.1%, from $546.8 million at September 30, 1997. The increase
was primarily due to growth in the Bank's demand and NOW accounts, which
increased by $13.9 million to $96.1 million at June 30, 1998 from $82.2 million
at September 30, 1997, largely
52
<PAGE>
as a result of the Bank's promotion of its "Select" and "Select Plus" checking
account products. The Bank's passbook savings accounts, certificates of deposit
and money market accounts grew to $161.3 million, $243.3 million and
$79.4 million, respectively, at June 30, 1998, representing increases of
$8.1 million, $7.2 million and $4.1 million, respectively, over the nine-month
period.
Total equity increased to $53.9 million at June 30, 1998 from $50.4 million
at September 30, 1997, reflecting net income of $3.4 million and a $36,000
increase in the after-tax net unrealized gain on securities available for sale.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
Total assets increased to $648.7 million at September 30, 1997 from
$634.3 million at September 30, 1996, an increase of $14.4 million, or 2.3%. The
asset growth was primarily attributable to a $35.0 million increase in loans
receivable, partially offset by a $14.1 million decrease in mortgage-backed
securities, as the Bank's demand and now asset mix shifted from mortgage-backed
securities into loans. Other assets of the Bank decreased to $7.2 million at
September 30, 1997 from $8.6 million on September 30, 1996, primarily reflecting
$1.5 million in amortization of core deposit purchase premiums.
Net loans receivable increased by $35.0 million to $404.5 million at
September 30, 1997 from $369.5 million at September 30, 1996. One- to four-
family real estate loans increased by $22.0 million to $241.9 million at
September 30, 1997, from $219.9 million at September 30, 1996. The increase
consisted of a $20.6 million increase in fixed-rate loans and a $1.4 million
increase in ARM loans, as most of the Bank's customers continued to favor fixed-
rate residential loans in the current low interest rate environment. A
significant part of the Bank's fixed-rate residential loan originations during
this period were bi-weekly loans and loans with 15 and 20 year maturities.
Multi-family real estate loans decreased to $7.4 million at September 30,
1997 from $7.7 million at September 30, 1996. Commercial real estate loans
decreased to $55.7 million at September 30, 1997 from $58.6 million at
September 30, 1996. Construction and land loans increased to $31.7 million from
$28.0 million during the same period.
Consumer loans increased $6.0 million to $60.8 million at September 30,
1997 from $54.8 million at September 30, 1996. This increase was primarily the
result of a $6.1 million increase in the Bank's "homeowner loans," which are
fixed-rate, fixed-term consumer loans secured by a junior lien on the borrower's
primary residence. The Bank's commercial business loans increased by
$6.4 million to $21.7 million at September 30, 1997 from $15.3 million at
September 30, 1996. The increase in consumer and commercial business lending is
part of a continued emphasis on increasing assets that have higher yields and
are more sensitive to market interest rates, to partially offset the interest
rate risk inherent in the fixed-rate real estate loan portfolio. While
commercial and consumer loans generally entail greater credit risk than one- to
four-family real estate loans, they are also shorter term, higher yielding
assets that help meet the interest rate risk management objectives of the Bank.
The Bank's total securities portfolio decreased by $12.9 million to
$210.9 million at September 30, 1997 from $223.8 million at September 30, 1996.
This decrease resulted primarily from a decrease in mortgage-backed securities
to $140.2 million at September 30, 1997 from $154.3 million at September 30,
1996, as the Bank redeployed these funds into loan originations. Investment
securities, consisting primarily of short- and medium-term U.S. Treasury and
agency notes, grew slightly to $70.7 million at September 30, 1997 from $69.5
million at September 30, 1996.
Asset growth was funded with a $1.6 million increase in deposits and an
$11.0 million increase in FHLB borrowings. The composition of the Bank's
deposits continued to change during the year ended September 30, 1997, primarily
due to growth in transaction accounts, partially offset by outflows of deposits
acquired in the 1996 branch office purchases, especially in maturing, higher-
rate certificates of deposit which the Bank chose not to retain. The Bank's
certificates of deposit declined $4.9 million to $236.1 million at September 30,
1997 from $241.0 million at September 30, 1996. Passbook, club and money market
accounts declined to $228.5 million at September 30, 1997 from $230.7 million at
September 30, 1996. During the same period, demand and NOW accounts grew by
$8.5 million to $82.2 million at September 30, 1997 from $73.7 million at
September 30, 1996.
53
<PAGE>
Total equity increased to $50.4 million at September 30, 1997 from
$45.5 million at September 30, 1996, reflecting net income of $4.6 million and a
$265,000 increase in the after-tax net unrealized gain on securities available
for sale.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND
JUNE 30, 1997
GENERAL. The net income of the Bank depends primarily on its net interest
income, which is the difference between interest earned on the Bank's interest-
earning assets, consisting primarily of loans and securities, and the interest
paid on interest-bearing liabilities, consisting primarily of deposits and
borrowings. Net interest income is a function of the Bank's interest rate
spread, which is the difference between the average yield earned on interest-
earning assets and the average rate paid on interest-bearing liabilities, as
well as a function of the average balance of interest-earning assets as compared
to interest-bearing liabilities. The Bank's earnings also are affected by its
level of banking service fees and other non-interest income, as well as its
level of non-interest expenses, including salaries and employee benefits,
occupancy and office expenses, amortization of branch purchase premiums,
advertising and promotion expense, data processing expenses and federal deposit
insurance costs.
Net income for the nine months ended June 30, 1998 was $3.4 million
compared to $3.5 million for the nine months ended June 30, 1997. The decrease
was due primarily to increases in the provision for loan losses and non-interest
expenses, largely offset by an increase in net interest income and a decrease in
income tax expense.
INTEREST INCOME. Interest income increased by $984,000, or 2.8%, to
$35.7 million for the nine months ended June 30, 1998 from $34.8 million for the
nine months ended June 30, 1997. The increase was due primarily to an increase
in average interest-earning assets. The impact of declining yields and spreads
was partially offset by a change in asset mix. Loan balances increased while
investment and mortgage-backed securities declined. Income from loans increased
$1.7 million, partially offset by a $370,000 decrease in income from mortgage-
backed securities and a $359,000 decrease in income on investment securities and
other earning assets. The increase in income from loans was attributable to a
$39.0 million increase in the average balance of loans to $420.7 million from
$381.7 million, partially offset by a 24 basis point decrease in the average
yield on loans to 8.25% from 8.49%. The increase in average loans resulted
primarily from the origination of one-to four-family mortgage loans in a
continuing low interest rate environment. The decrease in the average yield on
loans resulted from declining market interest rates, as the Bank originated new
one- to four-family loans with yields lower than the average yield on the
existing loan portfolio. The decrease in income from mortgage-backed securities
was attributable almost entirely to a $7.8 million decrease in the average
balance of mortgage-backed securities to $138.3 million from $146.1 million, as
the average yield on mortgage-backed securities remained essentially unchanged.
The decrease in income from investment securities was attributable to a
$7.3 million decrease in the average balance of investment securities to
$63.2 million from $70.5 million combined with a 17 basis point decrease in the
average yield on investment securities to 5.94% from 6.11%.
INTEREST EXPENSE. Interest expense increased by $539,000, or 3.6%, to
$15.6 million for the nine months ended June 30, 1998 from $15.1 million for the
nine months ended June 30, 1997. This increase was the result of an
$11.2 million increase in the average balance of interest-bearing liabilities in
the 1998 period compared to the 1997 period and a 6 basis point increase in the
average rate paid on such liabilities over the same period. The increase in
overall interest expense resulted primarily from a $384,000 increase in interest
expense on certificates of deposit and a $113,000 increase in interest expense
on borrowings. The increase attributable to certificates of deposit resulted
from a $3.0 million increase in the average balance of certificates of deposit
to $240.2 million in 1998 from $237.2 million in 1997, combined with a 15 basis
point increase in the average cost of certificates of deposit to 5.33% from
5.18%. The increase attributable to borrowings resulted from a $3.6 million
increase in the average balance of borrowings to $29.0 million for the nine
months ended June 30, 1998 from $25.4 million for the nine months ended June 30,
1997, which was partially offset by a 24 basis point decrease in the average
cost of borrowings to 5.96% from 6.20%.
NET INTEREST INCOME. For the nine months ended June 30, 1998 and 1997, net
interest income was $20.1 million and $19.7 million, respectively. The $445,000
increase in net interest income was primarily attributable to a $13.4 million
increase in net earning assets (interest-earning assets less interest-bearing
liabilities), partially offset by a 15 basis point decline in the net interest
rate spread to 3.80% from 3.95%. The Bank's net interest margin decreased to
4.30% in the nine months ended June 30, 1998 from 4.37% in the nine months ended
June 30, 1997.
54
<PAGE>
PROVISION FOR LOAN LOSSES. The Bank records provisions for loan losses,
which are charged to earnings, in order to maintain the allowance for loan
losses at a level which is considered appropriate to absorb probable loan losses
inherent in the existing portfolio. In determining the appropriate level of the
allowance for loan losses, management considers past and anticipated loss
experience, evaluations of real estate collateral, current and anticipated
economic conditions, volume and type of lending, and the levels of non-
performing and other classified loans. The amount of the allowance is based on
estimates and the ultimate losses may vary from such estimates. Management of
the Bank assesses the allowance for loan losses on a quarterly basis and makes
provisions for loan losses in order to maintain the adequacy of the allowance.
The Bank's provision for loan losses increased by $472,000 to $1.3 million
for the nine months ended June 30, 1998 from $875,000 for the nine months ended
June 30, 1997. The increased provision reflects several factors including
(i) continued loan portfolio growth, including commercial real estate and
commercial business loans, (ii) an increase in non-performing loans to $5.7
million at June 30, 1998 from $4.7 million at September 30, 1997, and (iii) an
increase in net loan charge-offs to $578,000 in the nine months ended June 30,
1998 from $355,000 in the nine months ended June 30, 1997, primarily due to a
partial charge-off of $350,000 in the current year on $1.3 million in loans to a
borrower who declared bankruptcy.
NON-INTEREST INCOME. Non-interest income primarily consists of fee income
for bank services, but also includes gains and losses from the sale of loans and
securities. Total non-interest income increased by $86,000, or 3.9%, to
$2.3 million for the nine months ended June 30, 1998 from $2.2 million for the
nine month period ended June 30, 1997. The primary reason for the improvement
was a $179,000 increase in the gain on sale of loans to $185,000 for the nine
months ended June 30, 1998 from $6,000 for the nine months ended June 30, 1997.
The increase in loan sales in 1998 was the result of the Bank's decision to sell
newly originated, longer term fixed-rate mortgage loans as part of its interest
rate risk management. In addition, deposit- related fees and charges increased
$121,000, or 8.2%, to $1.6 million for the nine months ended June 30, 1998 from
$1.5 million for the nine months ended June 30, 1997. Partially offsetting these
increases was the recognition in the current-year period of a $192,000 loss on
an investment in a limited partnership that generates low-income housing tax
credits, which offset a portion of the Bank's income tax expense.
NON-INTEREST EXPENSE. Non-interest expense increased by $454,000, or 3.0%,
to $15.6 million for the nine months ended June 30, 1998 from $15.2 million for
the nine months ended June 30, 1997. The increase was primarily due to a
$177,000 increase in data processing expenses, a $175,000 increase in foreclosed
real estate expenses and a $173,000 increase in compensation and employee
benefits. These increases were offset, in part, by decreases in other non-
interest expenses of $188,000 and federal deposit insurance costs of $90,000.
Data processing expenses increased to $612,000 for the nine months ended
June 30, 1998 from $435,000 for the nine months ended June 30, 1997.
Approximately half of the $177,000 increase in data processing expenses related
to costs associated with the Bank's conversion to a new core data processing
system which is anticipated to occur by December 31, 1998. Foreclosed real
estate expenses were $66,000 for the nine months ended June 30, 1998 compared to
income of $109,000 for the same period in 1997, primarily due to the recognition
of a gain on the sale of a foreclosed property in the 1997 period. Compensation
and employee benefits increased to $7.5 million from $7.3 million primarily due
to a $108,000, or 4.0%, increase in salaries for Bank officers and a $78,000
increase in medical and disability insurance. Other non-interest expenses
decreased to $2.8 million from $3.0 million between the two reporting periods
due to a decrease of $136,000 in miscellaneous non-interest expenses, a decrease
of $52,000 in insurance premiums, and a decrease of $42,000 in net correspondent
bank charges. These decreases were partially offset by higher legal costs of
$149,000 in the nine months ended June 30, 1998. Notwithstanding an increase in
total deposits, federal deposit insurance costs decreased to $246,000 for the
nine months ended June 30, 1998 from $336,000 for the nine months ended June 30,
1997, due to lower insurance rates imposed by the FDIC.
INCOME TAXES. Income tax expense was $2.0 million for the nine months
ended June 30, 1998 compared to $2.4 million for the same period in 1997,
representing effective tax rates of 36.7% and 40.6%, respectively. The lower
effective tax rate reflected, in part, tax benefits from the recognition of low-
income housing tax credits and state tax bad debt deductions.
55
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND
SEPTEMBER 30, 1996
GENERAL. Net income for the fiscal year ended September 30, 1997 was
$4.6 million, an increase of $2.5 million, or 119.3%, from net income of
$2.1 million for the fiscal year ended September 30, 1996. The increase was due
primarily to a $3.3 million special assessment during fiscal 1996 to
recapitalize the SAIF. The after-tax impact of this one-time assessment was a
$2.0 million reduction of net income in fiscal 1996. The remaining increase in
net income was due to higher net interest income and non-interest income,
partially offset by increases in non-interest expenses and income tax expense.
INTEREST INCOME. Interest income increased by $4.0 million, or 9.4%, to
$46.6 million for the year ended September 30, 1997 from $42.6 million for the
year ended September 30, 1996. The increase was primarily due to a $3.3 million
increase in income from loans, a $390,000 increase in income from mortgage-
backed securities and a $365,000 increase in income from investment securities.
The increase in income from loans was attributable to a $37.2 million increase
in the average balance of loans to $385.4 million from $348.2 million, and a
6 basis point increase in the average yield on loans from 8.39% to 8.45%. In
fiscal 1997, the Bank continued its focus on increasing the loan portfolio by
reinvesting the proceeds from branch purchases and from repayments on investment
and mortgage-backed securities into loans. The increase in income from
investment securities was attributable to a $5.2 million increase in the average
balance of investment securities to $71.8 million from $66.6 million, and a
7 basis point increase in the average yield on investment securities to 6.11%
from 6.04%. The increase in income from mortgage-backed securities was
attributable to a $6.5 million increase in the average balance of mortgage-
backed securities to $144.3 million from $137.8 million, which was partially
offset by a 2 basis point decrease in the average yield on mortgage-backed
securities to 6.52% from 6.54%. Average balances for securities were higher in
fiscal 1997 than fiscal 1996 because securities purchased during fiscal 1996
were held for the entire 1997 fiscal year.
INTEREST EXPENSE. Interest expense increased by $1.6 million, or 8.6%, to
$20.2 million for the year ended September 30, 1997 from $18.6 million for the
fiscal year ended September 30, 1996. Overall, the average balance of interest-
bearing liabilities increased by $39.3 million in fiscal 1997, and the average
rate paid on these liabilities increased 3 basis points to 3.78% in fiscal 1997
from 3.75% in fiscal 1996. The increase in interest expense resulted primarily
from a $1.3 million increase in interest expense on certificates of deposit and
a $195,000 increase in interest expense on money market and NOW accounts. The
increase attributable to certificates of deposit resulted from a $24.8 million
increase in the average balance of certificates of deposit to $237.3 million in
fiscal 1997 from $212.5 million in fiscal 1996. The increase in interest
expense attributable to money market and NOW accounts was due to a $10.0 million
increase in the average balance of these accounts to $109.3 million in fiscal
year 1997 from $99.3 million in fiscal 1996. This increase was partially offset
by a 5 basis point decrease in the average cost of money market and NOW accounts
to 2.45% from 2.50%. The average balance in savings deposits increased by
$3.5 million to $164.7 million in fiscal 1997 from $161.2 million in fiscal
1996, resulting in a $78,000 increase in interest expense for fiscal 1997.
NET INTEREST INCOME. Net interest income increased $2.4 million, or 10.0%,
to $26.4 million in fiscal 1997 from $24.0 million in fiscal 1996. The increase
was attributable to a $7.5 million increase in net earning assets and a 6 basis
point increase in the net interest margin to 4.36% in fiscal 1997 from 4.30% in
fiscal 1996. The net interest rate spread increased 4 basis points to 3.92% in
fiscal 1997 from 3.88% in fiscal 1996.
PROVISION FOR LOAN LOSSES. The Bank's provision for loan losses increased
by $147,000 to $1.1 million for the year ended September 30, 1997 from $911,000
for the year ended September 30, 1996. The increase in the provision reflects
management's evaluation of changes in the level of losses inherent in the
portfolio as a result of ongoing portfolio growth and changes in the portfolio
mix. The allowance for loan losses represented 0.93% of net loans receivable at
September 30, 1997, compared to 0.91% at September 30, 1996.
NON-INTEREST INCOME. Non-interest income was $2.7 million for the year
ended September 30, 1997, a $260,000, or 10.6%, increase from $2.5 million for
the year ended September 30, 1996. Income from bank services and fees on
deposit accounts increased by $325,000 to $2.1 million for the fiscal year ended
September 30, 1997, from $1.8 million in fiscal 1996 primarily reflecting higher
transaction volume. Income from loan servicing decreased $65,000 for the year
ended September 30, 1997 to $583,000 from $648,000 for fiscal 1996, as the
balance of loans
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serviced for others declined due to refinancing trends and the Bank's decision
to retain most loans originated during that period.
NON-INTEREST EXPENSE. Non-interest expense decreased by $2.1 million, or
9.4%, to $20.6 million for the year ended September 30, 1997 from $22.7 million
for the year ended September 30, 1996. The decrease was due primarily to a non-
recurring $3.3 million special assessment to recapitalize the SAIF during the
year ended September 30, 1996. This was partially offset by an $852,000
increase in compensation and employee benefits, an $815,000 increase in
amortization of branch purchase premiums, a $621,000 increase in other expenses
and a $231,000 increase in occupancy and office expenses. Decreases in non-
interest expense for the year ended September 30, 1997 compared to the year
ended September 30, 1996 include a $213,000 decrease in advertising and
promotion expense, and a $481,000 decrease in expenses for foreclosed real
estate. Increases in compensation and employee benefits, amortization of
branch purchase premiums, occupancy and other expenses in fiscal 1997 reflect
the first full year of operating costs related to two purchased branches which
were operated by the Bank for only four and six months, respectively, in fiscal
1996.
INCOME TAXES. Income tax expense was $2.8 million for the year ended
September 30, 1997 compared to $690,000 for the year ended September 30, 1996,
representing effective tax rates of 38.1% in fiscal 1997 and 24.8% in fiscal
1996. The lower effective tax rate in fiscal 1996 primarily reflects the
recognition of a deferred tax benefit due to an amendment in New York State tax
law concerning tax bad debt reserves. See Note 10 of the Notes to Consolidated
Financial Statements.
COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1996
AND SEPTEMBER 30, 1995
GENERAL. Net income for the year ended September 30, 1996 was
$2.1 million, a decrease of $2.7 million, or 56.3%, from net income of
$4.8 million for the year ended September 30, 1995. The decrease was due
primarily to the one-time $3.3 million special assessment in 1996 to
recapitalize the SAIF. The after-tax impact of this one-time assessment was a
$2.0 million reduction in net income for fiscal 1996. In addition, increases in
net interest income and non-interest income in fiscal 1996 were more than offset
by increases in non-interest expenses other than the special assessment.
INTEREST INCOME. Interest income increased by $5.6 million, or 15.0%, to
$42.6 million for the year ended September 30, 1996 from $37.0 million for the
year ended September 30, 1995. The increase was primarily due to a $2.5 million
increase in income from loans, a $2.3 million increase in income from mortgage-
backed securities, and a $711,000 increase in income from investment securities.
The increase in income from loans was attributable to a $26.5 million increase
in the average balance of loans to $348.2 million from $321.7 million, and an
8 basis point increase in the average yield on loans to 8.39% from 8.31%. The
increase in income from mortgage-backed securities was attributable to a
$35.5 million increase in the average balance of mortgage-backed securities to
$137.8 million in fiscal 1996 from $102.3 million in fiscal 1995. The increase
in income from investment securities was partly attributable to a 22 basis point
increase in the average yield on investment securities to 6.04% from 5.82%, and
to a $9.8 million increase in the average balance of investment securities to
$66.6 million in fiscal 1996 from $56.8 million in fiscal 1995. Both investment
securities and mortgage-backed securities increased during fiscal 1996 as the
Bank purchased securities to deploy the funds received in the branch purchase
transactions.
INTEREST EXPENSE. Interest expense increased by $3.5 million, or 23.4%, to
$18.6 million for the year ended September 30, 1996 from $15.1 million for the
year ended September 30, 1995. This increase resulted primarily from a
$2.5 million increase in interest expense on certificates of deposit, and a
$344,000 increase in interest expense on money market and NOW accounts, as well
as an $848,000 increase in interest paid on borrowings. These increases were
partially offset by a $149,000 decrease in interest expense on savings accounts.
The increase in interest expense on certificates of deposit was the result of a
$41.8 million increase in the average balance of certificates of deposit to
$212.5 million from $170.7 million, and an 18 basis point increase in the
average cost of certificates of deposit to 5.20% from 5.02%. The increase in
interest expense on money market and NOW accounts was the result of a $15.5
million increase in the average balance of these accounts to $99.3 million in
fiscal 1996 from $83.8 million in fiscal 1995, which was partially offset by a
5 basis point decrease in the average cost of these accounts to 2.50% in fiscal
1996 from 2.55% in fiscal 1995. The decrease in interest expense on savings
accounts was due to a $6.7 million
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decrease in the average balance of total savings accounts to $161.2 million from
$167.9 million. The increase in the average balance of certificate of deposit
accounts and the decrease in the average balance of savings accounts were due
primarily to customers shifting funds from lower yielding savings accounts to
higher yielding certificates of deposit. The increase in interest expense on
borrowings was due to an increase in the average balance of borrowings to
$22.7 million in fiscal 1996 from $9.1 million in fiscal 1995.
PROVISION FOR LOAN LOSSES. The Bank's provision for loan losses increased
to $911,000 for the year ended September 30, 1996 from $760,000 for the year
ended September 30, 1995. This increase enabled the Bank to maintain an adequate
ratio of the allowance for loan losses to total loans at the end of each period
commensurate with the loan growth and the changing mix of the portfolio.
NON-INTEREST INCOME. Non-interest income was $2.5 million for the year
ended September 30, 1996, a $351,000 increase from $2.1 million for the year
ended September 30, 1995. Fee income from Bank services and fees on deposit
accounts increased $379,000 to $1.8 million for the year ended September 30,
1996 from $1.4 million for the year ended September 30, 1995. Loan servicing
income decreased $28,000 to $648,000 for 1996 from $676,000 for 1995. This
decrease reflected a decline in service fee income collected for servicing loans
sold in the secondary market. The decrease was related to the decline in the
balance of the loan servicing portfolio, as the Bank retained the loans that it
originated for its own portfolio.
NON-INTEREST EXPENSE. Non-interest expense increased by $7.4 million, or
48.9%, to $22.7 million for the year ended September 30, 1996 from $15.3 million
for the year ended September 30, 1995. The increase was primarily due to the
one-time $3.3 million special assessment in 1996 to recapitalize the SAIF.
Other non-interest expense increases related primarily to the initial inclusion
of expenses associated with two branches purchased during fiscal 1996. These
expenses included a $1.5 million increase in compensation and employee benefits,
a $506,000 increase in occupancy and office operations, a $551,000 increase in
advertising and promotion, a $341,000 increase in foreclosed real estate
expense, and a $691,000 increase in amortization of branch purchase premiums.
INCOME TAXES. Income tax expense was $690,000 for the year ended
September 30, 1996 compared to $3.2 million for the year ended September 30,
1995. The increase was due to a decrease in the effective tax rate to 24.8% for
fiscal 1996 from 40.3% for fiscal 1995. The lower effective tax rate in fiscal
1996 primarily reflected the recognition of a deferred tax benefit due to an
amendment in New York State tax law concerning tax bad debt reserves. See
Note 10 of the Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The objective of the Bank's liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion. Liquidity management addresses the
Bank's ability to meet deposit withdrawals on demand or at contractual maturity,
to repay borrowings as they mature, and to fund new loans and investments as
opportunities arise.
The Bank's primary sources of funds are deposits, proceeds from principal
and interest payments on loans and securities, and to a lesser extent,
borrowings and proceeds from the sale of fixed-rate mortgage loans in the
secondary mortgage market. While maturities and scheduled amortization of loans
and securities, and proceeds from borrowings are predictable sources of funds,
other funding sources such as deposit inflows, mortgage prepayments and mortgage
loan sales are greatly influenced by market interest rates, economic conditions
and competition.
The Bank's primary investing activities are the origination of both
residential one- to four-family and commercial real estate loans, and the
purchase of investment securities and mortgage-backed securities. During the
nine months ended June 30, 1998 and the years ended September 30, 1997, 1996,
and 1995, the Bank's loan originations totaled $143.6 million, $112.8 million,
$108.8 million and $66.2 million, respectively. Purchases of mortgage-backed
securities totaled $25.5 million, $12.1 million, $72.3 million and $29.0 million
for the nine months ended June 30, 1998 and the years ended September 30, 1997,
1996 and 1995, respectively. Purchases of investment securities totaled
$22.1 million, $13.2 million, $42.4 million and $29.1 million for the nine
months ended June 30, 1998 and the years ended September 30, 1997, 1996 and
1995, respectively. These activities were funded primarily
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by deposit growth and by principal repayments on loans and securities. Loan
sales totaling $16.9 million provided an additional source of liquidity during
the nine months ended June 30, 1998. Loan origination commitments totaled
$29.8 million at June 30, 1998, comprised of $20.1 million at adjustable or
variable rates and $9.7 million at fixed rates. The Bank anticipates that it
will have sufficient funds available to meet current loan commitments.
Deposit flows are generally affected by the level of interest rates, the
interest rates and products offered by local competitors, and other factors.
The net increase in total deposits was $33.2 million, $1.6 million,
$101.6 million and $23.9 million for the nine months ended June 30, 1998 and the
years ended September 30, 1997, 1996 and 1995, respectively. The deposit
increase in fiscal 1996 was primarily associated with two branch purchase
transactions in which the Bank assumed deposit liabilities totaling
$104.5 million. Certificates of deposit that are scheduled to mature in one year
or less from June 30, 1998 totaled $180.5 million. Based upon its prior
experience and current pricing strategy, the Bank believes that a significant
portion of such deposits will remain with the Bank.
The Bank monitors its liquidity position on a daily basis. Excess short-
term liquidity is usually invested in overnight federal funds sold, which
amounted to $5.0 million at June 30, 1998. The Bank generally remains fully
invested and utilizes additional sources of funds through FHLB advances, which
amounted to $25.0 million at June 30, 1998.
At June 30, 1998, the Bank exceeded all of its regulatory capital
requirements with a leverage capital level of $49.4 million, or 7.3% of adjusted
assets (which is above the required level of $20.2 million, or 3.0%) and a risk-
based capital level of $53.9 million, or 14.2% of risk-weighted assets (which is
above the required level of $30.3 million, or 8.0%). See "Regulatory Capital
Compliance," "Regulation--Regulatory Capital Requirements" and Note 11 of the
Notes to Consolidated Financial Statements.
CAPABILITY OF THE BANK'S DATA PROCESSING TO ACCOMMODATE THE YEAR 2000
The Bank, like all companies that utilize computer technology, is facing
the significant challenge of ensuring that its computer systems will be able to
process time-sensitive data accurately beyond the Year 1999 (referred to as the
"Year 2000 issue"). The Year 2000 issue has arisen since many existing computer
programs use two digits rather than four in date fields that define the year.
Such computer programs may recognize a date field using "00" as the Year 1900
rather than the Year 2000. Software, hardware and equipment both within and
outside the Bank's direct control (and with which the Bank interfaces either
electronically or operationally), are likely to be affected by the Year 2000
issue. If the Bank's computer systems are not adequately changed to properly
identify the Year 2000, computer applications could fail or create erroneous
results. Calculations that rely on date field information (such as interest,
payment or due dates, and other operating functions) would generate results
which could be significantly misstated, and the Bank could experience a
temporary inability to process transactions and engage in other normal business
activities. In addition, under certain circumstances, failure to adequately
address the Year 2000 issue could adversely affect the viability of the Bank's
suppliers and creditors and the creditworthiness of its borrowers. Thus, if not
adequately addressed, the Year 2000 issue could have a significant adverse
impact on the Bank's products, services and competitive condition.
The Bank has conducted a comprehensive review of its computer systems to
identify systems that could be affected by the Year 2000 issue, and has
developed an implementation plan (including establishing priorities for mission-
critical applications) to modify or replace the affected systems and test them
for Year 2000 compliance. The Bank's plan includes actions to identify Year
2000 issues attributable to its own systems and, where necessary, to remediate
or replace affected systems and applications. In addition, the Bank is
assessing the Year 2000 readiness of third parties who supply products and
services to the Bank, or who have material business relationships with the Bank
(including customers), since the failure of such third parties to address their
own Year 2000 issues may have an adverse effect on the Bank. The actions being
taken by the Bank in response to Year 2000 issues are consistent with the
guidelines set forth in policy statements issued by the bank regulatory
agencies.
The Bank's most significant mission-critical applications are those that
comprise its "core" data processing system for loans, deposits and the general
ledger. The Bank plans to convert to a new core system by December 31, 1998,
which it believes will enhance the quality of its information technology and
result in improved customer service.
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Like the Bank's present core system, the new system is maintained by a third-
party vendor. The Bank plans to begin Year 2000 testing on the new core system
promptly following the conversion, with a targeted testing completion date of
March 31, 1999.
The Bank presently believes that, with modifications to existing software
and conversions to new software, the Year 2000 issue will be mitigated without
causing a material adverse impact on its operations. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 issue could have a material adverse impact on the Bank's operations.
While the Bank expects to complete its Year 2000 plan on a timely basis, there
can be no assurance that the systems of other companies on which the Bank's
systems may rely also will be completed in a timely fashion. In addition, the
Bank exchanges data with a number of other entities, such as credit bureaus and
governmental entities. The failure of these entities to adequately address the
Year 2000 issue could adversely affect the Bank's ability to conduct its
business.
The Bank is preparing a Year 2000 business resumption contingency plan to
document pre-determined actions to help the Bank resume normal operations in the
event of failure of any mission-critical service and product, as specified in
the Bank's Year 2000 inventory list. The basic priorities for restoring service
will be based on the essential application processing required to ensure that
the Bank can continue to serve its customers. As part of its contingency
planning process, the Bank will conduct a business impact analysis to identify
potential disruption and the effect such disruption could have on business
operations should a service provider or software vendor be unable to restore
systems and/or business operations. The Bank will establish a recovery program
that identifies participants, processes and equipment that might be necessary
for the Bank to function adequately. The Bank will also institute a resumption
tracking system for critical operations to ensure that appropriate pre-
determined actions are identified. The tracking system will also identify any
required resources (equipment, personnel etc.) needed to restore operations. The
Bank expects to complete the contingency plan by March 31, 1999.
Monitoring and managing the Year 2000 issue will result in additional
direct and indirect costs for the Bank. Direct costs include potential charges
by third-party software vendors for product enhancements, costs involved in
testing software products for Year 2000 compliance, and any resulting costs for
developing and implementing contingency plans for critical software products
which are not enhanced. Indirect costs will principally consist of the time
devoted by existing employees in monitoring software vendor progress, testing
enhanced software products, and implementing any necessary contingency plans.
The Bank's direct and indirect costs of addressing the Year 2000 issue are
charged to expense as incurred, except for costs incurred in the purchase of new
software or hardware, which are capitalized. To date, costs incurred and
expensed primarily relate to the dedication of internal resources employed in
the assessment and development of the Bank's Year 2000 plan, as well as the
testing of hardware and software owned or licensed for its personal computers.
Costs incurred to date have not been material, and management does not expect
that additional costs to be incurred in connection with the Year 2000 issue will
have a material impact on the Bank's financial condition or results of
operations.
IMPACT OF NEW ACCOUNTING STANDARDS
FASB STATEMENT ON EARNINGS PER SHARE. In February 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128. The Statement establishes standards for computing
and presenting earnings per share and applies to entities with publicly held
common stock or potential common stock. This Statement simplifies the prior
accounting standards for computing earnings per share, as set forth in
Accounting Principles Board ("APB") Opinion No. 15. SFAS No. 128 replaces the
presentation of primary earnings per share ("EPS") with basic EPS and requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures. Basic EPS excludes dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock (such as stock options) were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. This Statement will apply to the
Company's earnings per share disclosures which will be made from the date of
completion of the Reorganization and Offering.
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FASB STATEMENT ON ACCOUNTING FOR STOCK-BASED COMPENSATION. In October
1995, the FASB issued SFAS No. 123 which addresses accounting for stock-based
compensation arrangements such as the Stock Option Plan and Recognition Plan
which are expected to be implemented subsequent to the Reorganization. SFAS
No. 123 defines a "fair-value-based method" of accounting whereby compensation
cost is measured at the grant date of a stock-based compensation award based on
the fair value of the award; such compensation cost is recognized as expense
over the service (vesting) period. The FASB has encouraged all entities to adopt
the fair-value-based method; however, SFAS No. 123 allows entities to continue
the use of the "intrinsic-value-based method" prescribed by APB Opinion No. 25.
Under the intrinsic-value-based method, compensation cost is measured based on
the award's intrinsic value, or the excess (if any) of the market price of the
stock at the grant date over the exercise price, i.e., the amount (if any) that
the employee must pay to acquire the stock. However, most stock option grants
have no intrinsic value at the grant date and, as such, no compensation cost is
recognized under APB Opinion No. 25. Entities electing to continue to apply APB
Opinion No. 25 must make certain pro forma disclosures of net income and
earnings per share, as if the fair-value-based method had been applied to awards
granted in fiscal years beginning after December 15, 1994. The Company expects
to adopt the "intrinsic-value-based method" as prescribed by APB Opinion No. 25.
Accordingly, no compensation expense will be recognized for the Stock Option
Plan since the exercise price of the options will equal the market price of the
underlying stock at the grant date. The grant date fair value of shares awarded
under the Recognition Plan will be recognized as expense on a straight-line
basis over the vesting period. See "Pro Forma Data."
FASB STATEMENT ON TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES. In June 1996, the FASB issued SFAS No. 125
which provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control. SFAS
No. 125 applies to transactions such as sales of loans with servicing retained,
loan securitizations, repurchase agreements, securities lending, loan
participations and in-substance deficiencies of debt. SFAS No. 125
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings. Under the financial-components approach, after a
transfer of financial assets, an entity recognizes all financial and servicing
assets it controls and liabilities it has incurred and derecognizes financial
assets it no longer controls and liabilities that have been extinguished. If a
transfer does not meet the criteria for a sale, the transaction is accounted for
as a secured borrowing with a pledge of collateral. SFAS No. 125 applies
prospectively to transactions occurring after January 1, 1997, although the
effective date of certain provisions was January 1, 1998. SFAS No. 125 has not
had, and is not expected to have, a material impact on the Bank's financial
statements.
FASB STATEMENT ON REPORTING COMPREHENSIVE INCOME. In June 1997, the FASB
issued SFAS No. 130, "Reporting Comprehensive Income," which establishes
standards for the reporting and display of comprehensive income (and its
components) in financial statements. The standard does not, however, specify
when to recognize or how to measure items that make up comprehensive income.
Comprehensive income represents net income and certain amounts reported directly
in equity, such as the net unrealized gain or loss on available-for-sale
securities. While SFAS No. 130 does not require a specific reporting format, it
does require that an enterprise display in the financial statements an amount
representing total comprehensive income for the period. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997 and, accordingly,
will be adopted by the Company in the fiscal year beginning October 1, 1998.
Management does not anticipate that the adoption of this standard will
significantly affect the Company's financial reporting.
FASB STATEMENT ON SEGMENT DISCLOSURES AND RELATED INFORMATION. In June
1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," which changes the way public companies report
information about segments of their business and requires them to report
selected segment information in their quarterly reports issued to shareholders.
Among other things, SFAS No. 131 requires public companies to report (i) certain
financial and descriptive information about its reportable operating segments
(as defined), and (ii) certain enterprise-wide financial information about
products and services, geographic areas and major customers. The required
segment financial disclosures include a measure of profit or loss, certain
specific revenue and expense items, and total assets. SFAS No. 131 is effective
for reporting by public companies in fiscal years beginning after December 15,
1997 and, accordingly, would be adopted by the Company upon completion of the
Reorganization and Offering. SFAS No. 131 is not expected to have a significant
impact on the Company's financial reporting.
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FASB STATEMENT ON EMPLOYER DISCLOSURES ABOUT PENSIONS AND OTHER
POSTRETIREMENT BENEFITS. In February 1998, the FASB issued SFAS No. 132 which
standardizes the disclosure requirements for pensions and other postretirement
benefits; requires additional information on changes in the benefit obligations
and fair values of plan assets; and eliminates certain present disclosure
requirements. SFAS No. 132 does not change the recognition or measurement
requirements for postretirement benefits. SFAS No. 132 is effective for fiscal
years beginning after December 15, 1997 and, accordingly, will be adopted by the
Company in the fiscal year beginning October 1, 1998. Management does not
anticipate that this standard will significantly affect the Company's financial
reporting.
FASB STATEMENT ON DERIVATIVES AND HEDGING ACTIVITIES. In June 1998, the
FASB issued SFAS No. 133 which establishes accounting and reporting standards
for derivative instruments and for hedging activities. SFAS No. 133 requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial condition at fair value. If certain conditions are met,
a derivative may be specifically designated as a fair value hedge, a cash flow
hedge, or a foreign currency hedge. A specific accounting treatment applies to
each type of hedge. Entities may reclassify securities from the held-to-
maturity category to the available-for-sale category at the time of adopting
SFAS No. 133. The Bank has not yet determined whether it will reclassify
securities between categories. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999 and, accordingly, will be
adopted by the Company in the fiscal year beginning on October 1, 1999. The
Bank has engaged in limited derivatives and hedging activities covered by the
new standard, and does not expect to significantly increase such activities in
the near term. Accordingly, SFAS No. 133 is not expected to have a material
impact on the Company's consolidated financial statements.
BUSINESS OF PROVIDENT BANCORP, INC.
Pursuant to the Plan, the Bank will organize the Company as a majority-
owned subsidiary of the Mutual Holding Company. The Company will own 100% of
the common stock of the Bank. The Company is not currently an operating
company. Following the Reorganization, in addition to directing, planning and
coordinating the business activities of the Bank, the Company initially will
invest the net proceeds it retains primarily in short and medium-term
investments. The Company also intends to fund the loan to the ESOP to enable the
ESOP to purchase up to 8% of the Common Stock sold in the Offering. In the
future, the Company may acquire or organize other operating subsidiaries,
including other financial institutions and financial services companies. See
"Use of Proceeds." Presently, there are no agreements or understandings for an
expansion of the Company's operations. Initially, the Company will neither own
nor lease any property from any third party, but will instead use the premises,
equipment and furniture of the Bank. At the present time, the Company does not
intend to employ any persons other than certain senior officers of the Bank, who
will not be compensated separately by the Company. The Company may use the
support staff of the Bank from time to time, if needed. Additional employees
will be hired as appropriate to the extent the Company expands its business in
the future.
BUSINESS OF PROVIDENT BANK
GENERAL
The Bank has been serving the financial needs of Rockland County residents
since its establishment in 1888. The Bank's principal business consists of
offering savings and other deposit products to individuals and businesses, and
using those deposits together with funds generated from operations and
borrowings, to make one- to four-family residential and commercial real estate
loans, consumer loans, construction and land loans, commercial business loans,
and multi-family residential loans. The Bank also invests in mortgage-backed
securities and investment securities. The Bank's income is derived principally
from the interest on its mortgage, consumer and commercial loans and securities,
loan servicing income, and service charges and fees collected on its deposit
accounts. The Bank's primary sources of funds are deposits, principal and
interest payments on loans and securities, and borrowings from the FHLB.
MARKET AREA
The Bank is an independent community bank offering a broad range of
customer-focused services as an alternative to money center banks in its market
area. The Bank currently operates eleven full-service banking offices,
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including one supermarket branch in Rockland County, New York. The Bank's
primary market for deposits is currently concentrated around the areas where its
full-service banking offices are located. The Bank's primary lending area also
has been historically concentrated in Rockland and contiguous counties.
Rockland County is a suburban market with a broad employment base. The
population of Rockland County was approximately 265,000 as of 1990, and was
estimated to be approximately 279,000 in 1997, an increase of 5.2%. Rockland
County also serves as a bedroom community for nearby New York City and other
suburban areas including Westchester County and northern New Jersey. The
Rockland County economy has improved significantly since the early 1990s. The
unemployment rate in Rockland County was approximately 4.7% in 1996 and 3.8% in
1997. The favorable economic environment in the New York metropolitan area has
led to an increase in residential and commercial construction activity in recent
years.
The economy of the Bank's primary market areas is based on a mixture of
service, manufacturing and wholesale/retail trade. Other employment is provided
by a variety of industries and state and local governments. The diversity of
the employment base is evidenced by the major employers which include the State
of New York, Rockland County, Wyeth Ayerst, Novartis Pharmaceutical Corporation,
NYNEX Mobile Communications, Orange and Rockland Utilities, Nyack and Good
Samaritan Hospitals, Chromalloy, and Helen Hayes Hospital. Additionally,
Rockland County has numerous small employers.
FUTURE ACQUISITION AND EXPANSION ACTIVITY
Both nationally and in New York, the banking industry is undergoing a
period of consolidation marked by numerous mergers and acquisitions. Although
the Bank does not have a formal program to acquire other banking or thrift
institutions, and although there are no current understandings or agreements
(written or oral) regarding any such transactions, the Bank may be presented
with opportunities to acquire institutions or bank branches that could expand
and strengthen its market position. Acquisitions typically involve the payment
of a premium over book and market values and, therefore, some dilution of the
Company's book value and net income per share may occur in connection with any
future acquisition.
LENDING ACTIVITIES
GENERAL. Historically, the principal lending activity of the Bank has been
the origination of fixed-rate and ARM loans collateralized by one- to four-
family residential real estate located within its primary market area. The Bank
also originates commercial real estate loans, commercial business loans,
construction and land loans and consumer loans such as home equity lines of
credit and homeowner loans. The Bank retains most of the loans that it
originates, although from time to time it may sell longer-term one- to four-
family residential real estate loans. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Management of Market Risk."
63
<PAGE>
LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition
of the Bank's loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------
JUNE 30, 1998 1997 1996
------------------- ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FIRST MORTGAGE LOANS
One- to four-family...................... $271,593 59.4% $241,895 57.7% $219,868 57.2%
Multi-family............................. 7,108 1.6 7,358 1.8 7,743 2.0
Commercial real estate................... 63,712 13.9 55,747 13.3 58,640 15.4
Construction and land.................... 27,785 6.1 31,740 7.6 28,035 7.3
-------- ------ -------- ----- -------- -----
Total first mortgage loans......... 370,198 81.0 336,740 80.4 314,286 81.9
-------- ------ -------- ----- -------- -----
OTHER LOANS
Consumer loans:
Home equity lines of credit............. 28,362 6.2 31,456 7.4 31,306 8.1
Homeowner loans......................... 25,418 5.6 18,678 4.5 12,575 3.3
Other consumer loans.................... 8,855 1.9 10,670 2.5 10,916 2.8
-------- ------ -------- ----- -------- -----
Total consumer loans.............. 62,635 13.7 60,804 14.4 54,797 14.2
Commercial business loans............... 24,036 5.3 21,651 5.2 15,263 3.9
-------- ------ -------- ----- -------- -----
Total other loans................. 86,671 19.0 82,455 19.6 70,060 18.1
-------- ------ -------- ----- -------- -----
Total loans receivable................... 456,869 100.0% 419,195 100.0% 384,346 100.0%
====== ===== =====
Loans in process........................ (12,732) (11,424) (11,775)
Allowance for loan losses............... (4,548) (3,779) (3,357)
Deferred loan origination costs, net.... 771 505 273
-------- -------- --------
Total loans receivable, net............. $440,360 $404,497 $369,487
======== ======== ========
<CAPTION>
SEPTEMBER 30,
------------------------------------------------------------
1995 1994 1993
------------------ ------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FIRST MORTGAGE LOANS
One- to four-family...................... $199,078 59.0% $194,425 60.8% $191,168 63.9%
Multi-family............................. 6,903 2.0 7,408 2.3 7,869 2.6
Commercial real estate................... 60,186 17.9 55,053 17.3 44,194 14.8
Construction and land.................... 8,553 2.5 8,455 2.6 5,863 1.9
-------- ----- -------- -------- -------- --------
Total first mortgage loans......... 274,720 81.4 265,341 83.0 249,094 83.2
-------- ----- -------- -------- -------- --------
OTHER LOANS
Consumer loans:
Home equity lines of credit............. 31,550 9.4 27,711 8.6 23,498 8.0
Homeowner loans......................... 9,937 2.9 7,939 2.5 7,739 2.6
Other consumer loans.................... 9,917 2.9 8,124 2.5 10,527 3.5
-------- ----- -------- -------- -------- --------
Total consumer loans.............. 51,404 15.2 43,774 13.6 41,764 14.1
Commercial business loans............... 11,144 3.4 10,595 3.4 7,949 2.7
-------- ----- -------- -------- -------- --------
Total other loans................. 62,548 18.6 54,369 17.0 49,713 16.8
-------- ----- -------- -------- -------- --------
Total loans receivable................... 337,268 100.0% 319,710 100.0% 298,807 100.0%
===== ======== ========
Loans in process........................ (2,240) (2,083) (1,173)
Allowance for loan losses............... (3,472) (2,837) (2,565)
Deferred loan origination costs, net.... 391 364 8
-------- -------- --------
Total loans receivable, net............. $331,947 $315,154 $295,077
======== ======== ========
</TABLE>
64
<PAGE>
LOAN MATURITY SCHEDULE. The following table summarizes the contractual
maturities of the Bank's loan portfolio at June 30, 1998. Loans with
adjustable or renegotiable interest rates are shown as maturing at the end of
the contractual term of the loan. The table reflects the entire unpaid
principal balance of a loan maturing in the period that includes the final
payment date and, accordingly, does not give effect to periodic principal
payments or possible prepayments.
<TABLE>
<CAPTION>
MULTI-FAMILY AND
ONE- TO FOUR-FAMILY COMMERCIAL REAL ESTATE CONSTRUCTION AND LAND
------------------------- ------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------------ ----------- ------------ ----------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Due During the Years
Ending June 30,
- ---------------------------
1999 (1)................... $ 236 9.10% $ 4,047 8.52% $18,429 9.19%
2000....................... 366 9.08 3,650 8.77 8,144 8.79
2001....................... 761 9.15 1,547 8.39 750 8.50
2002 and 2003.............. 3,206 8.25 4,214 8.90 -- --
2004 to 2008............... 21,917 8.00 17,168 8.80 462 8.00
2009 to 2023............... 148,115 7.70 39,879 8.51 -- --
2024 and following......... 96,992 7.57 315 8.67 -- --
-------- ------- -------
Total................. $271,593 7.69% $70,820 8.62% $27,785 9.04%
======== ==== ======= ==== ======= ====
<CAPTION>
CONSUMER COMMERCIAL BUSINESS TOTAL
------------------------- ------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------------ ----------- ------------ ----------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Due During the Years
Ending June 30,
- ---------------------------
1999 (1)................... $ 1,149 10.18% $14,494 9.04% $ 38,355 9.09%
2000....................... 3,188 10.78 1,455 9.05 16,803 9.19
2001....................... 4,391 10.49 2,258 8.73 9,707 9.49
2002 and 2003.............. 12,043 9.47 2,731 9.31 22,194 9.16
2004 to 2008............... 32,979 9.04 2,234 8.73 74,760 8.67
2009 to 2023............... 8,885 9.32 864 9.72 197,743 7.95
2024 and following......... -- -- -- -- 97,307 7.58
------- ------- --------
Total................. $62,635 9.37% $24,036 9.04% $456,869 8.22%
======= ===== ======= ==== ======== ====
</TABLE>
___________________
(1) Includes demand loans, loans having no stated maturity, and overdraft
loans.
65
<PAGE>
The following table sets forth the dollar amounts of fixed- and adjustable-
rate loans at June 30, 1998 that are contractually due after June 30, 1999.
<TABLE>
<CAPTION>
DUE AFTER JUNE 30, 1999
--------------------------------
FIXED ADJUSTABLE TOTAL
-------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
First mortgage loans:
One- to four-family...................... $188,543 $ 82,814 $271,357
Multi-family and commercial real estate.. 15,726 51,047 66,773
Construction and land.................... -- 9,356 9,356
-------- -------- -------
Total first mortgage loans............ 204,269 143,217 347,486
Consumer loans........................... 32,017 29,469 61,486
Commercial business loans................ 316 9,226 9,542
-------- -------- -------
Total loans........................... $236,602 $181,912 $418,514
======== ======== ========
</TABLE>
ONE- TO FOUR-FAMILY REAL ESTATE LENDING. The Bank's primary lending
activity is the origination of one-to four-family residential mortgage loans
secured by properties located in the Bank's primary market area. The Bank
offers conforming and non-conforming, fixed-rate and adjustable-rate,
residential mortgage loans with maturities of up to 30 years and maximum loan
amounts generally of up to $600,000.
The Bank currently offers both fixed- and adjustable-rate conventional
mortgage loans with terms of 10 to 30 years that are fully amortizing with
monthly or bi-weekly loan payments. One- to four-family residential mortgage
loans are generally underwritten according to Fannie Mae and Freddie Mac
guidelines, and loans that conform to such guidelines are referred to as
"conforming loans." The Bank generally originates both fixed-rate and ARM loans
in amounts up to the maximum conforming loan limits as established by Fannie Mae
and Freddie Mac secondary mortgage market standards, which are currently
$227,150 for single-family homes. Private mortgage insurance is generally
required for loans with loan-to-value ratios in excess of 80%. Loans in excess
of conforming loan limits, in amounts of up to $600,000, are also underwritten
to both Fannie Mae and Freddie Mac secondary mortgage market standards. These
loans are eligible for sale to various conduit firms that specialize in the
purchase of such non-conforming loans, although most of these loans are retained
in the Bank's loan portfolio.
The Bank's bi-weekly one- to four-family residential mortgage loans result
in significantly shorter repayment schedules than conventional monthly mortgage
loans. The accelerated repayment schedule that accompanies a bi-weekly mortgage
loan results in lower total interest payments and a more rapid increase in home
equity. Bi-weekly mortgage loans are also repaid through an automatic deduction
from the borrower's savings or checking account, which enables the Bank to avoid
the cost of processing payments. As of June 30, 1998, bi-weekly loans totaled
$56.5 million or 20.8% of the Bank's residential loan portfolio.
Fixed-rate mortgage loans originated by the Bank include due-on-sale
clauses which provide that the loan is immediately due and payable in the event
the borrower transfers ownership of the property. Due-on-sale clauses are an
important means of adjusting the yields on the Bank's fixed-rate residential
loan portfolio, and the Bank generally exercises its rights under these clauses.
The Bank actively monitors its interest rate risk position to determine the
desirable level of investment in fixed-rate mortgages. Depending on market
interest rates and the Bank's capital and liquidity position, the Bank may
retain all of its newly originated longer term fixed-rate, fixed-term
residential mortgage loans or may decide to sell all or a portion of such loans
in the secondary mortgage market to government sponsored enterprises such as
Fannie Mae and Freddie Mac. As a matter of policy, the Bank retains the
servicing rights on all loans sold to generate fee income and reinforce its
commitment to customer service. For the nine months ended June 30, 1998, the
Bank sold mortgage loans totaling $16.9 million compared with $197,000 for the
nine months ended June 30, 1997. As of June 30, 1998, the Bank's portfolio of
loans serviced for others totaled $128.5 million.
66
<PAGE>
The Bank currently offers several ARM loan products secured by residential
properties with rates that adjust every six months to one year, after an initial
fixed-rate period of from six months to seven years. After the initial term, the
interest rate on these loans is reset based upon a contractual spread or margin
above the average yield on U.S. Treasury securities, adjusted to a constant
maturity of one year (the "U.S. Treasury Constant Maturity Index"), as published
weekly by the Federal Reserve Board. ARM loans are generally subject to
limitations on interest rate increases of 2% per adjustment period, and an
aggregate adjustment of 6% over the life of the loan. ARM loans require that
any payment adjustment resulting from a change in the interest rate on the ARM
loan be sufficient to result in full amortization of the loan by the end of the
loan term, and thus, do not permit any of the increased payment to be added to
the principal amount of the loan, commonly referred to as negative amortization.
Although ARM loans are offered with terms of up to 30 years, these loans
generally remain outstanding for substantially shorter periods of time. At June
30, 1998, the Bank's ARM portfolio included $20.4 million in loans which reprice
every six months, $33.9 million in one-year ARMs and $28.5 million in loans with
an initial fixed-rate period of from three to seven years.
The retention of ARM loans, as opposed to long term, fixed-rate residential
mortgage loans, in the Bank's portfolio helps reduce its exposure to interest
rate risk. However, ARM loans generally pose different credit risks than fixed-
rate loans primarily because the underlying debt service payments of the
borrowers rise as interest rates rise, thereby increasing the potential for
default. In order to minimize this risk, borrowers of one-to four-family one
year ARM loans are qualified at the rate which would be in effect after the
first interest rate adjustment, if that rate is higher than the initial rate.
Management believes that these risks, which have not had a material adverse
effect on the Bank to date, generally are less than the interest rate risks
associated with holding longer-term fixed-rate loans.
While one- to four-family residential loans typically are originated with
15 to 30 year terms, such loans generally remain outstanding in the Bank's loan
portfolio for substantially shorter periods of time because borrowers must
prepay their loans in full upon sale of the property pledged as security or upon
refinancing the loan. Thus, average loan maturity is a function of, among other
factors, the level of purchase and sale activity in the Bank's primary lending
market, prevailing market interest rates, and the interest rates payable on
outstanding loans.
The Bank requires title insurance on all of its one-to four-family mortgage
loans, and also requires that fire and extended coverage casualty insurance
(and, if appropriate, flood insurance) be maintained in an amount at least equal
to the lesser of the loan balance or the replacement cost of the improvements.
Loans with loan-to-value ratios in excess of 80% must have private mortgage
insurance, although occasional exceptions may be made. Nearly all residential
loans must have a mortgage escrow account from which disbursements are made for
real estate taxes and for hazard and flood insurance.
COMMERCIAL REAL ESTATE AND MULTI-FAMILY REAL ESTATE LENDING. The Bank
originates real estate loans secured predominantly by first liens on commercial
real estate and apartment buildings. The commercial real estate properties are
predominantly non-residential properties such as office buildings, shopping
centers, retail strip centers, industrial and warehouse properties and, to a
lesser extent, more specialized properties such as churches, mobile home parks,
restaurants, motel/hotels and auto dealerships. The Bank may, from time to
time, purchase commercial or multi-family real estate loan participations.
Loans secured by commercial real estate totaled $63.7 million or 13.9% of the
Bank's total loan portfolio as of June 30, 1998, and consisted of 175 loans
outstanding with an average loan balance of approximately $364,000. Loans
secured by multi-family residential real estate totaled $7.1 million or 1.6% of
the Bank's total loan portfolio as of June 30, 1998, and consisted of 34 loans
outstanding with an average loan balance of approximately $209,000.
Substantially all of the Bank's commercial real estate and multi-family loans
were secured by properties located in its primary market area.
As part of the Bank's ongoing interest rate risk management, the Bank
offers adjustable-rate commercial and multi-family real estate loans. The
initial interest rates on these loans adjust after an initial three or five year
period to new market rates that generally range between 200 to 350 basis points
over the then current three or five year U.S. Treasury or FHLB rates.
Commercial real estate loans typically have a term of approximately 10 years,
with an amortization schedule of approximately 20 years, and may be repaid
subject to certain penalties. Multi-family real estate loans typically have a
term of 10 years, with a 25 year amortization schedule, and also may be prepaid
subject to penalties.
67
<PAGE>
In the underwriting of commercial and multi-family real estate loans, the
Bank generally lends up to 70% of the property's appraised value on apartment
buildings, up to 70% of the property's appraised value on commercial properties
that are not owner-occupied, and up to 75% of the property's appraised value on
commercial properties that are owner-occupied. Appraised values are determined
by independent appraisers designated by the Bank. The Bank generally obtains an
environmental assessment from an independent engineering firm of any
environmental risks that may be associated with a particular building or the
site. Decisions to lend are based on the economic viability of the property and
the creditworthiness of the borrower. Creditworthiness is determined by
considering the character, experience, management and financial strength of the
borrower, and the ability of the property to generate adequate funds to cover
both operating expenses and debt service. In evaluating a commercial real
estate loan, the Bank emphasizes primarily the ratio of net cash flow to debt
service for the property, generally requiring a ratio of at least 110%, computed
after deduction for a vacancy factor and property expenses deemed appropriate by
the Bank. In addition, a personal guarantee of the loan is generally required
from the principal(s) of the borrower. On all real estate loans, the Bank
requires title insurance insuring the priority of its lien, fire and extended
coverage casualty insurance, and flood insurance, if appropriate, in order to
protect the Bank's security interest in the underlying property.
Commercial real estate and multi-family loans generally carry higher
interest rates and have shorter terms than those on one- to four-family
residential mortgage loans. Commercial real estate and multi-family loans,
however, entail significant additional credit risks compared to one- to four-
family residential mortgage loans, as they typically involve large loan balances
concentrated with single borrowers or groups of related borrowers. In addition,
the payment experience on loans secured by income producing properties typically
depends on the successful operation of the related real estate project and thus
may be subject to a greater extent to adverse conditions in the real estate
market and in the economy generally.
CONSTRUCTION AND LAND LOANS. The Bank originates acquisition, development
and construction loans to builders in its market area. Acquisition loans are
made to help finance the purchase of land intended for further development,
including single-family houses, multi-family housing, and commercial income
property. In some cases, the Bank may make an acquisition loan before the
borrower has received approval to develop the land as planned. Loans for the
acquisition of land are generally limited to the Bank's most creditworthy
customers. In general, the maximum loan-to-value ratio for a land acquisition
loan is 50% of the appraised value of the property. Acquisition loans are often
made in conjunction with development and construction loans. Acquisition loans
may also be made to borrowers who already own the property, but who require
additional financing to develop the property.
The Bank also makes development loans to builders in its market area to
finance improvements to real estate, consisting mostly of single-family
subdivisions, typically to finance the cost of utilities, roads and sewers.
Builders generally rely on the sale of single family homes to repay development
loans, although in some cases the improved building lots may be sold to another
builder. The maximum loan-to-value ratio for these loans is generally 60% of
the appraised value of the property. Advances are made in accordance with a
schedule reflecting the cost of improvements. The Bank's policy is to confirm
prior to each advance that the improvements have been completed properly as
evidenced by an inspection report issued by an appraiser or engineer hired by
the Bank. In addition, prior to advancing funds, the Bank confirms that its
lien priority remains in effect.
The Bank also grants construction loans to area builders, often in
conjunction with development loans. These loans finance the cost of completing
homes on the improved property. The loans are generally limited to the lesser
of 70% of the appraised value of the property or the actual cost of
improvements. In the case of single-family construction, the Bank limits the
number of houses it will finance that are not under contract for sale. As part
of its underwriting process for construction loans on income producing
properties, such as apartment buildings and commercial rental properties, the
Bank considers the likelihood of leasing the property at the expected rental
amount, and the time to achieve sufficient occupancy levels. The Bank generally
requires a percentage of the building to be leased prior to granting a
construction loan on income producing property.
Advances on construction loans are made in accordance with a schedule
reflecting the cost of construction. The Bank's policy is to confirm prior to
each advance that the construction has been completed properly as evidenced by
an inspection report issued by an appraiser or engineer hired by the Bank. The
Bank also confirms that its lien
68
<PAGE>
priority remains in force before advancing funds. Repayment of construction
loans on residential subdivisions is normally expected from the sale of units to
individual purchasers. In the case of income producing property, repayment is
usually expected from permanent financing upon completion of construction. The
Bank commits to provide the permanent mortgage financing on most of its
construction loans on income-producing property.
Acquisition, development and construction lending exposes the Bank to
greater credit risk than permanent mortgage financing. The repayment of
acquisition, development and construction loans depends upon the sale of the
property to third parties or the availability of permanent financing upon
completion of all improvements. In the event the Bank makes an acquisition loan
on property that is not yet approved for the planned development, there is the
risk that approvals will not be granted or will be delayed. These events may
adversely affect the borrower and the collateral value of the property.
Development and construction loans also expose the Bank to the risk that
improvements will not be completed on time in accordance with specifications and
projected costs. In addition, the ultimate sale or rental of the property may
not occur as anticipated.
As of June 30, 1998, the Bank had $8.8 million in acquisition and
development loans, and $19.0 million in construction loans.
CONSUMER AND OTHER LOANS. The Bank originates a variety of consumer and
other loans, including homeowner loans, home equity lines of credit, new and
used automobile loans, and personal unsecured loans, including both fixed-rate
installment loans and prime rate variable lines-of-credit. As of June 30, 1998,
consumer loans totaled $62.6 million, or 13.7% of the total loan portfolio.
At June 30, 1998, the largest group of consumer loans consisted of $53.8
million of loans secured by junior liens on residential properties. The Bank
offers fixed-rate, fixed-term second mortgage loans, referred to as "homeowner
loans," and adjustable-rate home equity lines of credit. Homeowner loans are
offered in amounts up to 100% of the appraised value of the property (including
prior liens) with a maximum loan amount of $75,000. Home equity loans are
generally offered in amounts up to 75% of the appraised value of the property
including prior liens, with a maximum loan amount of $200,000. As of June 30,
1998, homeowner loans totaled $25.4 million or 5.6% of the Bank's total loan
portfolio. The disbursed portion of home equity lines of credit totaled $28.4
million, or 6.2% of the Bank's total loan portfolio, with $24.9 million
remaining undisbursed.
Other consumer loans include personal loans and loans secured by new or
used automobiles. As of June 30, 1998, these loans totaled $8.9 million, or 1.9%
of the Bank's total loan portfolio. The Bank originates automobile loans
directly to its customers and has no outstanding agreement with automobile
dealerships to generate indirect loans. The maximum term for an automobile loan
is generally 60 months for a new car, and 36 to 48 months for a used car. The
Bank will generally lend up to 100% of the purchase price of a new car, and up
to 90% of the lesser of the purchase price or the National Automobile Dealers'
Association book rate for a used car. The Bank requires all borrowers to
maintain collision insurance on automobiles securing loans in excess of $5,000,
with the Bank listed as loss payee. Personal loans also include secured and
unsecured installment loans. Unsecured installment loans generally have shorter
terms than secured consumer loans, and generally have higher interest rates than
rates charged on secured installment loans with comparable terms.
The Bank's procedures for underwriting consumer loans include an assessment
of an applicant's credit history and the ability to meet existing obligations
and payments on the proposed loan. Although an applicant's creditworthiness is
a primary consideration, the underwriting process also includes a comparison of
the value of the collateral security, if any, to the proposed loan amount.
Consumer loans generally entail greater risk than residential mortgage
loans, particularly in the case of consumer loans that are unsecured or secured
by assets that tend to depreciate, such as automobiles. In such cases,
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment for the outstanding loan and the remaining deficiency often
does not warrant further substantial collection efforts against the borrower.
In addition, the repayment of consumer loans depends on the borrower's continued
financial stability, as their repayment is more likely than a single family
mortgage loan to be adversely affected by job loss, divorce, illness
69
<PAGE>
or personal bankruptcy. Furthermore, the application of various federal and
state laws (including bankruptcy and insolvency laws) may limit the amount that
can be recovered on such loans.
COMMERCIAL BUSINESS LOANS. The Bank currently offers commercial business
loans to customers in its market area, some of which are secured in part by
additional real estate collateral. In an effort to expand its customer account
relationships and develop a broader base of more interest rate sensitive assets,
the Bank makes various types of secured and unsecured commercial loans for the
purpose of financing equipment acquisition, expansion, working capital and other
general business purposes. The terms of these loans generally range from less
than one year to seven years. The loans are either negotiated on a fixed-rate
basis or carry adjustable interest rates indexed to a lending rate which is
determined internally, or a short-term market rate index. The Bank may, from
time to time, purchase commercial business loan participations. At June 30,
1998, the Bank had 251 commercial business loans outstanding with an aggregate
balance of $24.0 million, or 5.3% of the total loan portfolio. As of June 30,
1998, the average commercial business loan balance was approximately $96,000.
Commercial credit decisions are based upon a complete credit assessment of
the loan applicant. A determination is made as to the applicant's ability to
repay in accordance with the proposed terms as well as an overall assessment of
the risks involved. An investigation is made of the applicant to determine
character and capacity to manage. Personal guarantees of the principals are
generally required. In addition to an evaluation of the loan applicant's
financial statements, a determination is made of the probable adequacy of the
primary and secondary sources of repayment to be relied upon in the transaction.
Credit agency reports of the applicant's credit history as well as bank checks
and trade investigations supplement the analysis of the applicant's
creditworthiness. Collateral supporting a secured transaction is also analyzed
to determine its marketability and liquidity. Commercial business loans
generally bear higher interest rates than residential loans, but they also
involve a higher risk of default since their repayment is generally dependent on
the successful operation of the borrower's business.
LOAN ORIGINATIONS, PURCHASES, SALES AND SERVICING. While the Bank
originates both fixed-rate and adjustable-rate loans, its ability to generate
each type of loan depends upon borrower demand, market interest rates, borrower
preference for fixed- versus adjustable-rate loans, and the interest rates
offered on each type of loan by other lenders in the Bank's market area. This
includes competing banks, savings banks, credit unions, and mortgage banking
companies, as well as life insurance companies, and Wall Street conduits that
also actively compete for local commercial real estate loans. Loan originations
are derived from a number of sources, including branch office personnel,
existing customers, borrowers, builders, attorneys, real estate broker referrals
and walk-in customers.
The Bank's loan origination and sales activity may be adversely affected by
a rising interest rate environment that typically results in decreased loan
demand. Accordingly, the volume of loan originations and the profitability of
this activity can vary from period to period. One- to four-family residential
mortgage loans are generally underwritten to current Fannie Mae and Freddie Mac
seller/servicer guidelines. One- to four-family loans are also closed on
standard Fannie Mae/Freddie Mac documents and sales are conducted using standard
Fannie Mae/Freddie Mac purchase contracts and master commitments as applicable.
One- to four-family mortgage may be loans sold both to Fannie Mae and Freddie
Mac on a non-recourse basis whereby foreclosure losses are generally the
responsibility of either Fannie Mae or Freddie Mac and not the Bank. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Management of Market Risk."
The Bank is a qualified loan servicer for both Fannie Mae and Freddie Mac.
The Bank's policy has been to retain the servicing rights for all loans sold,
and to continue to collect payments on the loans, maintain tax escrows and
applicable fire and flood insurance coverage, and supervise foreclosure
proceedings if necessary. The Bank retains a portion of the interest paid by
the borrower on the loans as consideration for its servicing activities.
70
<PAGE>
The following table sets forth the loan origination, sale and repayment
activities of the Bank for the periods indicated. The Bank has not purchased
any loans in recent years.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JUNE 30, YEAR ENDED SEPTEMBER 30,
------------------- ------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Unpaid principal balances at
beginning of period................. $419,195 $384,346 $384,346 $337,268 $319,710
-------- -------- -------- -------- --------
Originations by Type
- ---------------------------
Adjustable-rate:
First mortgage loans:
One- to four-family............... 12,424 7,919 11,299 7,814 9,350
Multi-family...................... 388 325 325 778 225
Commercial real estate............ 11,541 7,825 7,932 5,108 7,528
Construction and land............. 9,338 12,213 14,240 25,235 7,717
Other loans:
Consumer.......................... 8,038 10,321 14,166 12,315 4,866
Commercial business............... 12,329 5,115 8,140 6,595 4,803
-------- -------- -------- -------- --------
Total adjustable-rate........... 54,058 43,718 56,102 57,845 34,489
-------- -------- -------- -------- --------
Fixed-rate:
First mortgage loans:
One- to four-family............... 65,462 16,122 33,214 41,022 16,974
Commercial real estate............ 3,919 585 710 385 512
Construction and land............. 563 859 1,002 1,643 1,139
Other loans:
Consumer.......................... 16,072 12,143 16,954 4,489 10,008
Commercial business............... 3,512 3,008 4,788 3,397 3,071
-------- -------- -------- -------- --------
Total fixed-rate................ 89,528 32,717 56,668 50,936 31,704
-------- -------- -------- -------- --------
Total loans originated.......... 143,586 76,435 112,770 108,781 66,193
-------- -------- -------- -------- --------
Sales
- ---------------------------
First mortgage loans................ (16,932) (197) (197) (433) (1,605)
-------- -------- -------- -------- --------
Principal Repayments
- ---------------------------
First mortgage loans................ (52,067) (33,833) (45,021) (39,146) (32,034)
Other loans......................... (35,738) (23,561) (31,352) (19,736) (14,616)
-------- -------- -------- -------- --------
Total principal
repayments........................ (87,805) (57,394) (76,373) (58,882) (46,650)
-------- -------- -------- -------- --------
Net charge-offs...................... (578) (355) (636) (1,026) (125)
Transfers to real estate
owned............................... (597) (694) (715) (1,362) (255)
-------- -------- -------- -------- --------
Unpaid principal balances
at end of period.................... 456,869 402,141 419,195 384,346 337,268
Loans in process..................... (12,732) (9,505) (11,424) (11,775) (2,240)
Allowance for loan losses............ (4,548) (3,877) (3,779) (3,357) (3,472)
Deferred loan origination
costs, net.......................... 771 454 505 273 391
-------- -------- -------- -------- --------
Net loans at end of period........... $440,360 $389,213 $404,497 $369,487 $331,947
======== ======== ======== ======== ========
</TABLE>
LOAN APPROVAL AUTHORITY AND UNDERWRITING. The Bank has four levels of
lending authority: the Board of Directors, the Director Loan Committee, the
Management Loan Committee, and individual loan officers. The Board grants
lending authority to the Director Loan Committee, the majority of the members of
which are Directors. The Director Loan Committee in turn may grant authority to
the Management Loan Committee and individual loan officers. In addition,
designated members of management may grant authority to individual loan officers
up to specified limits. The lending activities of the Bank are subject to
written policies established by the Board. These policies are reviewed
periodically.
The Director Loan Committee may approve loans of up to a maximum of $3.2
million in the aggregate to any one borrower and related entities in accordance
with the Bank's loans-to-one borrower policy. The Management Loan Committee may
approve loans of up to an aggregate of $650,000 to any one borrower and related
borrowers.
71
<PAGE>
Two loan officers with sufficient loan authority acting together may approve
loans up to $350,000. The maximum individual authority to approve an unsecured
loan is $50,000.
The Bank has established a risk rating system for its commercial business
loans, commercial and multi-family real estate loans, and construction loans to
builders. The risk rating system assesses a variety of factors to rank the risk
of default and risk of loss associated with the loan. These ratings are
performed by commercial credit personnel who do not have responsibility for loan
originations. The Bank determines its maximum loans to one borrower based upon
the rating of the loan. The large majority of loans fall into three categories.
The maximum for the best rated borrowers is $7.5 million, for the next group of
borrowers is $5.5 million, and for the third group is $3.5 million. Sublimits
apply based on reliance on any single property, and for commercial loans.
In connection with its mortgage loans, the Bank requires property
appraisals performed by independent appraisers who are approved by the Board.
Appraisals are then reviewed by the appropriate loan underwriting areas of the
Bank. The Bank also requires title insurance, hazard insurance and, if
indicated, flood insurance on property securing its mortgage loans. For
consumer loans under $50,000, such as equity lines of credit and homeowner
loans, title insurance is not required.
LOAN ORIGINATION FEES AND COSTS. In addition to interest earned on loans,
the Bank also receives loan origination fees. Such fees vary with the volume
and type of loans and commitments made, and competitive conditions in the
mortgage markets, which in turn respond to the demand and availability of money.
The Bank defers loan origination fees and costs, and amortizes such amounts as
an adjustment to yield over the term of the loan by use of the level-yield
method. Deferred loan origination costs (net of deferred fees) were $771,000 at
June 30, 1998.
To the extent that originated loans are sold on or after January 1, 1997,
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," requires the Bank to capitalize a mortgage
servicing asset at the time of the sale. In the nine months ended June 30,
1998, the Bank recognized $169,000 in income upon capitalization of originated
mortgage servicing rights for loans sold on a servicing-retained basis. The
capitalized amount is amortized thereafter (over the period of estimated net
servicing income) as a reduction of servicing fee income. The unamortized
amount is fully charged to income when loans are prepaid. Asset recognition of
servicing rights on sales of originated loans was not permitted under accounting
standards in effect prior to SFAS No. 125, when the Bank sold the majority of
the loans it presently services for others. Originated mortgage servicing
rights with an amortized cost of $163,000 are included in other assets at June
30, 1998. See also Notes 1 and 4 of the Notes to Consolidated Financial
Statements.
LOANS-TO-ONE BORROWER. Savings associations are subject to the same loans-
to-one borrower limits as those applicable to national banks, which under
current regulations restrict loans to one borrower to an amount equal to 15% of
unimpaired net worth on an unsecured basis, and an additional amount equal to
10% of unimpaired net worth if the loan is secured by readily marketable
collateral (generally, financial instruments and bullion, but not real estate).
The Bank monitors its credit limits by relationship and by total credit
exposure, including the unused portion of credit made available by the Bank,
such as unadvanced amounts on construction loans and unused lines of credit. At
June 30, 1998, the five largest aggregate amounts loaned to individual borrowers
by the Bank (including any unused lines of credit) were as follows: $7.4
million, consisting of mortgage-secured and unsecured financing; $4.4 million
secured by a mortgage; $3.6 million secured by a mortgage; $3.6 million,
consisting of mortgage-secured and unsecured financing; and $3.5 million,
consisting of mortgage-secured financing. All of the loans discussed above are
performing in accordance with their terms.
DELINQUENCIES AND CLASSIFIED ASSETS
COLLECTION PROCEDURES. A computer generated late notice is sent by the
17th day of the month requesting the payment due plus the late charge that was
assessed. After the late notices have been mailed, accounts are assigned to a
collector for follow-up to determine reasons for delinquency and to review
payment options. Additional system-generated collection letters are sent to
customers every 10 days. Notwithstanding ongoing collection efforts, all
consumer loans are fully charged-off after 120 days.
72
<PAGE>
LOANS PAST DUE AND NON-PERFORMING ASSETS. Loans are reviewed on a regular
basis. Loans are placed on non-accrual status when either principal or interest
is 90 days or more past due. In addition, loans are placed on non-accrual
status when, in the opinion of management, there is sufficient reason to
question the borrower's ability to continue to meet contractual principal or
interest payment obligations. Interest accrued and unpaid at the time a loan is
placed on a non-accrual status is reversed from interest income. Interest
payments received on non-accrual loans are not recognized as income unless
warranted based on the borrower's financial condition and payment record. At
June 30, 1998, the Bank had non-accrual loans of $5.7 million, representing
loans of $4.8 million which were 90 days or more delinquent and a current loan
of $962,000 which was on non-accrual status due to concerns about the borrower's
ability to continue making contractual payments. The ratio of non-performing
loans to total loans was 1.30% at June 30, 1998.
Real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure is classified as real estate owned ("REO") until such time as it is
sold. When real estate is acquired through foreclosure or by deed in lieu of
foreclosure, it is recorded at its fair value, less estimated costs of disposal.
If the fair value of the property is less than the loan balance, the difference
is charged against the allowance for loan losses. At June 30, 1998, the Bank
had REO of $366,000. The Bank had total non-performing assets (non-accrual loans
and REO) of $6.1 million and a ratio of non-performing assets to total assets of
0.90% at June 30, 1998.
73
<PAGE>
The following table sets forth certain information with respect to the
Bank's loan portfolio delinquencies at the dates indicated.
<TABLE>
<CAPTION>
LOANS DELINQUENT FOR
------------------------------------
60-89 DAYS 90 DAYS AND OVER TOTAL
---------------- ----------------- -----------------
NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT
------ ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
At June 30, 1998
- ----------------
First mortgage loans:
One- to four-family......... 16 $1,310 34 $3,323 50 $4,633
Multi-family................ 1 143 -- -- 1 143
Commercial real estate...... -- -- 2 848 2 848
Construction and land....... -- -- 1 180 1 180
----- ------ ----- ------ ----- ------
17 1,453 37 4,351 54 5,804
Other loans:
Consumer.................... 5 98 15 230 20 328
Commercial business......... 1 76 9 194 10 270
----- ------ ----- ------ ----- ------
Total..................... 23 $1,627 61 $4,775 84 $6,402
===== ====== ===== ------ ===== ======
At September 30, 1997
- ---------------------
First mortgage loans:
One- to four-family......... 11 $1,245 28 $2,549 39 $3,794
Multi-family................ 1 146 -- -- 1 146
Commercial real estate...... 1 58 4 1,375 5 1,433
Construction and land....... -- -- 2 276 2 276
----- ------ ----- ------ ----- ------
13 1,449 34 4,200 47 5,649
Other loans:
Consumer.................... 5 87 23 234 28 321
Commercial business......... 4 98 7 243 11 341
----- ------ ----- ------ ----- ------
Total..................... 22 $1,634 64 $4,677 86 $6,311
===== ====== ===== ====== ===== ======
At September 30, 1996
- ---------------------
First mortgage loans:
One- to four-family......... 15 $ 936 37 $2,731 52 $3,667
Commercial real estate...... 2 282 11 2,087 13 2,369
Construction and land....... -- -- 3 920 3 920
----- ------ ----- ------ ----- ------
17 1,218 51 5,738 68 6,956
Other loans:
Consumer.................... 4 109 24 503 28 612
Commercial business......... 1 65 3 109 4 174
----- ------ ----- ------ ----- ------
Total 22 $1,392 78 $6,350 100 $7,742
===== ====== ===== ====== ===== ======
</TABLE>
74
<PAGE>
NON-PERFORMING ASSETS. The table below sets forth the amounts and
categories of the Bank's non-performing assets at the dates indicated. At each
date presented, the Bank had no troubled debt restructurings (loans for which a
portion of interest or principal has been forgiven and loans modified at
interest rates materially less than current market rates).
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, ------------------------------------------------
1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans:
One- to four-family.................... $3,323 $2,549 $2,731 $1,972 $1,158 $1,416
Commercial real estate................. 848 1,375 2,087 3,346 1,222 1,465
Construction and land/(1)/............. 1,142 276 920 209 209 30
Consumer............................... 230 234 503 421 329 390
Commercial business.................... 194 243 109 654 837 1,011
------ ------ ------ ------ ------ ------
Total non-performing loans.......... 5,737 4,677 6,350 6,602 3,755 4,312
------ ------ ------ ------ ------ ------
Real estate owned:
One- to four-family.................... 92 186 347 50 508 773
Commercial real estate................. 274 -- 960 160 242 401
------ ------ ------ ------ ------ ------
Total real estate owned............. 366 186 1,307 210 750 1,174
------ ------ ------ ------ ------ ------
Total non-performing assets.............. $6,103 $4,863 $7,657 $6,812 $4,505 $5,486
====== ====== ====== ====== ====== ======
Ratios:
Non-performing loans to total loans.... 1.30% 1.16% 1.72% 1.99 % 1.19% 1.46%
Non-performing assets to total assets.. 0.90 0.75 1.21 1.29 0.94 1.17
</TABLE>
- ---------------
/(1)/ Non-accrual construction and land loans at June 30, 1998 include a loan
with a balance of $962,000 which was current in accordance with its
contractual terms. Management placed this loan on non-accrual status
during the nine months ended June 30, 1998 due to concerns about the
borrower's ability to continue making contractual payments.
For the year ended September 30, 1997 and for the nine months ended
June 30, 1998, gross interest income that would have been recorded had the non-
accrual loans at the end of the period remained on accrual status throughout the
period amounted to $411,000 and $523,000, respectively. Interest income actually
recognized on such loans totaled $147,000 for the year ended September 30, 1997
and $241,000 for the nine months ended June 30, 1998.
CLASSIFICATION OF ASSETS. The Bank's policies, consistent with regulatory
guidelines, provide for the classification of loans and other assets such as
securities that are considered to be of lesser quality as substandard, doubtful,
or loss assets. An asset is considered substandard if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. Substandard assets include those characterized by
the distinct possibility that the savings 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, on the basis of currently existing facts, conditions, and values, highly
questionable and improbable. Assets classified as loss are those considered
uncollectible and of such little value that their continuance as assets is not
warranted. Assets that do not expose the Bank to risk sufficient to warrant
classification in one of the aforementioned categories, but which possess some
weaknesses, are required to be designated as special mention by management. As
of June 30, 1998, the Bank had $4.6 million of assets designated as special
mention.
When the Bank classifies assets as either substandard or doubtful, it
allots for analytical purposes a portion of general valuation allowances or loss
reserves to such assets as deemed prudent by management. General allowances
represent loss allowances that have been established to recognize the inherent
risk associated with lending activities, but which have not been allocated to
particular problem assets. When the Bank classifies problem assets as loss, it
is required either to establish a specific allowance for losses equal to 100% of
the amount of the assets so classified, or to charge-off such amount. The
Bank's determination as to the classification of its assets and the amount of
its valuation allowance is subject to review by its regulatory agencies, which
can order the establishment of additional loss allowances. Management regularly
reviews the Bank's asset portfolio to determine whether any assets require
classification in accordance with applicable regulations. On the basis of
management's review of the Bank's assets at June 30, 1998, classified assets
consisted of substandard assets of $4.7 million (loans receivable of
75
<PAGE>
$4.3 million and REO of $366,000) and doubtful assets (loans receivable) of
$101,000. There were no assets classified as loss at June 30, 1998.
ALLOWANCE FOR LOAN LOSSES. The Bank provides for loan losses based on the
allowance method. Accordingly, all loan losses are charged to the related
allowance and all recoveries are credited to it. Additions to the allowance for
loan losses are provided by charges to income based on various factors which, in
management's judgment, deserve current recognition in estimating probable
losses. Management regularly reviews the loan portfolio and makes provisions
for loan losses in order to maintain the adequacy of the allowance for loan
losses. The allowance for loan losses consists of amounts specifically
allocated to non-performing loans and potential problem loans (if any) as well
as allowances determined for each major loan category. Loan categories such as
single-family residential mortgages and consumer loans are generally evaluated
on an aggregate or "pool" basis by applying loss factors to the current balances
of the various loan categories. The loss factors are determined by management
based on an evaluation of historical loss experience, delinquency trends, volume
and type of lending conducted, and the impact of current economic conditions in
the Bank's market area. While management uses the best information available to
make evaluations, future adjustments to the allowance may be necessary if
conditions differ substantially from the assumptions used in making the
evaluations.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to recognize additions to the allowance based
on their judgments of information available to them at the time of their
examination.
At June 30, 1998, the allowance for loan losses was $4.5 million, which
equaled 1.03% of net loans and 79.27% of non-performing loans. For the nine
months ended June 30, 1998 and the years ended September 30, 1997 and 1996, the
Bank recorded net loan charge-offs of $578,000, $636,000 and $1.0 million,
respectively, as a reduction of the allowance for loan losses. Provisions for
loan losses added to the allowance were $1.3 million, $1.1 million and $911,000
during the respective periods. The Bank's provisions for loan losses are
described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
76
<PAGE>
The following table sets forth activity in the Bank's allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JUNE 30, YEARS ENDED SEPTEMBER 30,
------------------- ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period.................. $3,779 $ 3,357 $3,357 $ 3,472 $2,837 $2,565 $1,963
------ ------- ------ ------- ------ ------ ------
Charge-offs:
One- to four-family........................... (3) (83) (114) (33) (85) (86) (79)
Commercial real estate........................ (87) (84) (301) (840) - (56) (47)
Construction and land......................... (350) - - - - - -
Consumer...................................... (161) (136) (171) (203) (67) (59) (52)
Commercial business........................... (10) (93) (173) - - - -
------ ------- ------ ------- ------ ------ ------
Total charge-offs....................... (611) (396) (759) (1,076) (152) (201) (178)
------ ------- ------ ------- ------ ------ ------
Recoveries:
One- to four-family........................... - - 42 3 - - -
Commercial real estate........................ - 4 32 14 - - -
Consumer...................................... 33 37 49 33 27 21 19
Commercial business........................... - - - - - - 1
------ ------- ------ ------- ------ ------ ------
Total recoveries........................ 33 41 123 50 27 21 20
------ ------- ------ ------- ------ ------ ------
Net charge-offs................................. (578) (355) (636) (1,026) (125) (180) (158)
Provision for loan losses....................... 1,347 875 1,058 911 760 452 760
------ ------- ------ ------- ------ ------ ------
Balance at end of period........................ $4,548 $ 3,877 $3,779 $ 3,357 $3,472 $2,837 $2,565
====== ======= ====== ======= ====== ====== ======
Ratios:
Net charge-offs to average loans outstanding.. 0.14% 0.09% 0.17% 0.29% 0.04% 0.06% 0.05%
Allowance for loan losses to non-performing
loans...................................... 79.27 112.08 80.80 52.87 52.59 75.55 59.49
Allowance for loan losses to total loans
receivable, net............................ 1.03 1.00 0.93 0.91 1.05 0.90 0.87
</TABLE>
77
<PAGE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES. The following tables set forth
the allowance for loan losses allocated by loan category, the total loan
balances by category, and the percent of loans in each category to total loans
at the dates indicated. The allowance for loan losses allocated to each
category is not necessarily indicative of future losses in any particular
category and does not restrict the use of the allowance to absorb losses in
other categories.
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------------------------------
JUNE 30, 1998 1997 1996
------------------------------- ------------------------------ -------------------------------
PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS
LOAN IN EACH LOAN IN EACH LOAN IN EACH
BALANCES CATEGORY BALANCES CATEGORY BALANCES CATEGORY
LOAN LOSS BY TO TOTAL LOAN LOSS BY TO TOTAL LOAN LOSS BY TO TOTAL
ALLOWANCE CATEGORY LOANS ALLOWANCE CATEGORY LOANS ALLOWANCE CATEGORY LOANS
--------- -------- ---------- --------- -------- ---------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First mortgage loans:
One- to four-family........ $1,150 $271,593 59.4% $ 734 $241,895 57.7% $ 756 $219,868 57.2%
Multi-family............... 47 7,108 1.6 47 7,358 1.8 47 7,743 2.0
Commercial real estate..... 1,810 63,712 13.9 1,384 55,747 13.3 1,200 58,640 15.4
Construction and land...... 306 27,785 6.1 389 31,740 7.6 389 28,035 7.3
Consumer loans.............. 862 62,635 13.7 782 60,804 14.4 429 54,797 14.2
Commercial business loans... 373 24,036 5.3 443 21,651 5.2 536 15,263 3.9
------ -------- ----- ------ -------- ----- ------ -------- -----
Total..................... $4,548 $456,869 100.0% $3,779 $419,195 100.0% $3,357 $384,346 100.0%
====== ======== ===== ====== ======== ===== ====== ======== =====
<CAPTION>
SEPTEMBER 30,
------------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------- ------------------------------ -------------------------------
PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS
LOAN IN EACH LOAN IN EACH LOAN IN EACH
BALANCES CATEGORY BALANCES CATEGORY BALANCES CATEGORY
LOAN LOSS BY TO TOTAL LOAN LOSS BY TO TOTAL LOAN LOSS BY TO TOTAL
ALLOWANCE CATEGORY LOANS ALLOWANCE CATEGORY LOANS ALLOWANCE CATEGORY LOANS
--------- -------- ---------- --------- -------- ---------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First mortgage loans:
One- to four-family........ $ 696 $199,078 59.0% $ 738 $194,425 60.8% $ 840 $191,168 63.9%
Multi-family............... 47 6,903 2.0 47 7,408 2.3 41 7,869 2.6
Commercial real estate..... 1,330 60,186 17.9 673 55,053 17.3 514 44,194 14.8
Construction and land...... 389 8,553 2.5 344 8,455 2.6 284 5,863 1.9
Consumer loans.............. 474 51,404 15.2 499 43,774 13.6 625 41,764 14.1
Commercial business loans... 536 11,144 3.4 536 10,595 3.4 261 7,949 2.7
------ -------- ----- ------ -------- ----- ------ -------- -----
Total..................... $3,472 $337,268 100.0% $2,837 $319,710 100.0% $2,565 $298,807 100.0%
====== ======== ===== ====== ======== ===== ====== ======== =====
</TABLE>
SECURITIES ACTIVITIES
The Bank's securities investment policy is established by the Board of
Directors. This policy dictates that investment decisions will be made based on
the safety of the investment, liquidity requirements, potential returns, cash
flow targets, and consistency with the Bank's interest rate risk management.
The Board's asset/liability committee oversees the Bank's investment program and
evaluates on an ongoing basis the Bank's investment policy and objectives. The
chief financial officer, or the chief financial officer acting with the chief
executive officer, is responsible for making securities portfolio decisions in
accordance with established policies. The Bank's chief financial officer and
chief executive officer have the authority to purchase and sell securities
within specific guidelines established by the investment policy. However, all
transactions are reviewed by the Board's committee on at least a quarterly
basis.
The Bank's current policies generally limit securities investments to U.S.
Government and agency securities, municipal bonds, and corporate debt
obligations as well as investments in preferred and common stock of government
agencies, such as Fannie Mae, Freddie Mac and the Federal Home Loan Bank
("federal agency securities"). Securities in these categories are classified as
"investment securities" for financial reporting purposes. The policy also
permits investments in mortgage-backed securities, including pass-through
securities issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae as
well as collateralized mortgage obligations ("CMOs") issued or backed by
78
<PAGE>
securities issued by these government agencies. Also permitted are investments
in securities issued or backed by the Small Business Administration and asset-
backed securities collateralized by auto loans, credit card receivables, and
home equity and home improvement loans. The Bank's current investment strategy
uses a risk management approach of diversified investing in fixed-rate
securities with short- to intermediate-term maturities, as well as adjustable-
rate securities, which may have a longer term to maturity. The emphasis of this
approach is to increase overall investment securities yields while managing
interest rate risk. To accomplish these objectives, the Bank focuses on
investments in mortgage-backed securities and CMOs. In addition, U.S. Government
and other non-amortizing securities are used for call protection and liquidity.
79
<PAGE>
The composition and maturities of the investment securities portfolio (debt
securities) and the mortgage-backed securities portfolio at June 30, 1998 are
summarized in the following table. Maturities are based on the final
contractual payment dates, and do not reflect the impact of prepayments or
redemptions that may occur.
<TABLE>
<CAPTION>
MORE THAN ONE YEAR MORE THAN THAN FIVE YEARS
ONE YEAR OR LESS THROUGH FIVE YEARS THROUGH TEN YEARS
-------------------- -------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE
COST YIELD COST YIELD COST YIELD
--------- --------- --------- --------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT SECURITIES:
U.S. Government
securities.............. $18,974 5.50% $17,231 6.15% $ -- --%
Federal agency
obligations............. 1,030 5.79 26.507 5.86 -- --
Corporate debt securities 1,998 5.35 -- -- -- --
Municipal and other
securities.............. 285 5.35 26 8.02 -- --
------- ------- ----------
Total................. $22,287 5.49% $43,764 5.97% $ -- --%
======= ==== ======= ==== ========== =======
MORTGAGE-BACKED SECURITIES:
Ginnie Mae............... $ -- --% $ 13 7.50% $ 1,390 7.61%
Fannie Mae............... -- -- 8,786 6.07 13,586 6.15
Freddie Mac.............. 3,078 5.60 1,287 7.31 8,846 6.62
CMOs and REMICs.......... -- -- -- -- 12,148 6.24
Other.................... -- -- -- -- -- --
------- ------- ----------
Total.................. $ 3,078 5.60% $10,086 6.23% $35,970 6.35%
======= ==== ======= ==== ========== =======
<CAPTION>
MORE THAN TEN YEARS TOTAL SECURITIES
------------------- -----------------------------
WEIGHTED WEIGHTED
AMORTIZED AVERAGE AMORTIZED FAIR AVERAGE
COST YIELD COST VALUE YIELD
--------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INVESTMENT SECURITIES:
U.S. Government
securities.............. $ -- --% $ 36,205 $ 36,348 5.81%
Federal agency
obligations............. -- -- 27,537 27,495 5.85
Corporate debt securities -- -- 1,998 1,996 5.35
Municipal and other
securities.............. 400 6.75 711 711 6.25
------- -------- --------
Total................. $ 400 6.75% $ 66,451 $ 66,550 5.81%
======= ==== ======== ======== ====
MORTGAGE-BACKED SECURITIES:
Ginnie Mae............... $ 5,498 7.15% $ 6,901 $ 6,983 7.25%
Fannie Mae............... 17,947 6.65 40,319 40,399 6.35
Freddie Mac.............. 30,562 6.96 43,773 44,269 6.81
CMOs and REMICs.......... 23,344 6.23 35,492 35,757 6.23
Other.................... 6,336 6.82 6,336 6,430 6.82
------- -------- --------
Total.................. $83,687 6.69% $132,821 $133,838 6.49%
======= ==== ======== ======== ====
</TABLE>
80
<PAGE>
INVESTMENT SECURITIES. At June 30, 1998, the Bank held $68.8 million, or
10.1% of total assets, in investment securities, consisting primarily of U.S.
Government and agency obligations with short- to medium-term maturities (one to
five years). While these securities generally provide lower yields than other
investments such as mortgage-backed securities, the Bank's current investment
strategy is to maintain investments in such instruments to the extent
appropriate for liquidity purposes, as collateral for borrowings, and for
prepayment protection.
SFAS No. 115 requires the Bank to designate its securities as held to
maturity, available for sale, or trading, depending on the Bank's ability and
intent. The Bank does not have a trading portfolio. As of June 30, 1998, $48.6
million of the investment securities portfolio, or 7.2% of total assets, was
classified as available for sale. At such date, $20.2 million of the investment
securities portfolio, or 3.0% of total assets, was classified as held to
maturity.
The following table sets forth the composition of the Bank's investment
securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------------------------
JUNE 30, 1998 1997 1996 1995
---------------- ---------------- ---------------- ----------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE COST VALUE
------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY:
U.S. Government securities........... $ 8,979 $ 8,975 $ 8,952 $ 8,913 $13,888 $13,763 $23,945 $23,774
Federal agency obligations........... 10,507 10,493 12,521 12,457 7,514 7,307 13,506 13,521
Municipal and other securities....... 711 711 722 721 736 730 469 469
------- ------- ------- ------- ------- ------- ------- -------
Total investment securities held
to maturity................. 20,197 20,179 22,195 22,091 22,138 21,800 37,920 37,764
------- ------- ------- ------- ------- ------- ------- -------
SECURITIES AVAILABLE FOR SALE:
U.S. Government securities........... 27,227 27,372 27,273 27,387 24,185 24,046 7,123 7,144
Federal agency obligations........... 17,029 17,003 15,993 15,948 16,976 16,814 9,974 10,166
Corporate debt securities............ 1,998 1,996 3,007 3,005 4,037 4,033 4,078 4,045
Equity securities.................... 2,017 2,258 2,017 2,177 2,017 2,420 17 101
------- ------- ------- ------- ------- ------- ------- -------
Total investment securities
available for sale.......... 48,271 48,629 48,290 48,517 47,215 47,313 21,192 21,456
------- ------- ------- ------- ------- ------- ------- -------
Total investment securities...... $68,468 $68,808 $70,485 $70,608 $69,353 $69,113 $59,112 $59,220
------- ------- ------- ------- ------- ------- ------- -------
Weighted average term to maturity...... 2 years 2 years 2 years 2 years
</TABLE>
U.S. Government and Agency Obligations. At June 30, 1998, the Bank's U.S.
Treasury securities portfolio totaled $36.4 million, or 5.4% of total assets, of
which $27.3 million was classified as available for sale and $9.0 million was
classified as held to maturity. All of the Bank's U.S. Treasury securities at
that date had maturities of less than five years, with a weighted average yield
of 5.81%. At June 30, 1998, the federal agency securities portfolio totaled
$27.5 million, or 4.1% of total assets, of which $17.0 million was classified as
available for sale and $10.5 million was classified as held to maturity. All of
the Bank's agency securities had maturities of less than five years, with a
weighted average yield of 5.85%. The agency securities portfolio includes both
non-callable and callable debentures. The agency debentures are callable on a
quarterly basis following an initial holding period of from twelve to twenty-
four months.
Corporate Bonds and Other Debt Securities. At June 30, 1998, the Bank held
one corporate debt security, in the amount of $2.0 million, which was classified
as available for sale. This security had a maturity of less than one year and a
yield of 5.35%. Bank policy limits investments in corporate bonds to securities
with maturities of three years or less and rated "AA" or better by at least one
nationally recognized rating agency, and to a total investment of no more than
$2.0 million per issuer and a total portfolio limit of $10.0 million. Bank
policy limits investments in floating-rate corporate bonds to securities with
maturities of five years or less and rated "AA" or better, and to a total
investment of no more than $2.0 million per issuer and a total portfolio limit
of $20.0 million. At June 30, 1998, the Bank held two bonds issued by states
and political subdivisions in the amount of $685,000. The bonds are not rated
and have an estimated fair value of $685,000.
81
<PAGE>
Equity Securities. At June 30, 1998, the Bank's equity securities
portfolio totaled $2.2 million, all of which was classified as available for
sale, and consisted of preferred stock issued by Freddie Mac and Fannie Mae.
The Bank also held $3.7 million of common stock in the FHLB of New York as a
condition of membership. The Bank benefits from its investment in common and
preferred stock due to a tax deduction the Bank receives with regard to
dividends paid by domestic corporate issuers on equity securities held by other
corporate entities, such as the Bank. The Bank's policy limit for aggregate
equity investments (other than FHLB stock) is $5.0 million and the amount
invested in any single issuer may not exceed $2.5 million. The Bank's current
policies permit the purchase of preferred stock of U.S. Government-sponsored or
quasi-government agencies such as those described above.
MORTGAGE-BACKED SECURITIES. The Bank purchases mortgage-backed securities
in order to: (i) generate positive interest rate spreads with minimal
administrative expense; (ii) lower credit risk as a result of the guarantees
provided by Freddie Mac, Fannie Mae and Ginnie Mae; and (iii) increase
liquidity. The Bank invests primarily in mortgage-backed securities issued or
sponsored by Fannie Mae, Freddie Mac, and Ginnie Mae. The Bank also invests to
a lesser extent in securities backed by the Small Business Administration, or
agencies of the U.S. government.
Mortgage-backed securities are created by pooling mortgages and issuing a
security collateralized by the pool of mortgages with an interest rate that is
less than the interest rate on the underlying mortgages. Mortgage-backed
securities typically represent a participation interest in a pool of single-
family or multi-family mortgages, although most of the Bank's mortgage-backed
securities investments are collateralized by single-family mortgages. The
issuers of such securities (generally U.S. Government agencies and government
sponsored enterprises, including Fannie Mae, Freddie Mac and Ginnie Mae) pool
and resell the participation interests in the form of securities to investors,
such as the Bank, and guarantee the payment of principal and interest to these
investors. Mortgage-backed securities generally yield less than the loans that
underlie such securities because of the cost of payment guarantees, credit
enhancements and servicing fees. However, mortgage-backed securities are
usually more liquid than individual mortgage loans and may be used to
collateralize certain liabilities and obligations of the Bank. Investments in
mortgage-backed securities involve a risk that actual prepayments will be
greater than the estimated life of the security, which may require adjustments
to the amortization of any premium or accretion of any discount relating to such
instruments, thereby reducing the net yield on such securities. There is also
reinvestment risk associated with cash flows from and redemptions of such
securities. In addition, the market value of such securities may be adversely
affected by changes in interest rates. The Bank reviews prepayment estimates for
its mortgage-backed securities at purchase to ensure that prepayment assumptions
are reasonable considering the underlying collateral for the securities at issue
and current interest rates, and to determine the yield and estimated maturity of
the mortgage-backed securities portfolio.
82
<PAGE>
The following table sets forth the composition of the Bank's mortgage-
backed securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------------------------
JUNE 30, 1998 1997 1996 1995
-------------------- -------------------- -------------------- --------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE COST VALUE
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY:
Pass-through securities:
Ginnie Mae................... $ 6,901 $ 6,983 $ 7,971 $ 8,114 $ 3,284 $ 3,362 $ 3,669 $ 3,634
Fannie Mae................... 28,810 28,784 29,674 29,565 35,604 34,806 28,588 28,007
Freddie Mac.................. 38,050 38,393 49,158 49,497 58,091 57,518 39,263 39,329
Other........................ 2,173 2,279 2,222 2,282 2,257 2,237 2,274 2,344
CMOs and REMICs............... 13,400 13,624 15,046 15,166 13,627 13,596 6,941 6,992
-------- -------- -------- -------- -------- -------- -------- --------
89,334 90,063 104,071 104,624 112,863 111,519 80,735 80,306
-------- -------- -------- -------- -------- -------- -------- --------
SECURITIES AVAILABLE FOR SALE:
Pass-through securities:
Fannie Mae................... 11,514 11,616 13,172 13,335 14,851 14,822 12,001 12,385
Freddie Mac.................. 5,736 5,876 7,364 7,571 12,355 12,489 14,525 14,685
Other........................ 4,145 4,151 4,584 4,567 4,896 4,882 3,151 3,147
CMOs and REMICs............... 22,092 22,132 10,665 10,680 9,334 9,289 112 112
-------- -------- -------- -------- -------- -------- -------- --------
43,487 43,775 35,785 36,153 41,436 41,482 29,789 30,329
-------- -------- -------- -------- -------- -------- -------- --------
Total mortgage-backed
securities................ $132,821 $133,838 $139,856 $140,777 $154,299 $153,001 $110,524 $110,635
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The following table summarizes the activity in the mortgage-backed
securities portfolio for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JUNE 30, YEARS ENDED SEPTEMBER 30,
------------------- ------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Amortized cost at beginning of period... $139,856 $154,299 $154,299 $110,524 $ 97,780
-------- -------- -------- -------- --------
Purchases:
Pass-through securities:
Fixed-rate........................... 9,465 2,920 8,085 27,881 13,105
Adjustable-rate...................... -- -- -- 25,673 7,540
CMOs and REMICs........................ 16,033 1,986 3,986 18,716 8,344
-------- -------- -------- -------- --------
Total purchases................... 25,498 4,906 12,071 72,270 28,989
-------- -------- -------- -------- --------
Principal repayments.................... (32,421) (19,401) (26,397) (28,450) (16,152)
Premium amortization and
discount accretion, net................ (112) (97) (117) (45) (93)
-------- -------- -------- -------- --------
Amortized cost at end of period......... $132,821 $139,707 $139,856 $154,299 $110,524
======== ======== ======== ======== ========
</TABLE>
Pass-Through Securities. At June 30, 1998, $97.6 million of the Bank's
mortgage-backed securities consisted of pass-through securities, which totaled
14.4% of total assets. In compliance with SFAS No. 115, $21.6 million of these,
or 3.2% of total assets, were classified as available for sale, while $75.9
million, or 11.2% of total assets, were classified as held to maturity. The
estimated fair value of these held to maturity securities at June 30, 1998 was
$76.4 million, which was $505,000 greater than the amortized cost of $75.9
million.
On the basis of amortized cost at June 30, 1998, the Bank's mortgage-backed
pass-through securities portfolio totaled $97.3 million, of which $3.1 million
had a weighted average yield of 5.60% and contractual maturities within one
year; $10.1 million had a weighted average yield of 6.23% and contractual
maturities within five years; $23.8 million had a weighted average yield of
6.41% and contractual maturities of five to ten years; and $60.3 million had a
weighted average yield of 6.87% and contractual maturities of over ten years.
However, the actual maturity of a mortgage-backed security may be less than its
stated contractual maturity due to prepayments of the underlying mortgages.
Prepayments that are faster than anticipated may shorten the life of the
security and may result in a loss of any premiums paid and thereby reduce the
net yield on such securities. Although prepayments of underlying mortgages
depend on many factors, the difference between the interest rates on the
underlying mortgages and the
83
<PAGE>
prevailing mortgage interest rates generally is the most significant determinant
of the rate of prepayments. During periods of declining mortgage interest rates,
refinancing generally increases and accelerates the prepayment of the underlying
mortgages and the related security. Under such circumstances, the Bank may be
subject to reinvestment risk because, to the extent that the mortgage-backed
securities prepay faster than anticipated, the Bank may not be able to reinvest
the proceeds of such repayments and prepayments at a comparable rate of return.
Conversely, in a rising interest rate environment prepayments may decline,
thereby extending the estimated life of the security and depriving the Bank of
the ability to reinvest cash flows at the increased rates of interest.
CMOs and REMICs. In addition to mortgage-backed pass-through securities,
the Bank invests in CMOs or collateralized mortgage obligations, including
REMICs. This portfolio is limited to CMOs and REMICs backed by Fannie Mae and
Freddie Mac. CMOs are a type of debt security issued by a special-purpose entity
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 possessing different
risk characteristics. The cash flows from the underlying collateral are
generally 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. In contrast to mortgage-backed securities from which cash
flow is received (and hence, prepayment risk is shared) pro rata by all
securities holders, the cash flow from the mortgages or mortgage-backed
securities underlying CMOs is paid in accordance with a predetermined priority
to investors holding various tranches of such securities or obligations. A
particular tranche of CMOs may, therefore, carry prepayment risk that differs
from that of both the underlying collateral and other tranches. Investments in
CMOs involve a risk that actual prepayments will differ from those estimated in
pricing the security, which may result in adjustments to the net yield on such
securities. Additionally, the market value of such securities may be adversely
affected by changes in market interest rates. Management believes these
securities may represent attractive alternatives relative to other investments
due to the wide variety of maturity, repayment and interest rate options
available.
At June 30, 1998, the Bank's CMO portfolio totaled $35.5 million, or 5.2%
of total assets, and consisted of CMOs issued by government sponsored agencies
such as Fannie Mae and Freddie Mac. Overall, the CMO portfolio at June 30, 1998
had a weighted average yield of 6.23%. The Bank owns both fixed-rate and
floating-rate CMOs. At June 30, 1998, $22.1 million of the CMO portfolio, or
3.3% of total assets, was classified as available for sale and 13.4 million, or
2.0% of total assets, was classified as held-to-maturity. The estimated fair
value of the Bank's held-to-maturity CMO portfolio at June 30, 1998 was $13.6
million, or $224,000 more than the amortized cost. The Bank's CMO portfolio at
June 30, 1998 included securities of $23.3 million for which the underlying
mortgage collateral had contractual maturities of over ten years. However, as
with mortgage-backed pass-through securities, the actual maturity of a CMO may
be less than its stated contractual maturity due to prepayments of the
underlying mortgages.
The Bank's practice is to limit fixed-rate CMO investments primarily in the
early to intermediate tranches, which have the greatest cash flow stability.
Floating rate CMOs are purchased with emphasis on the relative trade-offs
between life rate caps, prepayment risk, and interest rates. The Bank's current
policy with respect to CMOs limits investments to non-high risk securities
unless approval is given by the Board of Directors and an analysis is provided
on how a high-risk CMO will improve the overall interest rate risk of the Bank.
High-risk CMOs are defined as those securities exhibiting significantly greater
volatility of estimated average life and price relative to interest rates
compared to 30-year, fixed-rate securities.
SOURCES OF FUNDS
GENERAL. Deposits, repayments and prepayments of loans and securities,
proceeds from sales of loans and securities, proceeds from maturing securities
and cash flows from operations, are the primary sources of the Bank's funds for
use in lending, investing and for other general purposes. To a lesser extent,
the Bank uses borrowed funds (primarily FHLB advances) to fund its operations.
84
<PAGE>
DEPOSITS. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. Its deposit accounts consist of savings accounts, NOW
accounts, checking accounts, money market accounts, school savings and club
accounts, and certificates of deposit. It offers certificates of deposit with
balances in excess of $100,000, as well as Individual Retirement Accounts
("IRAs") and other qualified plan accounts. The Bank provides commercial
checking accounts for small to moderately-sized businesses, as well as low-cost
checking account services for low-income customers.
At June 30, 1998, the Bank's deposits totaled $580.1 million. Interest-
bearing deposits totaled $525.0 million, and non-interest bearing demand
deposits totaled $55.1 million. NOW, savings and money market deposits totaled
$281.7 million at June 30, 1998. Also at that date, the Bank had a total of
$243.3 million in certificates of deposit, of which $180.5 million had
maturities of one year or less. Although the Bank has a significant portion of
its deposits in shorter-term certificates of deposit, management monitors
activity on these accounts and, based on historical experience and the Bank's
current pricing strategy, believes it will retain a large portion of such
accounts upon maturity.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market rates, prevailing interest rates and
competition. The Bank's deposits are obtained predominantly from the areas in
which its branch offices are located. It relies primarily on competitive
pricing of its deposit products, customer service and long-standing
relationships with customers to attract and retain these deposits; however,
market interest rates and rates offered by competing financial institutions
significantly affect the Bank's ability to attract and retain deposits. The Bank
uses traditional means of advertising its deposit products, including radio and
print media, and generally does not solicit deposits from outside its market
area. While certificates of deposit in excess of $100,000 are accepted by the
Bank, and may be subject to preferential rates, it does not actively solicit
such deposits as they are more difficult to retain than core deposits.
Historically, the Bank has not used brokers to obtain deposits.
The following table summarizes the deposit activity of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JUNE 30, YEARS ENDED SEPTEMBER 30,
-------------------------- ---------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Balance at beginning of period.................. $ 546,846 $ 545,286 $ 545,286 $ 443,667 $ 419,808
Deposits........................................ 1,397,782 1,194,785 1,621,185 1,303,205 1,010,258
Withdrawals..................................... (1,378,661) (1,195,933) (1,638,170) (1,323,389) (1,000,617)
Deposit liabilities assumed in connection with
purchase of branch offices..................... -- -- -- 104,477 --
Interest credited............................... 14,108 13,796 18,545 17,326 14,218
----------- ----------- ----------- ----------- -----------
Balance at end of period........................ $ 580,075 $ 557,934 $ 546,846 $ 545,286 $ 443,667
=========== =========== =========== =========== ===========
Net increase during the period:
Amount......................................... $ 33,229 $ 12,648 $ 1,560 $ 101,619 $ 23,859
Percent........................................ 6.1% 2.3% 0.3% 22.9% 5.7%
</TABLE>
85
<PAGE>
The following table sets forth the distribution of the Bank's deposit
accounts, by account type, at the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
JUNE 30, 1998 1997
------------------------------ --------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT PERCENT RATE AMOUNT PERCENT RATE
-------- --------- --------- -------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits............ $ 55,072 9.5% --% $ 49,221 9.0% --%
NOW deposits............... 40,969 7.1 1.25 32,985 6.0 1.25
Savings deposits........... 161,263 27.8 2.25 153,171 28.0 2.25
Money market deposits...... 79,436 13.7 2.96 75,339 13.8 2.96
-------- ----- -------- -----
336,740 58.1 1.93 310,716 56.8 1.96
Certificates of deposit.... 243,335 41.9 5.22 236,130 43.2 5.31
-------- ----- -------- -----
Total deposits............. $580,075 100.0% 3.31% $546,846 100.0% 3.40%
======== ===== ==== ======== ===== ====
<CAPTION>
SEPTEMBER 30,
-----------------------------------------------------
1996 1995
------------------------- --------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT PERCENT RATE AMOUNT PERCENT RATE
-------- -------- ----- -------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits............ $ 42,700 7.8% --% $ 28,153 6.3% --%
NOW deposits............... 30,950 5.7 1.25 25,664 5.9 1.25
Savings deposits........... 153,565 28.2 2.25 143,722 32.4 2.25
Money market deposits...... 77,111 14.1 2.97 59,149 13.3 3.20
-------- ----- -------- -----
304,326 55.8 2.02 256,688 57.9 2.12
Certificates of deposit.... 240,960 44.2 5.10 186,979 42.1 5.37
-------- ----- -------- -----
Total deposits............. $545,286 100.0% 3.38% $443,667 100.0% 3.49%
======== ===== ==== ======== ===== ====
</TABLE>
86
<PAGE>
The following table sets forth, by interest rate ranges, information
concerning the Bank's certificates of deposit at the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30, 1998
------------------------------------------------------------------- TOTAL AT
PERIOD TO MATURITY SEPTEMBER 30,
------------------------------------------------------------------- -----------------------
LESS THAN ONE TO TWO TO MORE THAN PERCENT
INTEREST RATE RANGE ONE YEAR TWO YEARS THREE YEARS THREE YEARS TOTAL OF TOTAL 1997 1996
- -------------------- --------- --------- ----------- ----------- -------- --------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4.00% and below...... $ 719 $ -- $ -- $ -- $ 719 0.3% $ 716 $ 925
4.01% to 5.00%....... 79,264 7,728 1,590 7 88,589 36.4 68,707 136,272
5.01% to 6.00%....... 90,720 31,519 5,340 5,116 132,695 54.5 151,729 74,627
6.01% to 7.00%....... 9,715 6,705 12 400 16,832 6.9 9,557 24,819
7.01% and above...... 97 4,051 146 206 4,500 1.9 5,421 4,317
-------- ------- ------ ------ -------- ----- -------- --------
Total.......... $180,515 $50,003 $7,088 $5,729 $243,335 100.0% $236,130 $240,960
======== ======= ====== ====== ======== ===== ======== ========
</TABLE>
The following table sets forth the amount of the Bank's certificates of
deposit by time remaining until maturity as of June 30, 1998.
<TABLE>
<CAPTION>
MATURITY
--------------------------------------------
3 MONTHS OVER 3 TO 6 OVER 6 TO 12 OVER 12
OR LESS MONTHS MONTHS MONTHS TOTAL
-------- ----------- ------------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than $100,000........ $59,149 $39,836 $64,074 $54,496 $217,555
Certificates of deposit of $100,000 or more/(1)/.. 7,692 3,215 6,549 8,324 25,780
------- ------- ------- ------- --------
Total of certificates of deposit................. $66,841 $43,051 $70,623 $62,820 $243,335
======= ======= ======= ======= ========
- -----------------------
</TABLE>
/(1)/ The weighted average interest rates for these accounts, by maturity
period, are 4.90% for 3 months or less; 4.88% for 3 to 6 months; 5.38% for
6 to 12 months; and 5.76% for over 12 months. The overall weighted average
interest rate for accounts of $100,000 or more was 5.30%.
BORROWINGS. At June 30, 1998, the Bank had $25.0 million of borrowings,
all of which consisted of FHLB advances. FHLB advances were $24.0 million as of
September 30, 1997 and $13.0 million as of September 30, 1996. At June 30, 1998,
the Bank had access to additional FHLB borrowings of up to $178.7 million.
The following table sets forth information concerning balances and interest
rates on the Bank's FHLB advances at the dates and for the periods indicated.
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS AT OR FOR THE
ENDED JUNE 30, YEARS ENDED SEPTEMBER 30,
---------------- -----------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at end of period.......................... $25,048 $13,000 $24,000 $13,000 $ 13,900
Average balance during period. 29,009 25,451 23,730 22,686 9,139
Maximum outstanding at any month end............. 33,000 38,000 38,000 56,400 20,300
Weighted average interest rate at end of period... 6.13% 6.88% 6.69% 6.61% 7.15%
Average interest rate during period............... 5.96% 6.20% 6.27% 6.49% 6.83%
</TABLE>
SUBSIDIARY ACTIVITIES
Provest Services Corp. I is a wholly-owned subsidiary of the Bank holding
an investment in a limited partnership which operates an assisted-living
facility. A percentage of the units in the facility are for low-income
individuals. Provest Services Corp. II is a wholly-owned subsidiary of the Bank
which has engaged a third-party
87
<PAGE>
provider to sell annuities and mutual funds to the Bank's customers. Through
June 30, 1998, the activities of these subsidiaries have had an insignificant
effect on the Bank's consolidated financial condition and results of operations.
COMPETITION
The Bank faces significant competition in both originating loans and
attracting deposits. The New York metropolitan area has a high concentration of
financial institutions, most of whom are significantly larger institutions that
have greater financial resources than the Bank, and all of which are competitors
of the Bank to varying degrees. The Bank's competition for loans comes
principally from commercial banks, savings banks, mortgage banking companies,
credit unions and insurance companies and other financial service companies.
Its most direct competition for deposits has historically come from commercial
banks, savings banks and credit unions. The Bank faces additional competition
for deposits from non-depository competitors such as the mutual fund industry,
securities and brokerage firms and insurance companies. Further competition may
arise as restrictions on the interstate operations of financial institutions are
removed.
88
<PAGE>
PROPERTIES
The Bank currently conducts its business through eleven full-service
banking offices. The following table sets forth information concerning each of
the Bank's offices as of June 30, 1998.
<TABLE>
<CAPTION>
NET BOOK VALUE
ORIGINAL OF PROPERTY OR
LEASED YEAR DATE OF LEASEHOLD
OR LEASED OR LEASE IMPROVEMENTS AT
LOCATION OWNED ACQUIRED EXPIRATION JUNE 30, 1998
- ----------------------------- --------- --------- ---------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ADMINISTRATIVE/HOME OFFICE:
Corporate Office Leased 1994 2009 $398
400 Rella Boulevard
Montebello, NY 10901
BRANCH OFFICES:
Haverstraw Office Leased 1995 2014 52
38-40 New Main Street
Haverstraw, NY 10927
Orangeburg Office Owned 1972 N/A 173
Route 303 at Kings Highway
Orangeburg, NY 10962
Stony Point Office Owned 1973 N/A 179
Route 9W
Stony Point, NY 10980
New City Office Owned 1966 N/A 915
179 South Main Street
New City, NY 10956
Nanuet Office (1) Leased 1996 2025 966
Route 59
Nanuet, NY 10954
Spring Valley Office Owned 1996 N/A 85
72 West Eckerson Road
Spring Valley, NY 10977
Congers Office Leased 1984 1999 202
1 Lake Road West
Congers, NY 10920
Mount Ivy Office Leased 1988 2009 144
120 Route 202
Mount Ivy, NY 10970
Suffern Office Owned 1981 N/A 263
71 Lafayette Avenue
Suffern, NY 10901
Airmont Office Owned 1975 N/A 202
196 Route 59
Airmont, NY 10901
Pearl River Office Leased 1994 1999 66
Shop-Rite Supermarket
26 North Middletown Road
Pearl River, NY 10965
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(1) The Bank owns the building and leases the land.
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LEGAL PROCEEDINGS
The Bank is a defendant in a lawsuit, Patrick Gawrysiak a/k/a Patrick Gray
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v. Provident Bank, brought by a prospective purchaser of REO property, alleging
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breach of contract, negligence, consumer fraud and civil conspiracy. The
plaintiff brought the lawsuit in the Superior Court of New Jersey, Bergen County
Law Division, and is seeking compensatory damages of $500,000, exemplary damages
of $1.0 million, "nominal" damages of $1.0 million and punitive damages of $1.0
million. Although there can be no certainty as to the outcome of this matter,
management believes the claim is baseless and has retained counsel to vigorously
contest the claim.
The Bank is not involved in any other pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business which, in
the aggregate, involved amounts which are believed by management to be
immaterial to the financial condition and operations of the Bank.
PERSONNEL
As of June 30, 1998, the Bank had 167 full-time employees and 46 part-time
employees. The employees are not represented by a collective bargaining unit
and the Bank considers its relationship with its employees to be good. See
"Management of the Bank--Benefit Plans" for a description of certain
compensation and benefit programs offered to the Bank's employees.
TAXATION
FEDERAL TAXATION
GENERAL. The following is a discussion of material federal income tax
matters and does not purport to be a comprehensive description of the federal
income tax rules applicable to the Bank or the Company. For federal income tax
purposes, after the Reorganization, the Company and the Bank will file
consolidated income tax returns and report their income on a fiscal year basis
using the accrual method of accounting and will be subject to federal income
taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's tax reserve for bad debts, discussed below.
Historically, savings associations, such as the Bank, were permitted to
compute bad debt deductions using either the experience method or the percentage
of taxable income method. However, for years beginning after December 31, 1995,
no savings association may use the percentage of taxable income method of
computing its allowable bad debt deduction for tax purposes. Instead, all
savings associations are required to compute their allowable deduction using
either the experience method or the specific charge-off method. As a result of
the repeal of the percentage of taxable income method, reserve additions (tax
bad debt deductions) made after 1987 using the percentage of taxable income
method generally must be included in future taxable income (or "recaptured")
over a six-year period, although a two-year delay may be permitted for
associations meeting a residential mortgage loan origination test. The Bank has
established a deferred tax liability for the amount of taxes to be paid under
this recapture rule. In addition, the pre-1988 reserve, for which a deferred
tax liability has not been recorded, need not be recaptured into income unless:
(i) the Bank's retained earnings represented by the pre-1988 reserve are used
for purposes other than to absorb losses from bad debts, including excess
dividend distributions or distributions in liquidation; (ii) the Bank redeems
its stock; (iii) the Bank fails to meet the definition provided by the Code for
a bank; or (iv) there is a change in the federal tax law. See Note 10 of the
Notes to Consolidated Financial Statements for a discussion of the Bank's tax
bad debt reserves.
DISTRIBUTIONS. If the Bank makes "non-dividend distributions" to the
Company, such distribution will be considered to have been made from the Bank's
unrecaptured tax bad debt reserves (including the balance of its reserves as of
December 31, 1987) and then from the Bank's supplemental reserve for losses on
loans, to the extent thereof, and an amount based on the amount distributed (but
not in excess of the amount of such reserves) will be included in the Bank's
income. Non-dividend distributions include distributions in excess of the
Bank's current and accumulated earnings and profits, as calculated for federal
income tax purposes, distributions in redemption of stock,
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and distribution in partial or complete liquidation. Dividends paid out of the
Bank's current or accumulated earnings and profits will not be so included in
the Bank's income.
The amount of additional taxable income created from a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if, after the
Reorganization, the Bank makes a non-dividend distribution to the Company,
approximately one and one-half times the amount of such distribution (but not in
excess of the amount of such reserves) would be includable in income for federal
income tax purposes, assuming a 34% federal corporate income tax rate. See
"Regulation" and "Dividend Limitations" for limits on the payment of dividends
by the Bank. The Bank does not intend to pay dividends that would result in a
recapture of any portion of its tax bad debt reserves.
Depending on the composition of its items of income and expense, a savings
association may be subject to the alternative minimum tax. A savings association
must pay an alternative minimum tax on the amount (if any) by which 20% of
alternative minimum taxable income ("AMTI"), as reduced by an exemption varying
with AMTI, exceeds the regular tax due. AMTI equals regular taxable income
increased or decreased by certain tax preferences and adjustments, including
depreciation deductions in excess of that allowable for alternative minimum tax
purposes, tax-exempt interest on most private activity bonds issued after August
7, 1986 (reduced by any related interest expense disallowed for regular tax
purposes), and 75% of the excess of adjusted current earnings over AMTI (before
this adjustment and before any alternative tax net operating loss). AMTI may be
reduced only up to 90% by net operating loss carryovers, but alternative minimum
tax paid can be credited against regular tax due in later years. Under pending
legislative proposals, for taxable years beginning after December 31, 1997 and
before January 1, 2009, an environmental tax of 0.12% of the excess of AMTI
(with certain modification) over $2 million would be imposed on corporations,
including the Bank, whether or not an AMT is paid.
For federal income tax purposes, the Bank files fiscal year tax returns and
reports its income and expenses on the accrual method. The Bank's federal income
tax returns have been audited for tax years through fiscal 1995, and all tax
deficiencies have been satisfied.
NEW YORK STATE TAXATION
The Company and the Bank will report income on a combined fiscal year basis
to New York State. The New York State Franchise Tax on corporations is imposed
in an amount equal to the greater of (a) 9% of "entire net income" allocable to
New York State, (b) 3% of "alternative entire net income" allocable to New York
State, (c) 0.01% of the average value of assets allocable to New York State or
(d) a nominal minimum tax. Entire net income is based on federal taxable
income, subject to certain modifications. Alternative entire net income is
equal to entire net income without certain modifications.
A temporary Metropolitan Transportation Business Tax Surcharge on banking
corporations doing business in the Metropolitan District has been applied since
1982. The Bank transacts a significant portion of its business within this
District and is subject to this surcharge. The current surcharge rate is 17% of
the State franchise tax liability.
In July 1996, New York State enacted legislation to preserve the use of the
percentage of taxable income bad debt deduction for state tax purposes. In
general, the legislation provides for a deduction equal to 32% of the Bank's New
York State taxable income, which is comparable to the deductions permitted under
the prior tax law. The legislation also provides for a floating base year,
which allows the Bank to change from the percentage of taxable income method to
the experience method without recapture of any reserve. Previously, the Bank
had established a deferred New York State tax liability for the excess of its
New York State tax bad debt reserves over the amount of its base-year New York
State reserves. Since the new legislation effectively eliminated the reserves
in excess of the base-year balances, the Bank reduced its deferred tax liability
by $500,000 (with a corresponding reduction in income tax expense) during the
year ended September 30, 1996.
Generally, New York State tax law has requirements similar to federal
requirements regarding the recapture of base-year tax bad debt reserves. One
notable exception is that, after the 1996 legislation, New York continues to
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require that at least 60% of the Bank's assets consist of specified assets
(generally, loans secured by residential real estate or deposits, educational
loans, cash and certain government obligations). The Bank expects to continue
to meet the 60% requirement and does not anticipate engaging in any of the
transactions which would require recapture of its base-year reserves (such as
changing to a commercial bank charter). Accordingly, under SFAS No. 109, it has
not provided any deferred tax liability on such reserves. See also Note 10 of
the Notes to Consolidated Financial Statements.
For further information relating to the tax consequences of the
Reorganization, see "The Reorganization--Principal Effects of Reorganization--
Tax Effects."
REGULATION
GENERAL
As a federally chartered, SAIF-insured savings bank, the Bank is subject to
examination, supervision and extensive regulation by the OTS and the FDIC. This
regulation and supervision establishes a comprehensive framework of activities
in which an institution can engage and is intended primarily for the protection
of the insurance fund and depositors. The Bank also is subject to regulation by
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") governing reserves to be maintained against deposits and certain other
matters. The OTS examines the Bank and prepares reports for the consideration
of the Bank's Board of Directors. The FDIC also has examination authority over
the Bank in its role as the administrator of the SAIF. The Bank's relationship
with its depositors and borrowers also is regulated to a great extent by both
federal and state laws, especially in such matters as the ownership of savings
accounts and the form and content of the Bank's mortgage documents. Any change
in such regulation, whether by the FDIC, OTS, or Congress, could have a material
adverse impact on the Company and the Bank and their operations.
FEDERAL REGULATION OF SAVINGS INSTITUTIONS
BUSINESS ACTIVITIES. The activities of savings institutions are governed
by the Home Owners' Loan Act, as amended (the "HOLA") and, in certain respects,
the Federal Deposit Insurance Act (the "FDI Act") and the regulations issued by
the agencies to implement these statutes. These laws and regulations delineate
the nature and extent of the activities in which savings association may engage.
The description of statutory provisions and regulations applicable to savings
associations set forth herein does not purport to be a complete description of
such statutes and regulations and their effect on the Bank.
LOANS TO ONE BORROWER. Under the HOLA, savings institutions are generally
subject to the national bank limits on loans to a single or related group of
borrowers. Generally, this limit is 15% of the Bank's unimpaired capital and
surplus, and an additional 10% of unimpaired capital and surplus if such loan is
secured by readily-marketable collateral, which is defined to include certain
financial instruments and bullion. The OTS by regulation has amended the loans
to one borrower rule to permit savings associations meeting certain requirements
to extend loans to one borrower in additional amounts under circumstances
limited essentially to loans to develop or complete residential housing units.
QUALIFIED THRIFT LENDER TEST. In general, savings associations are
required to maintain at least 65% of their portfolio assets in certain qualified
thrift investments (which consist primarily of loans and other investments
related to residential real estate and certain other assets). A savings
association that fails the qualified thrift lender test is subject to
substantial restrictions on activities and to other significant penalties.
Recent legislation also expands the QTL test to provide savings
associations with greater authority to lend and diversify their portfolios. In
particular, credit card and education loans may now be made by savings
associations without regard to any percentage-of-assets limit, and commercial
loans may be made in an amount up to 10% of total assets, plus an additional 10%
for small business loans. Loans for personal, family and household purposes
(other than credit card, small business and educational loans) are now included
without limit with other assets that, in the
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aggregate, may account for up to 20% of total assets. The Bank exceeded the
applicable requirements at June 30, 1998.
A savings association that fails to meet the QTL test must either convert
to a bank (but its deposit insurance assessments and payments will be those of
and paid to the SAIF) or be subject to the following penalties: (i) it may not
enter into any new activity except for those permissible for a national bank and
for a savings association; (ii) its branching activities will be limited to
those of a national bank; (iii) it will not be eligible for any new FHLB
advances; and (iv) it will be bound by regulations applicable to national banks
regarding the payment of dividends. Three years after failing the QTL test, the
association must (i) dispose of any investment or activity not permissible for a
national bank and a savings association, and (ii) repay all outstanding FHLB
advances. If such a savings association is controlled by a savings and loan
holding company, then such holding company must, within a prescribed time
period, become registered as a bank holding company and become subject to all
rules and regulations applicable to bank holding companies (including
restrictions as to the scope of permissible business activities).
LIMITATIONS ON CAPITAL DISTRIBUTIONS. OTS regulations impose limitations
upon all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to stockholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level. An institution that exceeds
all fully phased-in capital requirements before and after a proposed capital
distribution ("Tier 1 Bank") and has not been advised by the OTS that it is in
need of more than normal supervision, could, after prior notice but without the
approval of the OTS, make capital distributions during a calendar year equal to
the greater of: (i) 100% of its net earnings to date during the calendar year
plus the amount that would reduce by one-half its "surplus capital ratio" (the
excess capital over its fully phased-in capital requirements) at the beginning
of the calendar year; or (ii) 75% of its net earnings for the previous four
quarters; provided that the institution would not be undercapitalized, as that
term is defined in the OTS Prompt Corrective Action regulations, following the
capital distribution. Any additional capital distributions would require prior
regulatory approval. In the event the savings institution's capital fell below
its fully-phased in requirement or the OTS notified it that it was in need of
more than normal supervision, the institution's ability to make capital
distributions could be restricted. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice.
LIQUIDITY. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a specified
percentage (currently 4%) of its net withdrawable deposit accounts plus
borrowings payable in one year or less. Monetary penalties may be imposed for
failure to meet these liquidity requirements. The Bank's average liquidity
ratio at June 30, 1998 exceeded the then applicable requirements.
COMMUNITY REINVESTMENT ACT AND FAIR LENDING LAWS. Savings association
share a responsibility under the Community Reinvestment Act ("CRA") and related
regulations of the OTS to help meet the credit needs of their communities,
including low- and moderate-income neighborhoods. In addition, the Equal Credit
Opportunity Act and the Fair Housing Act (together, the "Fair Lending Laws")
prohibit lenders from discriminating in their lending practices on the basis of
characteristics specified in those statutes. An institution's failure to comply
with the provisions of CRA could, at a minimum, result in regulatory
restrictions on its activities, and failure to complete with the Fair Lending
Laws could result in enforcement actions by the OTS, as well as other federal
regulatory agencies and the Department of Justice. The Bank received an
outstanding CRA rating under the current CRA regulations in its most recent
federal examination by the OTS.
TRANSACTIONS WITH AFFILIATES. The Bank's authority to engage in
transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution, including the Company
and any nonsavings institution subsidiaries) or to make loans to certain
insiders, is limited by Sections 23A and 23B of the Federal Reserve Act ("FRA").
Section 23A limits the aggregate amount of transactions with any individual
affiliate to 10% of the capital and surplus of the savings institution and also
limits the aggregate amount of transactions with all affiliates to 20% of the
savings institution's capital and surplus. Certain transactions with affiliates
are required to be secured by collateral in an amount and of a type described in
Section 23A and the purchase of low quality assets from affiliates is generally
prohibited. Section 23B provides that certain transactions with affiliates,
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including loans and asset purchases, must be on terms and under circumstances,
including credit standards, that are substantially the same or at least as
favorable to the institution as those prevailing at the time for comparable
transactions with nonaffiliated companies.
ENFORCEMENT. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring
enforcement action against all "institution-related parties," including
stockholders, and attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors of the institutions, receivership, conservatorship or the termination
of deposit insurance. Civil penalties cover a wide range of violations and
actions, and range up to $25,000 per day, unless a finding of reckless disregard
is made, in which case penalties may be as high as $1 million per day. Under
the FDI Act, the FDIC has the authority to recommend to the Director of OTS that
enforcement action be taken with respect to a particular savings institution.
If action is not taken by the Director, the FDIC has authority to take such
action under certain circumstances.
STANDARDS FOR SAFETY AND SOUNDNESS. The FDI Act requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, compensation, and such other operational and managerial
standards as the agency deems appropriate. The federal banking agencies adopted
Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") to implement the safety and soundness standards required under
the FDI Act. The Guidelines set forth the safety and soundness standards that
the federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. The Guidelines address
internal controls and information systems; internal audit systems; credit
underwriting; loan documentation; interest rate risk exposure; asset growth; and
compensation, fees and benefits. If the appropriate federal banking agency
determines that an institution fails to meet any standard prescribed by the
Guidelines, the agency may require the institution to submit to the agency an
acceptable plan to achieve compliance with the standard, as required by the FDI
Act. If an institution fails to meet these standards, the appropriate federal
banking agency may require the institution to submit a compliance plan.
CAPITAL REQUIREMENTS. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 3.0% leverage (core capital) standard, and an 8.0% risk-based capital
standard. Core capital is defined as common stockholders' equity (including
retained earnings), certain noncumulative perpetual preferred stock and related
surplus, minority interests in equity accounts of consolidated subsidiaries less
intangibles other than certain mortgage servicing rights ("MSRs") and purchased
credit card relationships. The OTS regulations require that, in meeting the
tangible, core and risk-based capital standards, institutions generally must
deduct investments in and loans to subsidiaries engaged in activities not
permissible for a national bank. In addition, the OTS prompt corrective action
regulation provides that a savings institution that has a leverage capital ratio
of less than 4.0% (3.0% for institutions receiving the highest CAMELS
examination rating) will be deemed to be "undercapitalized" and may be subject
to certain restrictions. See "--Prompt Corrective Regulatory Action."
The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and supplementary
capital) to risk-weighted assets of 8.0%. In determining the amount of risk-
weighted assets, assets and certain off-balance sheet assets items are
multiplied by a risk-weight of 0% to 100%, as assigned by the OTS capital
regulation based on the risks OTS believes are inherent in the type of asset.
The components of core capital are equivalent to those discussed earlier under
the 3.0% leverage standard. The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate preferred
stock and, within specified limits, the allowance for loan losses. Overall, the
amount of supplementary capital included as part of total capital cannot exceed
100% of core capital.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. The final interest rate risk rule also adjusts the
risk-weighting for certain mortgage derivative securities. Under the rule,
savings associations with "above normal" interest rate risk exposure would be
subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. A savings association's interest rate risk is
measured
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by the decline in the net portfolio value of its assets (i.e., the
difference between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts) that would result from a
hypothetical 200-basis point increase or decrease in market interest rates
divided by the estimated economic value of the association's assets, as
calculated in accordance with guidelines set forth by the OTS. A savings
association whose measured interest rate risk exposure exceeds 2% must deduct an
interest rate component in calculating its total capital under the risk-based
capital rule. The interest rate risk component is an amount equal to one-half
of the difference between the institution's measured interest rate risk and 2%,
multiplied by the estimated economic value of the association's assets. That
dollar amount is deducted from an association's total capital in calculating
compliance with its risk-based capital requirement. Under the rule, there is a
two quarter lag between the reporting date of an institution's financial data
and the effective date for the new capital requirement based on that data. The
rule also provides that the Director of the OTS may waive or defer an
association's interest rate risk component on a case-by-case basis. The OTS has
postponed the effective date of the capital component in order to provide it
with an opportunity to review the interest rate risk approaches taken by the
other federal banking agencies.
At June 30, 1998, the Bank met each of its capital requirements, in each
case on a fully phased-in basis. See "Regulatory Capital Compliance" for a
table which sets forth in terms of dollars and percentages (i) the OTS tangible,
core and risk-based capital requirements, compared to the Bank's historical
amounts and percentages at June 30, 1998 and (ii) pro forma amounts and
percentages based upon the issuance of the shares within the Offering Range and
assuming that a portion of the net proceeds are retained by the Company.
THRIFT CHARTER. Congress has been considering legislation in various forms
that would require federal thrifts, such as the Bank, to convert their charters
to national or state bank charters. Legislation enacted in 1996 required the
Treasury Department to prepare for Congress a comprehensive study on development
of a common charter for federal savings associations and commercial banks; and
provided for the merger of the BIF and the SAIF into a single deposit insurance
fund on January 1, 1999 provided the thrift charter was eliminated. The Bank
cannot determine whether, or in what form, such legislation may eventually be
enacted and there can be no assurance that any legislation that is enacted would
not adversely affect the Bank and the Company.
PROMPT CORRECTIVE REGULATORY ACTION
Under the OTS Prompt Corrective Action regulations, the OTS is required to
take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of capitalization.
Generally, a savings institution that has total risk-based capital of less than
8.0% or a leverage ratio or a Tier 1 core capital ratio that is less than 4.0%
is considered to be undercapitalized. A savings institution that has total
risk-based capital of less than 6.0%, a Tier 1 core risk-based capital ratio of
less than 3.0% or a leverage ratio that is less than 3.0% is considered to be
"significantly undercapitalized," and a savings institution that has a tangible
capital to assets ratio equal to or less than 2.0% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the banking regulator is
required to appoint a receiver or conservator for an institution that is
"critically undercapitalized." The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date an
institution receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." In addition, numerous
mandatory supervisory actions become immediately applicable to the institution,
including, but not limited to, restrictions on growth, investment activities,
capital distributions, and affiliate transactions. The OTS may also take any
one of a number of discretionary supervisory actions, including the issuance of
a capital directive and the replacement of senior executive officers and
directors.
At June 30, 1998, the Bank was categorized as "well capitalized," meaning
that the Bank's total risk-based capital ratio exceeded 10.0%, Tier I risk-based
capital ratio exceeded 6.0%, leverage capital ratio exceeded 5.0%, and the Bank
was not subject to a regulatory order, agreement or directive to meet and
maintain a specific capital level for any capital measure.
INSURANCE OF DEPOSIT ACCOUNTS
The FDIC has adopted a risk-based deposit insurance assessment system. The
FDIC assigns an institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending
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seven months before the assessment period, consisting of (1) well capitalized,
(2) adequately capitalized or (3) undercapitalized, and one of three supervisory
subcategories within each capital group. The supervisory subgroup to which an
institution is assigned is based on a supervisory evaluation provided to the
FDIC by the institution's primary federal regulator and information which the
FDIC determines to be relevant to the institution's financial condition and the
risk posed to the deposit insurance funds. An institution's assessment rate
depends on the capital category and supervisory category to which it is
assigned. The FDIC is authorized to raise the assessment rates in certain
circumstances. The FDIC has exercised this authority several times in the past
and may raise insurance premiums in the future. If such action is taken by the
FDIC, it could have an adverse effect on the earnings of the Bank.
FEDERAL HOME LOAN BANK SYSTEM
The Bank, as a federal association, is required to be a member of the FHLB
System, which consists of 12 regional FHLBs. The FHLB provides a central credit
facility primarily for member institutions. The Bank, as a member of the FHLB
of New York, is required to acquire and hold shares of capital stock in that
FHLB in an amount at least equal to 1% of the aggregate principal amount of its
unpaid residential mortgage loans and similar obligations at the beginning of
each year, or 1/20 of its advances (borrowings) from the FHLB, whichever is
greater. As of June 30, 1998, the Bank was in compliance with this requirement.
The FHLBs are required to provide funds for the resolution of insolvent thrifts
and to contribute funds for affordable housing programs. These requirements
could reduce the amount of dividends that the FHLBs pay to their members and
could also result in the FHLBs imposing a higher rate of interest on advances to
their members.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to
maintain noninterest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). At June 30, 1998, the Bank was
in compliance with these reserve requirements. The balances maintained to meet
the reserve requirements imposed by the FRB may be used to satisfy liquidity
requirements imposed by the OTS.
HOLDING COMPANY REGULATION
GENERAL. The Mutual Holding Company and the Company are nondiversified
mutual savings and loan holding companies within the meaning of the HOLA. As
such, the Mutual Holding Company and the Company are registered with the OTS and
are subject to OTS regulations, examinations, supervision and reporting
requirements. In addition, the OTS has enforcement authority over the Mutual
Holding Company and the Company and any nonsavings institution subsidiaries.
Among other things, this authority permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the subsidiary savings
institution. As federal corporations, the Company and the Mutual Holding
Company are generally not subject to state business organizations law.
PERMITTED ACTIVITIES. Pursuant to Section 10(o) of the HOLA and OTS
regulations and policy, a Mutual Holding Company and a federally chartered mid-
tier holding company such as the Company may engage in the following activities:
(i) investing in the stock of a savings association; (ii) acquiring a mutual
association through the merger of such association into a savings association
subsidiary of such holding company or an interim savings association subsidiary
of such holding company; (iii) merging with or acquiring another holding
company, one of whose subsidiaries is a savings association; (iv) investing in a
corporation, the capital stock of which is available for purchase by a savings
association under federal law or under the law of any state where the subsidiary
savings association or associations share their home offices; (v) furnishing or
performing management services for a savings association subsidiary of such
company; (vi) holding, managing or liquidating assets owned or acquired from a
savings subsidiary of such company; (vii) holding or managing properties used or
occupied by a savings association subsidiary of such company properties used or
occupied by a savings association subsidiary of such company; (viii) acting as
trustee under deeds of trust; (ix) any other activity (A) that the Federal
Reserve Board, by regulation, has determined to be permissible for bank holding
companies under Section 4(c) of the Bank Holding Company Act of 1956, unless the
Director, by regulation, prohibits or limits any such activity for savings and
loan holding companies; or (B) in which multiple savings and loan holding
companies were authorized (by regulation) to directly engage on March 5, 1987;
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and (x) purchasing, holding, or disposing of stock acquired in connection with a
qualified stock issuance if the purchase of such stock by such savings and loan
holding company is approved by the Director. If a Mutual Holding Company
acquires or merges with another holding company, the holding company acquired or
the holding company resulting from such merger or acquisition may only invest in
assets and engage in activities listed in (i) through (x) above, and has a
period of two years to cease any nonconforming activities and divest of any
nonconforming investments.
The HOLA prohibits a savings and loan holding company, including the
Company and the Mutual Holding Company, directly or indirectly, or through one
or more subsidiaries, from acquiring another savings institution or holding
company thereof, without prior written approval of the OTS. It also prohibits
the acquisition or retention of, with certain exceptions, more than 5% of a
nonsubsidiary savings institution, a nonsubsidiary holding company, or a
nonsubsidiary company engaged in activities other than those permitted by the
HOLA; or acquiring or retaining control of an institution that is not federally
insured. In evaluating applications by holding companies to acquire savings
institutions, the OTS must consider the financial and managerial resources,
future prospects of the company and institution involved, the effect of the
acquisition on the risk to the insurance fund, the convenience and needs of the
community and competitive factors.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies, and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.
WAIVERS OF DIVIDENDS BY THE MUTUAL HOLDING COMPANY. OTS regulations
require the Mutual Holding Company to notify the OTS of any proposed waiver of
its right to receive dividends. The OTS reviews dividend waiver notices on a
case-by-case basis, and, in general, does not object to any such waiver if: (i)
the Mutual Holding Company's board of directors determines that such waiver is
consistent with such directors' fiduciary duties to the Mutual Holding Company's
members; (ii) for as long as the savings association subsidiary is controlled by
the Mutual Holding Company, the dollar amount of dividends waived by the Mutual
Holding Company are considered as a restriction to the retained earnings of the
savings association, which restriction, if material, is disclosed in the public
financial statements of the savings association as a note to the financial
statements; (iii) the amount of any dividend waived by the Mutual Holding
Company is available for declaration as a dividend solely to the Mutual Holding
Company, and, in accordance with SFAS No. 5, where the savings association
determines that the payment of such dividend to the Mutual Holding Company is
probable, an appropriate dollar amount is recorded as a liability; (iv) the
amount of any waived dividend is considered as having been paid by the savings
association in evaluating any proposed dividend under OTS capital distribution
regulations; and (v) in the event the Mutual Holding Company converts to stock
form, the appraisal submitted to the OTS in connection with the conversion
application takes into account the aggregate amount of the dividends waived by
the Mutual Holding Company.
CONVERSION OF THE MUTUAL HOLDING COMPANY TO STOCK FORM. OTS regulations
and the Plan permit the Mutual Holding Company to undertake a Conversion
Transaction. There can be no assurance when, if ever, a Conversion Transaction
will occur, and the Board of Directors has no current intention or plan to
undertake a Conversion Transaction. In a Conversion Transaction a new holding
company would be formed as the successor to the Company (the "New Holding
Company"), the Mutual Holding Company's corporate existence would end, and
certain depositors of the Bank would receive the right to subscribe for
additional shares of the New Holding Company. In a Conversion Transaction, each
share of Common Stock held by Minority Stockholders would be automatically
converted into a number of shares of common stock of the New Holding Company
determined pursuant an exchange ratio that ensures that after the Conversion
Transaction, subject to the Dividend Waiver Adjustment described below and any
adjustment to reflect the receipt of cash in lieu of fractional shares, the
percentage of the to-be outstanding shares of the New Holding Company issued to
Minority Stockholders in exchange for their Common Stock would be equal to the
percentage of the outstanding shares of Common Stock held by Minority
Stockholders immediately prior to the Conversion Transaction. The total number
of shares held by Minority Stockholders after the Conversion Transaction would
also be affected by any purchases by such persons in the offering that would be
conducted as part of the Conversion Transaction.
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The Dividend Waiver Adjustment would decrease the percentage of the to-be
outstanding shares of common stock of the New Holding Company issued to Minority
Stockholders in exchange for their shares of Common Stock to reflect (i) the
aggregate amount of dividends waived by the Mutual Holding Company and (ii)
assets other than Common Stock held by the Mutual Holding Company. Pursuant to
the Dividend Waiver Adjustment, the percentage of the to-be outstanding shares
of the New Holding Company issued to Minority Stockholders in exchange for their
shares of Common Stock would be equal to the percentage of the outstanding
shares of Common Stock held by Minority Stockholders multiplied by the Dividend
Waiver Fraction. The Dividend Waiver Fraction is equal to the product of (a) a
fraction, of which the numerator is equal to the Company's stockholders' equity
at the time of the Conversion Transaction less the aggregate amount of dividends
waived by the Mutual Holding Company and the denominator is equal to the
Company's stockholders' equity at the time of the Conversion Transaction, and
(b) a fraction, of which the numerator is equal to the appraised pro forma
market value of the New Holding Company minus the value of the Mutual Holding
Company's assets other than Common Stock and the denominator is equal to the pro
forma market value of the New Holding Company.
FEDERAL SECURITIES LAW
The Common Stock to be issued in the Offering will be registered with the
SEC under the Securities Exchange Act of 1934 (the "Exchange Act"). The Company
will be subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Exchange Act. Common
Stock held by persons who are affiliates (generally officers, directors and
principal stockholders) of the Company may not be resold without registration or
unless sold in accordance with certain resale restrictions. If the Company
meets specified current public information requirements, each affiliate of the
Company is able to sell in the public market, without registration, a limited
number of shares in any three-month period.
MANAGEMENT OF THE COMPANY
DIRECTORS OF THE COMPANY
The Board of Directors of the Company will initially consist of the nine
persons who are currently directors of the Bank. Directors of the Company will
serve three-year staggered terms so that approximately one third of the
Directors will be elected at each annual meeting of stockholders. The class of
directors whose term of office expires at the first annual meeting of
shareholders following completion of the Reorganization consists of Directors
Helmer, Strayton, Coyle and Ward. The class of directors whose term expires at
the second annual meeting of shareholders following completion of the
Reorganization consists of Directors Korn, McNelis and Nozell. The class of
directors whose term of office expires at the third annual meeting of
shareholders following the completion of the Reorganization consists of
Directors Sichol and Zeh.
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EXECUTIVE OFFICERS OF THE COMPANY
The following individuals will be executive officers of the Company and
hold the offices set forth below opposite their names. The biographical
information for each executive officer is set forth under "Management of the
Bank--Directors and Executive Officers of the Bank."
<TABLE>
<CAPTION>
NAME AGE* POSITION
- -------------------------- ---- -------------------------------------------------------
<S> <C> <C>
George Strayton 54 President, Chief Executive Officer and Director
Daniel G. Rothstein 51 Executive Vice President, Chief Credit Officer
and Regulatory Counsel
Robert J. Sansky 51 Executive Vice President and Director of Human
Resources
Katherine A. Dering 50 Senior Vice President and Chief Financial Officer
Stephen G. Dormer 47 Senior Vice President and Director of Business Activity
John F. Fitzpatrick 46 Senior Vice President and Director of Support Services
________________________
*As of June 30, 1998
</TABLE>
None of the executive officers has received remuneration from the Company.
It is not anticipated that the executive officers of the Company will initially
receive any remuneration in his capacity as an executive officer. For
information concerning compensation of executive officers of the Bank, see
"Management of the Bank."
BOARD OF DIRECTORS AND COMMITTEES OF THE COMPANY AFTER THE REORGANIZATION
Following the Reorganization, the Board of Directors of the Company is
expected to meet quarterly, or more often as may be necessary. The directors of
the Company will not initially receive fees for serving on the Company's Board
of Directors.
The Board of Directors initially is expected to have, among others, a
standing Executive Committee and Audit Committee. The Company's full Board of
Directors will act as the Nominating Committee, or may appoint a Nominating
Committee. The Company does not intend initially to have a compensation
committee, as it is not anticipated that the officers of the Company will
initially be compensated as such.
The Executive Committee initially will consist of Chairman Helmer (who will
serve as Chairman), President and Chief Executive Officer Strayton, and
Directors Coyle, McNelis and Sichol. The Executive Committee is expected to
meet as necessary when the Board is not in session to exercise general control
and supervision in all matters pertaining to the interests of the Company,
subject at all times to the direction of the Board of Directors.
The Audit Committee initially will consist of Directors Korn (who will
serve as Chairman), Ward and Nozell. The Audit Committee is expected to meet at
least quarterly. Activities of the Audit Committee will include reviewing and
approving audit reports prepared by the internal auditors and independent
auditors; reviewing and recommending the independent auditors to be engaged by
the Company; and reviewing and approving internal audit policies and programs.
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MANAGEMENT OF THE BANK
DIRECTORS AND EXECUTIVE OFFICERS OF THE BANK
Upon completion of the Reorganization, the directors of the Bank will
consist of those persons who currently serve on the Board of Directors of the
Bank. The directors of the Bank will have three year terms which will be
staggered to provide for the election of approximately one-third of the board
members each year. Directors of the Bank will be elected by the Company as sole
stockholder of the Bank. The directors and executive officers of the Bank as of
June 30, 1998 are as follows:
<TABLE>
<CAPTION>
AGE AT CURRENT
NAME JUNE 30, 1998 POSITION DIRECTOR SINCE TERM EXPIRES
- ------------------------------------------- ------------- ---------------------------- -------------- ------------
<S> <C> <C> <C> <C>
DIRECTORS:
William F. Helmer 64 Chairman of the Board 1974 1999
George Strayton 54 President, Chief Executive 1991 1999
Officer and Director
Dennis L. Coyle 62 Vice Chairman 1984 1999
Murray L. Korn 73 Director 1966 2000
Dr. Donald T. McNelis 65 Director 1987 2000
Richard A. Nozell 64 Director 1990 2000
William R. Sichol, Jr. 58 Director 1990 2001
Wilbur C. Ward 72 Director 1990 1999
F. Gary Zeh 60 Director 1979 2001
<CAPTION>
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS:
<S> <C> <C>
Daniel G. Rothstein 51 Executive Vice President,
Chief Credit Officer
and Regulatory Counsel
Robert J. Sansky 51 Executive Vice President and
Director of Human Resources
Katherine A. Dering 50 Senior Vice President and
Chief Financial Officer
Stephen G. Dormer 47 Senior Vice President and
Director of Business Activity
John F. Fitzpatrick 46 Senior Vice President and
Director of Support Services
</TABLE>
The business experience for the past five years for each of the Bank's
directors and executive officers is as follows:
WILLIAM F. HELMER has served as the Chairman of the Board of Directors
since 1994, and is the President of Helmer-Cronin Construction, Inc., a
construction company.
GEORGE STRAYTON has been employed by the Bank since 1982, and was named
President and Chief Executive Officer of the Bank in 1986.
DENNIS L. COYLE has served as Vice Chairman of the Board of Directors since
1994. Mr. Coyle is the owner of the Coyle Insurance Agency, the owner and
President of Delco Realty and the owner of Dennis L. Coyle Rental Properties.
MURRAY L. KORN was the Senior and Managing Partner of Korn, Rosenbaum,
Phillips and Jauntig, an accounting firm, prior to his retirement in 1986. Mr.
Korn also served as Chairman of the Board of Directors of the Bank from 1984
until his retirement from that position in 1994.
DR. DONALD T. MCNELIS served as President of St. Thomas Aquinas College in
Sparkill, New York from 1974 until his retirement in 1995.
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RICHARD A. NOZELL is the owner of Richard Nozell Building Construction, and
serves as a general building contractor.
WILLIAM R. SICHOL, JR. is a principal of Sichol & Hicks, P.C., a private
law firm.
WILBUR C. WARD is currently retired. Prior to his retirement, Mr. Ward was
the President of Ward Bulldozers.
F. GARY ZEH is the President of Haverstraw Transit Inc., a bus contracting
company, and President and Owner of Quality Bus Sales and Service.
DANIEL G. ROTHSTEIN has been employed by the Bank since 1983, and was named
Executive Vice President of the Bank in 1989. Mr. Rothstein has served as the
Bank's Chief Credit Officer and Regulatory Counsel since 1996.
ROBERT J. SANSKY has been employed by the Bank since 1985, and was named
Executive Vice President in 1989. Mr. Sansky has served as the Bank's Director
of Human Resources since 1995.
KATHERINE A. DERING has served as the Bank's Chief Financial Officer since
1994. Ms. Dering previously served as the Chief Financial Officer of a
community bank located in Connecticut.
STEPHEN G. DORMER has served as Senior Vice President and Director of
Business Development of the Bank since 1996, and was previously Senior Vice
President and Manager of the Bank's Commercial Loan Department from 1994 until
1996. Prior to joining the Bank in 1994, Mr. Dormer was Senior Vice President
of a commercial bank located in Connecticut.
JOHN F. FITZPATRICK has been employed by the Bank since 1986, and was named
Senior Vice President and Director of Support Services in 1997.
MEETINGS OF THE BOARD OF THE BANK
The Board of Directors of the Bank meets monthly and may have additional
special meetings as may be called by the Chairman or as otherwise provided by
law. During the fiscal year ended September 30, 1997, the Board held 16
meetings. No director attended fewer than 75% in the aggregate of the total
number of meetings of the Board or Board Committees on which such Director
served during fiscal 1997.
COMPENSATION OF DIRECTORS
FEES. During the fiscal year ended September 30, 1997, non-employee
Directors of the Bank received a retainer fee of $12,000, plus a fee of $700 per
Board meeting attended, and $400 per month for other committee meetings. The
Chairman of each committee received an additional $2,000 per year. The Chairman
of the Board received a retainer fee of $47,600 for the fiscal year ended
September 30, 1997.
DEFERRED COMPENSATION AGREEMENTS. The Bank has entered into nonqualified
deferred compensation agreements ("DCA") for the benefit of all of the Bank's
Directors. The DCAs comprise a non-qualified deferred compensation plan into
which a non-employee director can defer up to 100% of his board fees earned
during the calendar year. In connection with the Reorganization and Offering,
the DCA has been amended to permit each Director to determine whether to invest
all or a portion of his account in Common Stock, in accordance with the tax law
limitations. Prior to the amendment, amounts credited to a Director's deferral
account earn interest at a rate equal to the ten-year FHLB of New York advance
rate determined on December 1st of the previous calendar year. Upon a
Director's attainment of the board's mandatary retirement age, the Director's
account will be paid to him in generally equal quarterly installments beginning
on the first day of the first calendar quarter after the director becomes
entitled to such payments and continuing for 5 years. If a Director files a
timely election, the Director's distributions from the plan may commence prior
to a director's attainment of mandatory retirement age and may be paid over a
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longer period of time. In the event of the Director's death, the balance of the
Director's account will be paid to the Director's designated beneficiary on the
first day of the first calendar quarter after the Director's death. A Director
may also request a distribution from his account in the event the Director
suffers a hardship, defined as a sudden or unexpected illness, accident or
similar event affecting the Director, his beneficiary or family member. Whether
to grant a hardship distribution is within the sole discretion of the Board.
If a Director elects to invest all or a portion of his account in Common
Stock, the amount so invested will be credited with earnings and appreciation
(or depreciation) equivalent to that which would be earned on such investment
and the amount not so invested in Common Stock will continue to earn interest at
the rate set forth above, or at another rate established by the committee which
administers the DCAs. The DCA is an unfunded plan for tax purposes and for
purposes of ERISA. All obligations arising under the DCAs are payable from the
general assets of the Bank, however, the Bank has established a trust to ensure
that sufficient assets will be available to pay the benefits under the DCAs and
to hold any stock purchased under the DCAs.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth for the year
ended September 30, 1997, certain information as to the total remuneration paid
by the Bank to the Chief Executive Officer of the Bank, as well as to the four
most highly compensated executive officers of the Bank at September 30, 1997,
other than the Chief Executive Officer, who received total annual compensation
in excess of $100,000 (together, "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION/(1)/ LONG-TERM COMPENSATION
------------------------ ----------------------
AWARDS PAYOUTS
------------------------------ ---------
OTHER
YEAR ANNUAL RESTRICTED ALL OTHER
NAME AND ENDED COMPENSATION STOCK OPTIONS/ LTIP COMPENSATION
PRINCIPAL POSITION 9/30/(1)/ SALARY BONUS /(2)/ AWARDS SARS PAYOUTS /(3)/
- ------------------------------ --------- ---------- ------------------------ ----- -------- ------ -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
George Strayton, President, 1997 $259,665 $83,125 -- -- -- -- $32,655
Chief Executive Officer
and Director
Daniel G. Rothstein, 1997 $157,425 $41,316 -- -- -- -- $18,155
Executive Vice President,
Chief Credit Officer
and Regulatory Counsel
Robert J. Sansky 1997 $141,473 $41,219 -- -- -- -- $17,387
Executive Vice President and
Director of Human Resources
Katherine A. Dering 1997 $120,731 $37,641 -- -- -- -- $10,224
Senior Vice President and
Chief Financial Officer
Stephen G. Dormer 1997 $127,868 $32,259 -- -- -- -- $ 2,887
Senior Vice President and
</TABLE>
Director of Business Activity
- -----------------------------------------------
/(1)/ In accordance with the rules on executive officer and director
compensation disclosure adopted by the SEC, Summary Compensation
information is excluded for the fiscal years ended September 30, 1996 and
1995, as the Bank was not a public company during such periods.
/(2)/ The Bank provides certain members of senior management with certain other
personal benefits, the aggregate value of which did not exceed the lesser
of $50,000 or 10% of the total annual salary and bonus reported for each
officer. The value of such persons/benefits is not included in this table.
/(3)/ Includes employer contributions to the Bank's 401(k) Plan on behalf of
Named Executive Officers, as well as the payment of premiums for life
insurance policies.
EMPLOYMENT AGREEMENTS. In January 1996, the Bank entered into an employment
agreement with George Strayton, the President and Chief Executive Officer of the
Bank which agreement was amended in 1998 (as amended, the "agreement").
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<PAGE>
On each day during the term of the agreement, the term of the agreement
automatically renews so that the agreement shall continually be for a three-year
term unless notice of non-renewal is provided within ___ days prior to any
anniversary of the date on which the agreement was entered into (the
"Anniversary Date"). In the event that notice of non-renewal is given, the
agreement will expire at the end of its then three-year term. Under the
agreement, Mr. Strayton will be paid $262,000 (the current annual rate of
salary). For each calendar year beginning after a change in control (as defined
in the agreement) of the Bank or Company, Mr. Strayton's annual rate of salary
shall be increased by the greater of (i) 1.06 percent, (ii) the quotient of (A)
the U.S. City Average All Items Consumer Price Index for All Urban Consumers for
October of the immediately preceding calendar year divided by the same economic
indicator, as determined for the second preceding calendar year; and (iii) the
quotient of the average annual rate of salary determined as of the first day of
the calendar quarter of the officers of the Bank (other than Mr. Strayton) who
are assistant vice presidents or above over the average annual rate of salary of
such persons for the immediately preceding calendar year. In addition to his
annual rate of salary, Mr. Strayton shall be entitled to participate in all tax-
qualified plans and other incentive programs of the Bank, and the group life,
health, dental and short and long term disability plans maintained by the Bank
from time to time.
In the event of Mr. Strayton's termination of employment by the Bank for
any reason other than for cause (as defined in the agreement) or in the event of
his voluntary resignation within one year following (i) his failure to be re-
appointed or re-elected as President or Chief Executive Officer of the Bank,
(ii) the failure to re-elect him as a director of the Bank, (iii) a material
adverse change in his functions, duties or responsibilities which is not cured
within 30 days of notice thereof from Mr. Strayton, (iv) a change in control of
the Bank or the Company, or in the event of termination of his employment due to
total and permanent disability, then Mr. Strayton shall be entitled to certain
benefits payable by the Bank. First, Mr. Strayton shall be entitled to his
earned but unpaid salary, any benefits to which he would become entitled as a
former employee, and continuation of his group life, health, prescription drug,
dental, short and long term disability insurance benefits for the remaining
unexpired employment period under the agreement. In addition, Mr. Strayton and
his spouse shall be entitled to continued health coverage for their remaining
lifetimes. Mr. Strayton shall also be entitled to certain lump sum payments
under the agreement. For example, Mr. Strayton shall be entitled to a lump sum
payment equal to the present value of any salary that he would have earned for
the remaining unexpired employment period under the agreement and the present
value of any fees that he would have earned as a director during that period.
Within 60 days of his termination of employment, Mr. Strayton shall also be
entitled to payments equal to the present value of (i) the additional amount to
which he would have been entitled as a participant in the Bank's defined benefit
pension plan, (ii) the additional amount to which he would have been entitled
under the Bank's 401(k) Plan and ESOP, and (iii) the additional amount to which
he would have been entitled under the SERP, in each case, assuming he had
continued in the employment of the Bank for the remaining unexpired employment
period under the agreement, and making certain assumptions (regarding salary
increases, etc.) as set forth in the agreement. The amounts provided to Mr.
Strayton under "(i)" and "(ii)" of the preceding sentence shall be increased by
a factor which takes into consideration the fact that such payments will be
currently taxable to Mr. Strayton. Mr Strayton will also be entitled to
immediate vesting of any unearned options or shares of restricted stock awarded
to him under any stock benefit plan maintained by the Company. Finally, Mr.
Strayton shall be entitled to the payments that would have been made to him
under all incentive compensation plans and programs adopted by the Bank,
including the Management Incentive Program as if he had continued to work for
the Bank during the remaining unexpired employment period under the agreement
and had earned an incentive award in each such calendar year equal to an amount
determined by formula set forth in the agreement. In the event that the Bank
gives Mr. Strayton a notice of non-renewal or if the Bank does not extend the
employment period at least 60 days prior to any renewal date set forth under the
agreement, Mr. Strayton may resign from the Bank at any time and shall receive a
lump sum cash benefit within 30 days equal to the amounts set forth above.
Also, in such event the Bank shall provide the continuing group life, health,
prescription drug, dental, short and long term disability insurance benefits set
forth above. In the event that Mr. Strayton becomes subject to an excise tax on
payments made under the agreement in connection with a change in control, the
agreement provides that Mr. Strayton shall be reimbursed an amount for payment
of such excise taxes by the Bank (determined pursuant to a formula set forth in
the agreement), so long as during the six-month period prior to such change in
control the Bank was in compliance with all applicable minimum capital
requirements imposed under federal or state regulatory authority. The
employment agreement provides that for a period of one year following the date
of his termination with the Bank for reasons other than for cause, Mr. Strayton
shall not compete with the Bank.
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The Bank intends to enter into employment agreements with Messrs.
Rothstein, Sansky, Dormer, and Ms. Dering. The new employment agreements shall
be for terms of up to two years and shall renew on a daily basis so that the
remaining term under said agreements shall be for up to two years unless notice
of non-renewal is given. Each executive covered by an employment agreement will
receive an annual rate of salary, as specified in the employment agreement, and
will be entitled to participate in all tax-qualified plans and other incentive
programs of the Bank, and any group life, health, dental and short and long term
disability plans maintained by the Bank from time to time. In the event of a
covered executive's termination of employment by the Bank for any reason other
than for cause (as defined) or in the event of his or her voluntary resignation
within one year following (i) his or her failure to be re-appointed to his or
her current position, (ii) a material adverse change in his or her functions,
duties or responsibilities which is not cured within 30 days of notice thereof
from the executive, (iii) a change in control of the Bank or the Company, (iv) a
liquidation or dissolution of the Bank or the Company other than one that does
not affect the status of the executive, or in the event of termination of his
or her employment due to total and permanent disability, then the executive
shall be entitled to the certain benefits payable by the Bank. First, the
executive shall be entitled to his or her earned but unpaid salary, any
benefits to which he or she would become entitled as a former employee, and
continuation of his or her group life, health, prescription drug, dental, short
and long term disability insurance benefits for the remaining unexpired
employment period under the agreement at a coverage level that he or she would
have been entitled to during such period. In addition, the executive shall also
be entitled to certain lump sum payments under the agreement. For example, the
executive shall be entitled to a lump sum payment equal to the present value of
any salary that he or she would have earned for the remaining unexpired
employment period under the agreement. Within 60 days of his or her
termination of employment, the executive shall also be entitled to payments
equal to the present value of (i) the additional amount to which he or she would
have been entitled as a participant in the Bank's defined benefit pension plan,
(ii) the additional amount to which he or she would have been entitled under the
Bank's 401(k) Plan and ESOP, and (iii) the additional amount to which he or she
would have been entitled under the SERP, in each case assuming he or she had
continued in the employment of the Bank for the remaining unexpired employment
period under the agreement and making certain assumptions (regarding salary
increases, etc.) as set forth in the agreement. The amounts provided to the
executive under "(i)" and "(ii)" of the preceding sentence shall be increased by
a factor which takes into consideration the fact that such payments will be
currently taxable to the executive. The executive will also be entitled to
immediate vesting of any unearned options on shares of restricted stock awarded
to him or her under any stock benefit plan maintained by the Company which would
have vested in the executive during the remaining unexpired term of the
agreement. Finally, the executive shall be entitled to the payments that would
have been made to him under all incentive compensation plans and programs
adopted by the Bank as if he or she had continued to work for the Bank during
the remaining unexpired employment period under the agreement and had earned an
incentive award in each such calendar year equal to an amount determined by
formula set forth in the agreement. Also, in such event the Bank shall provide
the continuing group life, health, prescription drug, dental, short and long
term disability insurance benefits set forth above. In the event the
executive's termination of employment occurs in connection with a change in
control of the Bank or Company, the payments made to or on behalf of the
executive shall be made as if the remaining unexpired term of the agreement
includes one additional year. In the event that the Bank gives an executive
covered by an agreement a notice of non-renewal or if the Bank does not extend
the employment period at least 60 days prior to any renewal date set forth under
the agreement, the executive may resign from the Bank at any time and shall
receive a lump sum cash payment within 30 days equal to the amounts set forth
above. The employment agreement provides that for a period of one year
following the date of his or her termination with the Bank for reasons other
than for cause, the executive shall not compete with the Bank.
MANAGEMENT INCENTIVE PROGRAM. The Bank sponsors a management incentive
program for certain officers at the vice president level and higher. In 1998,
the management incentive program provides current compensation to participating
officers upon the attainment of certain earnings goals set by the Bank.
Department heads and other managers at the level of vice president will be
entitled to receive incentive compensation of up to 15% of base salary if
earnings goals are attained, increased to up to 22-1/2% of base salary if
earnings goals are exceeded. Persons at the senior vice president and executive
vice president levels will be entitled to incentive compensation of up to 25% of
base salary if earnings goals are attained, increased to up to 37-1/2% of base
salary if earnings goals are exceeded. The Bank's President will be entitled to
receive incentive compensation of up to 30% of base salary if earnings goals are
attained and up to 45% of base salary if earnings goals are exceeded. Under the
program, incentive awards may also be given to persons below the level of vice
president in the event of extraordinary performance. Participants normally
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<PAGE>
receive their incentive award within three months of the Bank's fiscal year end.
For the fiscal year ended September 30, 1997, approximately $468,000 was
distributed to persons participating in the management incentive program.
1996 LONG TERM INCENTIVE PLAN FOR OFFICERS AND DIRECTORS. In 1996, the
Bank adopted a long-term incentive plan ("Long-Term Plan") for the benefit of
certain senior officers and all non-employee directors of the Bank. Six
officers, including Messrs. Strayton, Rothstein, Sansky and Dormer and Ms.
Dering are participating under the Long-Term Plan. The Long-Term Plan has an
initial cycle of three years commencing October 1996 and running through
September 1999. The ability to earn incentive compensation under the Long-Term
Plan is based on the Bank's attainment of certain return on equity ("ROE")
ratios. It is intended that equal payment pools will be available for officers
and directors under the Long-Term Plan, however, the maximum amount that may be
credited to any officer participant is 30% of his or her average base salary
during the initial cycle and the maximum amount that may be credited to any non-
employee director is 100% of his or her annual retainer fee (up to a maximum of
$12,000 per year) for each year of the cycle. Amounts credited shall be
allocated in direct proportion to officers relative compensation levels and in
equal amounts to all non-employee directors. A participant may earn one-third of
his or her incentive compensation in each year of the cycle. At the end of each
such year, one half of the amount earned during the year will be paid to the
participant, the other half will be deferred until the end of the cycle and
shall be paid upon the successful completion of the three year goal. In the
event that a participant dies during the earnings cycle, a pro-rata share of the
amount the participant would have earned shall be paid to his or her estate. In
the event of (i) a sale of shares in an offering registered with the SEC, (ii)
the consolidation or merger of the Bank with another Bank, (iii) the sale of all
or substantially all of the assets of the Bank or any of its significant
subsidiaries, or (iv) the acquisition by more than 50% of the total combined
voting power of all classes of stock of the Bank entitled to vote for directors,
the Long-Term Plan states the current cycle shall be prematurely closed. In
such event, each participant will receive the maximum benefit to which the
participant would have been entitled if the Bank had attained the ROE goal for
the year in which the cycle closed. [It is expected that the Bank will achieve
its ROE goal for each of the first two years. Therefore, assuming the cycle is
prematurely closed in 1998 or early 1999 as a result of the Reorganization,
participants will receive the maximum benefit to which they would be entitled
under the Long-Term Plan (i.e., 30% of base salary for employees and $36,000 for
directors, minus amounts previously paid to such persons under the Long-Term
Plan).]
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Bank maintains a non-qualified
supplemental executive retirement plan ("SERP") for certain executives of the
Bank to compensate those executive participants in the Bank's tax-qualified
benefit plans whose benefits are limited by any of Sections 401(a)(17), 401(k),
401(m) 402(g) or 415 of the Code (the "Applicable Limitations"). The SERP
provides executives with retirement benefits generally equal to the difference
between (i) the annual benefit the executive would have received under the
Bank's Retirement Plan if such benefits were computed without giving effect to
the limitations on benefits imposed by application of Section 401(a)(17) and
Section 415 of the Internal Revenue Code and (ii) the amounts actually payable
to the executive under the terms of the Retirement Plan. In addition, the
executive is entitled to a 401(k) benefit under the SERP equal to the product of
(i) Bank contributions that could not be credited to his or her account in the
401(k) Plan due to the Applicable Limitations plus earnings deemed to accrue
each year at the one-year Treasury rate for the first auction in January
multiplied by (ii) his or her vested percentage in the 401(k) Plan. For these
purposes, the executive will be deemed to have made the maximum salary deferrals
possible without regard to sections 401(k), 401(m) or 402(g) of the Code. The
SERP has been amended in connection with the adoption of the ESOP so that an
executive who does not receive the maximum contribution under the ESOP due to
one of the Applicable Limitations will be entitled to an ESOP benefit under the
SERP, credited in units of the Company's Common Stock, equal to the difference
between the fair market value of the number of shares of common stock of the
Company that would have been allocated to the account of the executive under the
ESOP had the limitations of Section 401(a)(17) and 415 of the Internal Revenue
Code not been applicable, and the fair market value of the number of shares of
Common Stock actually allocated to the account of the executive. The Retirement
Plan and ESOP benefits under the SERP are payable in the same form as benefits
in the Retirement Plan and ESOP, respectively. See the descriptions of
Retirement Plan and ESOP for timing and form of payment for benefits under the
Retirement Plan and ESOP. The 401(k) Plan benefits under the SERP are payable
in 10 annual installments commencing on the first business day of the year
following the year in which the executive's employment is terminated.
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The SERP is considered an unfunded plan for tax and ERISA purposes. All
obligations arising under the SERP are payable from the general assets of the
Bank, however, the Bank has set up a trust, to ensure that sufficient assets
will be available to pay the benefits under the SERP. The trust shall be
entitled to purchase Common Stock in order to fund the ESOP benefit under the
SERP.
DEFINED BENEFIT PENSION PLAN. The Bank maintains the Provident Savings
Bank, F.A. Defined Benefit Pension Plan (the "Retirement Plan") which is a
qualified, tax-exempt defined benefit plan. Employees age 21 or older who have
worked at the Bank for a period of one year and have been credited with 1,000 or
more hours of service with the Bank during the year are eligible to accrue
benefits under the Retirement Plan. The Bank contributes each year, if
necessary, an amount to the Retirement Plan to satisfy the actuarially
determined minimum funding requirements in accordance with the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). For the plan year
ended September 30, 1997, a contribution of approximately $651,000 was made to
the Retirement Plan. At September 30, 1997, the total market value of the
Retirement Plan trust fund assets was approximately $4.9 million.
In the event of retirement at normal retirement age (i.e., the later of age
65 or the 5th anniversary of participation in the Retirement Plan), the plan is
designed to provide a single life annuity. For a married participant, the
normal form of benefit is an actuarially reduced joint and survivor annuity
where, upon the participant's death, the participant's spouse is entitled to
receive a benefit equal to 50% of that paid during the participant's lifetime.
Alternatively, a participant may elect (with proper spousal consent, if
necessary) a joint and 100% survivor annuity, a joint and 75% survivor annuity,
a different form of annuity, or installments payable over a period of nor more
than the life of the participant (and spouse, if applicable). Payment may be
made in a lump sum in cash, provided the participant has completed 20 years of
service and attained age 55 or has attained normal retirement age. All forms in
which a participant's benefit may be paid will be actuarially equivalent to the
single life annuity. The retirement benefit provided is an amount equal to the
greater of a participant's frozen accrued benefit (as provided for in the
Retirement Plan) or 1.6% of a participant's average monthly compensation
multiplied by the participant's years of service (up to a maximum of 35 years)
plus 0.5% of the participant's average monthly compensation in excess of one-
twelfth of the participant's Covered Compensation (as defined in the Retirement
Plan) multiplied by the participant's months of service (up to a maximum of 35
years), computed to the nearest dollar. Retirement benefits are also payable
upon retirement due to early and late retirement or death and disability. A
reduced benefit is payable upon early retirement at or after age 55 and the
completion of 10 years of vested service with the Bank. No reduction in benefit
will occur as a result of special early retirement on or after age 62 and the
completion of 20 years of vested service, if payment is made at the time of
retirement. Upon termination of employment other than as specified above, a
participant who has five years of vested service after age 18 is eligible to
receive his or her accrued benefit commencing on such participant's retirement
date, death or disability.
The following table indicates the annual retirement benefit that would be
payable under the Retirement Plan upon retirement at age 65 in calendar year
1998, expressed in the form of a single life annuity for the average monthly
salary and benefit service classifications specified below.
<TABLE>
<CAPTION>
AVERAGE
MONTHLY YEARS OF SERVICE AND ANNUAL BENEFIT PAYABLE AT RETIREMENT
---------------------------------------------------------
COMPENSATION 15 20 25 30
- ------------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
$4,167 $13,416 $17,892 $22,356 $26,832
6,250 21,288 28,392 35,484 42,576
8,333 29,160 38,880 48,612 58,332
10,417 37,044 49,392 61,740 74,088
13,333 and above 48,060 64,080 80,112 96,132
</TABLE>
As of October 1, 1997, Messrs. Strayton, Rothstein, Sansky, and Dormer, and
Ms. Dering had 15, 15, 12, 3 and 3 years of credited service (i.e., benefit
service) under the Retirement Plan, respectively.
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401(K) PLAN. The Bank maintains the Provident Savings Bank 401(k) Plan
(the "401(k) Plan") which is a qualified, tax-exempt profit sharing plan with a
salary deferral feature under Section 401(k) of the Code. All employees who
have completed six months of employment are eligible to participate. Eligible
employees are entitled to enter the 401(k) Plan the first day of January or July
coincident with or following completion of the eligibility requirements.
Under the 401(k) Plan, participants are permitted to make salary reduction
contributions (in whole percentages) of not less than 2% or more than 10% of
compensation, up to $10,000 (as indexed annually). For these purposes,
"compensation" means a participant's total compensation received from the Bank,
including salary reduction contributions, but does not include compensation in
excess of the Code Section 401(a)(17) limits (i.e., $160,000 in 1998). The Bank
may match up to the first 6% of salary that a participant contributes to the
401(k) Plan. All employee salary reduction contributions and earnings are fully
and immediately vested. A participant is vested in all other contributions as
follows: 50% after 2 years of service, 75% after 3 years of service and 100%
after 4 years of service. A participant may withdraw salary reduction
contributions (and earnings), or may take a loan of up to 50% of the
participant's vested account balance, in the event the participant suffers a
financial hardship.
The 401(k) Plan permits employees to direct the investment of his or her
own accounts into various investment options. In connection with the Offering,
the 401(k) Plan intends to offer participants the opportunity to invest in an
employer stock fund which intends to purchase Common Stock in the Offering.
Each participant who directs the trustee to invest all or part of his or her
account in the employer stock fund will have assets in his or her account
applied to the purchase of shares of Common Stock. Participants will be
entitled to direct the trustee as to how to vote his or her allocated shares of
Common Stock.
Plan benefits will become 100% vested and will be paid in a lump sum to
each participant or beneficiary upon retirement, death or disability. Normal
retirement age under the plan is age 65. If a participant terminates employment
for reasons other than retirement, disability or death, the participant will be
entitled to receive only the vested portion of his or her account balance and
the remainder will be forfeited.
At December 31, 1997, the total market value of the assets in the 401(k)
Plan was approximately $3.3 million. The Bank's matching contributions to the
401(k) Plan for the plan year ended December 31, 1997 were approximately
$267,000.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. The Bank intends to implement the
ESOP in connection with the Reorganization. Employees with at least one year of
employment with the Bank and who have attained age 21 are eligible to
participate. As part of the Reorganization, the ESOP intends to borrow funds
from the Company and use those funds to purchase a number of shares equal to up
to 8% of the Common Stock to be sold in the Offering. Collateral for the loan
will be the Common Stock purchased by the ESOP. The loan will be repaid
principally from the Bank's discretionary contributions to the ESOP over a
period of not more than ten years. It is anticipated that the interest rate for
the loan will be a floating rate equal to the Prime Rate. Shares purchased by
the ESOP will be held in a suspense account for allocation among participants as
the loan is repaid.
Contributions to the ESOP and shares released from the suspense account in
an amount proportional to the repayment of the ESOP loan will be allocated among
ESOP participants on the basis of compensation in the year of allocation.
Participants in the ESOP will receive credit for service with the Bank prior to
the effective date of the ESOP. A participant is 100% vested in his benefits
after five years of service or upon normal retirement (as defined in the ESOP),
early retirement, disability or death. A participant who terminates employment
for reasons other than death, retirement, or disability prior to five years of
credited service will forfeit his or her benefits under the ESOP. Benefits will
be payable in the form of Common Stock and cash or, at the election of the
participant, in Common Stock only, upon death, retirement, early retirement,
disability or separation from service. The Bank's contributions to the ESOP are
discretionary, subject to the loan terms and tax law limits, and, therefore,
benefits payable under the ESOP cannot be estimated. Pursuant to SOP No. 93-6,
the Bank is required to record compensation expense in an amount equal to the
fair market value of the shares committed to be released to participants from
the suspense account.
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In connection with the establishment of the ESOP, the Bank will establish a
committee of non-employee directors to administer the ESOP. The Bank will
appoint an independent financial institution to serve as trustee of the ESOP.
The ESOP trustee, subject to its fiduciary duty, must vote all allocated shares
held in the ESOP in accordance with the instructions of participating employees.
Under the ESOP, nondirected shares, and shares held in the suspense account,
will be voted in a manner calculated to most accurately reflect the instructions
it has received from participants regarding the allocated stock so long as such
vote is in accordance with the provisions of ERISA.
STOCK OPTION PLAN. At a meeting of the Company's shareholders to be held no
earlier than six months after the completion of the Offering, the Board of
Directors intends to submit for shareholder approval a stock option plan for
directors, officers and employees of the Bank and of the Company (the "Stock
Option Plan"). If approved by the shareholders, Common Stock in an aggregate
amount equal to 10% of the shares sold in the Offering would be reserved for
issuance by the Company upon the exercise of the stock options granted under the
Stock Option Plan. Ten percent of the shares issued in the Offering would amount
to 257,500 shares, 303,000 shares, 348,450 shares or 400,718 shares at the
minimum, midpoint, maximum and adjusted maximum of the Offering Range,
respectively. No options would be granted under the Stock Option Plan until the
date on which shareholder approval is received.
It is anticipated that options would be granted for terms of 10 years (in
the case of incentive options) or 10 years and one day (in the case of non-
qualified options). The exercise price of the options granted under the Stock
Option Plan will be equal to the fair market value of the shares on the date of
grant of the stock options. If the Stock Option Plan is adopted within one year
following the Offering, options will become exercisable at a rate of 20% at the
end of each 12 months of service with the Bank after the date of grant, subject
to early vesting in the event of death or disability. Options granted under the
Stock Option Plan would be adjusted for capital changes such as stock splits and
stock dividends. Notwithstanding the foregoing, awards will be 100% vested upon
termination of employment due to death or disability, and if the Stock Option
Plan is adopted more than 12 months after the Offering, awards would be 100%
vested upon normal retirement or a change in control of the Bank or the Company.
Under OTS rules, if the Stock Option Plan is adopted within the first 12 months
after the Offering, no individual officer can receive more than 25% of the
awards under the plan, no outside director can receive more than 5% of the
awards under the plan, and all outside directors as a group can receive no more
than 30% of the awards under the plan in the aggregate. No determination has
been made as to the specific terms of the Stock Option Plan or as to the awards
thereunder.
The Stock Option Plan would be administered by a Committee of nonemployee
members of the Company's Board of Directors. Options granted under the Stock
Option Plan to employees could be "incentive" stock options designed to result
in a beneficial tax treatment to the employee but no tax deduction to the
Company. Nonqualified stock options could also be granted under the Stock
Option Plan, and will be granted to the nonemployee directors who receive grants
of stock options. In the event an option recipient terminated his or her
employment or service as an employee or director, the options would terminate
during certain specified periods.
RECOGNITION PLAN. At a meeting of the Company's shareholders to be held no
earlier than six months after the completion of the Offering, the Board of
Directors also intends to submit a restricted stock plan (the "Recognition
Plan") for shareholder approval. The Recognition Plan will provide the
directors, officers and employees of the Company and the Bank with an ownership
interest in the Company in a manner designed to encourage them to continue their
service with the Bank or the Company, as the case may be. The Bank will
contribute funds to the Recognition Plan from time to time to enable it to
acquire an aggregate amount of Common Stock equal to up to 4% of the shares of
Common Stock sold in the Offering (or 5% if the Recognition Plan is adopted more
than 12 months after the Offering), either directly from the Company or in open
market purchases. Four percent of the shares issued in the Offering would amount
to 103,020 shares, 121,200 shares, 139,380 shares or 160,287 shares at the
minimum, midpoint, maximum and adjusted maximum of the Offering Range,
respectively. In the event that additional authorized but unissued shares would
be acquired by the Recognition Plan after the Offering, the interests of
existing shareholders would be diluted. The executive officers and directors
will be awarded Common Stock under the Recognition Plan without having to pay
cash for the shares. No awards under the Recognition Plan would be made until
the date the Recognition Plan is approved by the Company's shareholders.
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Awards under the Recognition Plan would be nontransferable, nonassignable
and, during the lifetime of the recipient, could only be earned by him or her.
If the Recognition Plan is adopted within one year following the Offering, the
shares which are subject to an award would vest and be earned by the recipient
at a rate of 20% of the shares awarded at the end of each full 12 months of
service with the Bank after the date of grant of the award. Awards would be
adjusted for capital changes such as stock dividends and stock splits.
Notwithstanding the foregoing, awards would be 100% vested upon termination of
employment or service due to death or disability, and if the Recognition Plan is
adopted more than 12 months after the Offering, awards would be 100% vested upon
normal retirement or a change in control of the Bank or the Company. If
employment or service were to terminate for other reasons, the award recipient
would forfeit any nonvested award. If employment or service is terminated for
cause (as would be defined in the Recognition Plan), shares not already
delivered under the Recognition Plan would be forfeited. Under OTS rules, if the
Recognition Plan is adopted within the first 12 months after the Offering, no
individual officer can receive more than 25% of the awards under the plan, no
outside director can receive more than 5% of the awards under the plan, and all
outside directors as a group can receive no more than 30% of the awards under
the plan in the aggregate. No determination has been made as to the specific
terms of the plan or as to the awards thereunder. The Recognition Plan would be
administered by a committee of non-employee members of the Company's board of
directors.
When shares become vested under the Recognition Plan, the participant will
recognize income equal to the fair market value of the Common Stock earned,
determined as of the date of vesting, unless the recipient makes an election
under (S) 83(b) of the Code to be taxed earlier. The amount of income recognized
by the participant would be a deductible expense for tax purposes for the
Company. If the Recognition Plan is adopted within one year following the
Offering, dividends and other earnings will accrue and be payable to the award
recipient when the shares vest. If the Recognition Plan is adopted within one
year following the Offering, shares not yet vested under the Recognition Plan
will be voted by the trustee of the Recognition Plan, taking into account the
best interests of the recipients of the Recognition Plan awards. If the
Recognition Plan is adopted more than one year following the Offering, dividends
declared on nonvested shares will be distributed to the participant when paid,
and the participant will be entitled to vote the nonvested shares.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Bank offers to directors, officers, and employees real estate mortgage
loans secured by their principal residence. All loans to the Bank's directors,
officers and employees have been made on substantially the same terms, including
interest rates and collateral as those prevailing at the time for comparable
transactions, and do not involve more than minimal risk of collectibility.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
The following discussion is a general summary of certain regulatory
restrictions on the acquisition of the Common Stock. In addition, the following
discussion generally summarizes certain provisions of the charter and bylaws of
the Company and the Bank and certain regulatory provisions that may be deemed to
have an "anti-takeover" effect.
THE MUTUAL HOLDING COMPANY STRUCTURE
Under OTS regulations, the Plan, and the charter of the Company, at least a
majority of the Company's voting shares must be owned by the Mutual Holding
Company. The Mutual Holding Company will be controlled by its Board of
Directors, which will initially consist of the same persons who are members of
the Board of Directors of the Bank and the Company. The Mutual Holding Company
will be able to elect all members of the Board of Directors of the Company, and
as a general matter, will be able to control the outcome of all matters
presented to the stockholders of the Company for resolution by vote, except for
matters that require a vote greater than a majority. The Mutual Holding Company,
acting through its Board of Directors, will be able to control the business, and
operations of the Company and the Bank, and will be able to prevent any
challenge to the ownership or control of the Company by Minority Stockholders.
Accordingly, a change in control of the Company and the Bank cannot occur unless
the Mutual Holding Company first converts to the stock form of organization.
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Although OTS regulations and policy and the Plan permit the Mutual Holding
Company to convert from the mutual to the capital stock form of organization,
the Board of Directors has no current plan to do so.
PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS
In addition to the anti-takeover aspects of the mutual holding company
structure, the following discussion is a general summary of certain provisions
of the Company's charter and bylaws and certain other regulatory provisions
which will restrict the ability of stockholders to influence management
policies, and which may be deemed to have an "anti-takeover" effect. The
following description of certain of these provisions is necessarily general and,
with respect to provisions contained in the Company's and the Bank's proposed
charter and bylaws and the Bank's proposed stock charter and bylaws, reference
should be made in each case to the document in question, each of which is part
of the Bank's application to the OTS and the Company's Registration Statement
filed with the SEC. See "Additional Information."
CLASSIFIED BOARD OF DIRECTORS AND RELATED PROVISIONS. The Company's
Charter provides that the Board of Directors is to be divided into three classes
which shall be as nearly equal in number as possible. The directors in each
class hold office for terms of three years and until their successors are
elected and qualified. One class is elected annually. Management of the
Company believes that the staggered election of directors tends to promote
continuity and stability of management but makes it more difficult for
stockholders to change a majority of the directors because it generally takes at
least two annual elections of directors for this to occur.
ABSENCE OF CUMULATIVE VOTING. The Company's Charter provides that there
shall be no cumulative voting rights in the election of directors.
AUTHORIZATION OF PREFERRED STOCK. The Company's Charter authorizes shares
of serial preferred stock, without par value. The Company is authorized to
issue preferred stock from time to time in one or more series subject to
applicable provisions of law; and the Board of Directors is authorized to fix
the designations, and relative preferences, limitations, voting rights, if any,
including without limitation, conversion rights of such shares (which could be
multiple or as a separate class). In the event of a proposed merger, tender
offer or other attempt to gain control of the Company that the Board of
Directors does not approve, it might be possible for the Board of Directors to
authorize the issuance of a series of preferred stock with rights and
preferences that would impede the completion of such a transaction. An effect
of the possible issuance of preferred stock, therefore, may be to deter a future
takeover attempt. The Board of Directors has no present plans or understandings
for the issuance of any preferred stock but it may issue any preferred stock on
terms which the Board deems to be in the best interests of the Company and its
stockholders.
RESTRICTIONS ON ACQUISITIONS OF SECURITIES. The Company's Charter provides
that for a period of five years from the effective date of the charter, no
person other than the Mutual Holding Company, may directly or indirectly offer
to acquire or acquire the beneficial ownership of more than 10% of any class of
equity security of the Company. In addition, for a period of five years
following the effective date of the Charter each share beneficially owned in
violation of the foregoing percentage limitation shall not be counted as shares
entitled to vote, shall not be voted by any person or counted as voting shares
in connection with any matter submitted to 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.
SPECIAL MEETING OF STOCKHOLDERS. The Company's Charter provides that for
five years after the effective date of the Charter, special meetings of
stockholders relating to changes in control of the Company or amendments to the
Charter may be called only by the Board of Directors.
CHANGE IN BANK CONTROL ACT AND SAVINGS AND LOAN HOLDING COMPANY PROVISIONS OF
THE HOLA
The Change in Bank Control Act provides that no person, acting directly or
indirectly or through or in concert with one or more other persons, may acquire
control of a savings and loan holding company unless the OTS has been given 60
days' prior written notice. The Home Owners' Loan Act provides that no company
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may acquire "control" of a savings and loan holding company without the prior
approval of the OTS. Any company that acquires such control becomes a "savings
and loan holding company" subject to registration, examination, and regulation
by the OTS. Pursuant to federal regulations, control of a savings and loan
holding company is conclusively deemed to have been acquired by, among other
things, the acquisition of more than 25% of any class of voting stock of the
institution or the ability to control the election of a majority of the
directors of the institution. Moreover, control is presumed to have been
acquired, subject to rebuttal, upon the acquisition of more than 10% of any
class of voting stock, or of more than 25% of any class of stock, of a savings
and loan holding company, where certain enumerated "control factors" are also
present in the acquisition. The OTS 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 the Company's
capital 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% of any class of equity security of the Company.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
The 30,000,000 shares of capital stock authorized by the Company's Charter
are divided into two classes, consisting of 20,000,000 shares of common stock
($0.10 par value) and 10,000,000 shares of serial preferred stock. The aggregate
stated value of the issued shares will constitute the capital account of the
Company on a consolidated basis. The balance of the Subscription Price of
Common Stock, less expenses of the Reorganization and Offering, will be
reflected as paid-in capital on a consolidated basis. See "Capitalization."
Upon payment of the Subscription Price for the Common Stock, in accordance with
the Plan, all such stock will be duly authorized, fully paid, validly issued and
nonassessable.
COMMON STOCK. Each share of the Common Stock will have the same relative
rights and will be identical in all respects with each other share of the Common
Stock. THE COMMON STOCK OF THE COMPANY WILL REPRESENT NON-WITHDRAWABLE CAPITAL,
WILL NOT BE OF AN INSURABLE TYPE AND WILL NOT BE INSURED BY THE FDIC. The
holders of the Common Stock will possess exclusive voting power in the Company.
Each stockholder will be entitled to one vote for each share held on all matters
voted upon by stockholders, subject to the limitation discussed under
"Restrictions on Acquisition of the Company--Provisions of the Company's Charter
and Bylaws." If the Company issues preferred stock subsequent to the
Reorganization, holders of the preferred stock may also possess voting powers.
NO PREEMPTIVE RIGHTS. Holders of the Common Stock will not be entitled to
preemptive rights with respect to any shares which may be issued. The Common
Stock will not be subject to call for redemption, and, upon receipt by the
Company of the full purchase price therefor, each share of the Common Stock will
be fully paid and nonassessable.
PREFERRED STOCK. After the Reorganization, the Board of Directors of the
Company will be authorized to issue preferred stock in series and to fix and
state the voting powers, designations, preferences and relative, participating,
optional or other special rights of the shares of each such series and the
qualifications, limitations and restrictions thereof. Preferred stock may rank
prior to the Common Stock as to dividend rights, liquidation preferences, or
both, and may have full or limited voting rights. The holders of preferred
stock will be entitled to vote as a separate class or series under certain
circumstances, regardless of any other voting rights which such holders may
have.
Except as discussed herein, the Company has no present plans for the
issuance of the additional authorized shares of Common Stock or for the issuance
of any shares of preferred stock. In the future, the authorized but unissued
and unreserved shares of Common Stock will be available for general corporate
purposes including but not limited to possible issuance as stock dividends or
stock splits, in future mergers or acquisitions, under a cash dividend
reinvestment and stock purchase plan, in a future underwritten or other public
offering or under an employee stock ownership plan, stock option or restricted
stock plan. The authorized but unissued shares of preferred stock will
similarly be available for issuance in future mergers or acquisitions, in a
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future underwritten public offering or private placement or for other general
corporate purposes. Except as described above or as otherwise required to
approve the transaction in which the additional authorized shares of Common
Stock or authorized shares of preferred stock would be issued, no stockholder
approval will be required for the issuance of these shares. Accordingly, the
Board of Directors of the Company, without stockholder approval, can issue
preferred stock with voting and conversion rights which could adversely affect
the voting power of the holders of Common Stock.
DIVIDENDS. Upon consummation of the formation of the Company, the
Company's only assets will be the Bank's common stock and up to 50% of the net
proceeds of the Offering. Although it is anticipated that the Company will
retain up to 50% of the net proceeds of the Offering, dividends from the Bank
will be an important source of income for the Company. Should the Bank elect to
retain its income, the ability of the Company to pay dividends to its own
shareholders may be adversely affected. Furthermore, if at any time in the
future the Company owns less than 100% of the outstanding stock of the Bank,
certain tax benefits under the Code as to inter-company distributions will not
be fully available to the Company and it will be required to pay federal income
tax on a portion of the dividends received from the Bank, thereby reducing the
amount of income available for distribution to the shareholders of the Company.
TRANSFER AGENT AND REGISTRAR
__________________________ will act as the transfer agent and registrar for
the Common Stock.
LEGAL AND TAX MATTERS
The legality of the Common Stock and the federal income tax consequences of
the Reorganization and Offering will be passed upon for the Bank and the Company
by the firm of Luse Lehman Gorman Pomerenk & Schick, P.C., Washington, D.C.
KPMG Peat Marwick LLP has issued an opinion concerning certain state income tax
aspects of the Reorganization. Luse Lehman Gorman Pomerenk & Schick, P.C. and
KPMG Peat Marwick LLP have consented to the references herein to their opinions.
Certain legal matters relating to the Offering may be passed upon for Ryan Beck
by Thacher Proffitt & Wood, Washington, D.C.
EXPERTS
The Bank's consolidated financial statements as of September 30, 1997 and
1996 and for the years then ended, included in this Prospectus, have been
audited by KPMG Peat Marwick LLP, independent auditors, as stated in their
report appearing herein, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The Bank's consolidated financial statements for the year ended September
30, 1995, included in this Prospectus, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
RP Financial has consented to the publication herein of the summary of its
report to the Bank and the Company setting forth its opinion as to the estimated
pro forma market value of the Common Stock upon Reorganization and its valuation
with respect to Subscription Rights.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act, with respect to the Common Stock offered hereby. As permitted
by the rules and regulations of the SEC, this Prospectus does not contain all
the information set forth in the registration statement. Such information can
be examined without charge at the public reference facilities of the SEC located
at 450 Fifth Street, NW, Washington, D.C. 20549, and copies of such material
can be obtained from the SEC at prescribed rates. The SEC maintains a web site
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The address of this web
site is http://www.sec.gov. The statements contained herein as to the contents
112
<PAGE>
of any contract or other document filed as an exhibit to the registration
statement are, of necessity, brief descriptions thereof and are not necessarily
complete but do contain all material information regarding such documents. Each
such statement is qualified by reference to such contract or document.
In connection with the Offering, the Company will register the Common Stock
with the SEC under Section 12(g) of the Exchange Act; and, upon such
registration, the Company and the holders of its Common Stock will become
subject to the proxy solicitation rules, reporting requirements and restrictions
on stock purchases and sales by directors, officers and greater than 10%
stockholders, the annual and periodic reporting and certain other requirements
of the Exchange Act. Under the Plan, the Company has undertaken that it will
not terminate such registration for a period of at least three years following
the Reorganization.
A copy of the charter and bylaws of the Company are available without
charge from the Bank.
113
<PAGE>
GLOSSARY
<TABLE>
<S> <C>
Associate "Associate" of a person means: (i) any corporation or
organization (other than the Bank or its subsidiaries
or the Company) of which such person is a director,
officer, partner or 10% shareholder; (ii) any trust or
other estate in which such person has a substantial
beneficial interest or serves as trustee or in a
similar fiduciary capacity; provided, however that such
term shall not include any employee stock benefit plan
of the Company or the Bank in which such a person has a
substantial beneficial interest or as a trustee or in a
similar fiduciary capacity; and (iii) any relative or
spouse of such person, or relative of such spouse, who
either has the same home as such person or who is a
director or officer of the Bank or its subsidiaries or
the Company
Bank Provident Bank prior to completion of the
Reorganization, or after the conclusion of the
Reorganization, as indicated by the context
BIF The Bank Insurance Fund of the FDIC
Code The Internal Revenue Code of 1986, as amended
Common Stock Common Stock, par value of $0.10 per share, of
Provident Bancorp, Inc.
Community Offering The offering for sale to the general public of shares
of Common Stock not subscribed for in the Subscription
Offering, with preference given to natural persons
residing in Rockland County, New York
Company Provident Bancorp, Inc., the parent holding company for
Provident Bank, and the issuer of the shares of Common
Stock in the Offering
Conversion Transaction A mutual-to-stock conversion of the Mutual Holding Company
Eligible Account Holders Depositors of the Bank with aggregate account balances
of at least $50 as of the close of business on December
31, 1996
ERISA Employee Retirement Income Security Act of 1974, as
amended
ESOP The Provident Bancorp, Inc. Employee Stock Ownership
Plan and Trust
Estimated Valuation Range The estimated pro forma market value of the Common
Stock to be issued in the Reorganization, or
$55,250,000 to $74,750,000. The maximum of the
Estimated Valuation Range may be increased to
$85,962,500 without a resolicitation of subscribers
Exchange Act Securities Exchange Act of 1934, as amended
Expiration Date 10:00 a.m., New York time, on December __, 1998
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
FDICIA Federal Deposit Insurance Corporation Improvement Act
of 1991, as amended
</TABLE>
G-1
<PAGE>
<TABLE>
<S> <C>
FHLB The Federal Home Loan Bank
FNMA Federal National Mortgage Association
Independent Valuation The appraisal of the pro forma market value of the
Common Stock to be issued in the Reorganization, as
determined by RP Financial, LC., Arlington, VA.
IRA Individual retirement account or arrangement
IRS Internal Revenue Service
Minority Stockholders Stockholders of the Company other than the Mutual
Holding Company
MMDA Money market demand account
Mutual Holding Company Provident Bancorp, MHC, a federal mutual holding
company
NASD National Association of Securities Dealers, Inc.
NOW account Negotiable order of withdrawal account
NPV Net portfolio value
Offering The offer and sale of between 2,575,000 and 3,484,500
shares of Common Stock, subject to adjustment to
4,007,175 shares of Common Stock to depositors and
others in the Subscription Offering and the Community
Offering pursuant to the Prospectus
Offering Range The offer and sale by the Company of between 2,575,500
and 3,484,500 shares (subject to adjustment to
4,007,175 shares) of Common Stock in the Offering
pursuant to the Prospectus
Order Form The form for ordering Common Stock accompanied by a
certification concerning certain matters
Other Members Depositors of the Bank as of _________, 1998, who are
not Eligible Account Holders or Supplemental Eligible
Account Holders
OTS Office of Thrift Supervision
Plan of Reorganization Provident Bank Plan of Reorganization from a Mutual
Savings Bank to a Mutual Holding Company and Stock
Issuance Plan
Qualifying Deposits Deposit accounts with aggregate balances of $50.00 or
more as of specified dates
Recognition Plan The restricted stock plan to be submitted for approval
at a meeting of the Company's shareholders to be held
no earlier than six months after the completion of the
Offering
REO Real estate owned
</TABLE>
G-2
<PAGE>
<TABLE>
<S> <C>
Reorganization The reorganization of the Bank from the mutual to the
stock form of organization, the organization of the
Company, the issuance of all of the Bank's common
stock to the Company, the issuance of a majority of
the Common Stock to the Mutual Holding Company, and
the offer and sale of a minority of the Common Stock
in the Offering pursuant to the Prospectus
SAIF The Savings Association Insurance Fund of the FDIC
SEC Securities and Exchange Commission
Special Meeting The Special Meeting of members of the Bank called for
the purpose of approving the Plan
Stock Option Plan The stock option plan for directors, officers and
employees to be submitted for approval at a meeting of
the Company's shareholders to be held no earlier than
six months after the completion of the Offering
Subscription Offering The offering of non-transferable rights to subscribe
for the Common Stock, in order of priority, to
Eligible Account Holders, the ESOP, Supplemental
Eligible Account Holders and Other Member s
Subscription Price The $10.00 price per share at which the Common Stock
will be sold in the Offering
Supplemental Eligible Depositors of the Bank with aggregate account balances
Account Holders of at least $50 on September 30, 1998, who are not
Eligible Account Holders
Voting Record Date The close of business on _________, 1998, the date for
determining depositors entitled to vote at the Special
Meeting
</TABLE>
G-3
<PAGE>
PROVIDENT BANK
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Reports.................................................. F-2
Consolidated Statements of Financial Condition at September 30, 1997 and
1996 (audited) and at June 30, 1998 (unaudited).............................. F-4
Consolidated Statements of Income for the Years Ended September 30, 1997,
1996 and 1995 (audited) and for the nine-month periods ended
June 30, 1998 and 1997 (unaudited)........................................... 46
Consolidated Statements of Changes in Equity for the Years Ended
September 30, 1997, 1996 and 1995 (audited) and for the nine months
ended June 30, 1998 (unaudited).............................................. F-5
Consolidated Statements of Cash Flows for the Years Ended September 30, 1997,
1996 and 1995 (audited) and for the nine-month periods ended
June 30, 1998 and 1997 (unaudited)........................................... F-6
Notes to Consolidated Financial Statements..................................... F-8
</TABLE>
All schedules are omitted because the required information is not applicable or
is included in the Consolidated Financial Statements and related Notes.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Provident Bank:
We have audited the accompanying consolidated statements of financial condition
of Provident Bank and subsidiaries as of September 30, 1997 and 1996, and the
related consolidated statements of income (page 46), changes in equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Provident Bank and
subsidiaries as of September 30, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Stamford, Connecticut
October 31, 1997, except
as to Note 18 which is
as of April 23, 1998
F-2
<PAGE>
[LETTERHEAD OF DELOITTE & TOUCHE LLP]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Provident Bank:
We have audited the accompanying consolidated statement of income (page 46) and
consolidated statements of changes in equity and cash flows of Provident Bank
and subsidiaries for the year ended September 30, 1995. These consolidated
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these consolidated 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 presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of Provident Bank and subsidiaries for the year ended September 30, 1995 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
-------------------------
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
November 17, 1995
F-3
<PAGE>
PROVIDENT BANK
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands)
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
AT JUNE 30, -------------------
1998 1997 1996
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks........................................ $ 7,785 $ 9,191 $ 8,669
Federal funds sold............................................. 5,000 -- 5,000
------- ------- -------
Total cash and cash equivalents............................ 12,785 9,191 13,669
------- ------- -------
Investment securities (Note 2):
Held to maturity, at amortized cost (fair value of $20,179,
$22,091 and $21,800 at the respective dates)................. 20,197 22,195 22,138
Available for sale, at fair value (amortized cost of $48,271,
$48,290 and $47,215 at the respective dates)................. 48,629 48,517 47,313
------- ------- -------
Total investment securities................................ 68,826 70,712 69,451
------- ------- -------
Mortgage-backed securities (Note 3):
Held to maturity, at amortized cost (fair value of $90,063,
$104,624 and $111,519 at the respective dates)............... 89,334 104,071 112,863
Available for sale, at fair value (amortized cost of $43,487,
$35,785 and $41,436 at the respective dates)................. 43,775 36,153 41,482
------- ------- -------
Total mortgage-backed securities........................... 133,109 140,224 154,345
------- ------- -------
Loans receivable, net of allowance for loan losses of $4,548,
$3,779 and $3,357 at the respective dates (Note 4)............. 440,360 404,497 369,487
Accrued interest receivable, net (Note 5)....................... 4,625 4,262 4,096
Federal Home Loan Bank stock, at cost (Note 9).................. 3,690 3,641 3,211
Premises and equipment, net (Note 6)............................ 6,762 7,047 7,594
Real estate owned, net (Note 7)................................. 366 186 1,307
Deferred income taxes (Note 10)................................. 2,353 1,783 2,459
Other assets (Note 8)........................................... 6,228 7,199 8,631
------- ------- -------
Total assets............................................... $ 679,104 $ 648,742 $ 634,250
======= ======= =======
LIABILITIES AND EQUITY
Liabilities:
Deposits (Note 8).............................................. $ 580,075 $ 546,846 $ 545,286
Borrowings (Note 9)............................................ 25,048 24,000 13,000
Bank overdraft................................................. 147 17,623 17,157
Mortgage escrow funds (Note 4)................................. 14,471 4,559 4,996
Other liabilities.............................................. 5,484 5,315 8,275
------- ------- -------
Total liabilities.......................................... 625,225 598,343 588,714
------- ------- -------
Commitments and contingencies (Notes 13 and 14)
Equity (Note 11):
Retained earnings.............................................. 53,493 50,049 45,451
Net unrealized gain on securities available for sale,
net of income taxes of $260, $245 and $59
at the respective dates...................................... 386 350 85
------- ------- -------
Total equity............................................... 53,879 50,399 45,536
------- ------- -------
Total liabilities and equity............................... $ 679,104 $ 648,742 $ 634,250
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PROVIDENT BANK
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands)
<TABLE>
<CAPTION>
NET
UNREALIZED
RETAINED GAIN ON TOTAL
EARNINGS SECURITIES EQUITY
-------- ----------- -------
<S> <C> <C> <C>
Balance at September 30, 1994........................... $ 38,551 $ -- $ 38,551
Net income for the year................................ 4,803 -- 4,803
Cumulative effect of accounting change
at October 1, 1994 for net unrealized
gain on securities available for sale, net
of income taxes of $27............................... -- 39 39
Change in net unrealized gain on securities
available for sale, net of income taxes
of $303.............................................. -- 435 435
------ ----- ------
Balance at September 30, 1995........................... 43,354 474 43,828
Net income for the year................................ 2,097 -- 2,097
Change in net unrealized gain on securities available
for sale, net of income taxes of $271................ -- (389) (389)
------ ----- ------
Balance at September 30, 1996........................... 45,451 85 45,536
Net income for the year................................ 4,598 -- 4,598
Change in net unrealized gain on securities available
for sale, net of income taxes of $185................ -- 265 265
------ ----- ------
Balance at September 30, 1997........................... 50,049 350 50,399
Net income for the period (unaudited).................. 3,444 -- 3,444
Change in net unrealized gain on securities
available for sale, net of income taxes of
$15 (unaudited)...................................... -- 36 36
------ ----- ------
Balance at June 30, 1998 (unaudited).................... $ 53,493 $ 386 $ 53,879
====== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PROVIDENT BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
NINE
MONTHS ENDED YEARS ENDED
JUNE 30, SEPTEMBER 30,
------------------- -----------------------------------
1998 1997 1997 1996 1995
-------- --------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 3,444 $ 3,464 $ 4,598 $ 2,097 $ 4,803
Adjustments to reconcile net income to net cash
provided by operating activities:
Net amortization of premiums and discounts
on securities...................................... 193 132 177 184 433
Depreciation and amortization of premises and
equipment........................................... 1,044 1,084 1,462 1,297 975
Provision for loan losses............................ 1,347 875 1,058 911 760
Amortization of branch purchase premiums............. 1,200 1,129 1,506 691 --
Originations of loans held for sale.................. (14,619) (197) (197) (433) (1,605)
Proceeds from sales of loans held for sale........... 17,163 197 197 433 1,605
Deferred income tax (benefit) expense................ (586) 485 496 (2,551) 163
Net changes in accrued interest receivable
and payable......................................... (241) (751) (245) 13 (658)
Net increase (decrease) in other liabilities......... 47 (2,397) (2,881) 4,947 (510)
Other adjustments, net............................... (459) 280 (175) (790) 19
------- -------- ------- -------- -------
Net cash provided by operating activities.......... 8,533 4,301 5,996 6,799 5,985
------- -------- ------- -------- -------
Cash flows from investing activities:
Purchases of securities:
Investment securities held to maturity................. (2,977) (4,999) (4,999) (13,277) (10,939)
Investment securities available for sale............... (19,093) (8,204) (8,204) (29,122) (18,165)
Mortgage-backed securities held to maturity............ (12,398) (4,906) (10,071) (56,666) (23,109)
Mortgage-backed securities available for sale.......... (13,100) -- (2,000) (15,604) (5,880)
Proceeds from maturities, calls and principal payments:
Investment securities held to maturity................. 5,010 10 5,012 29,021 15,008
Investment securities available for sale............... 13,000 6,000 7,000 3,000
Mortgage-backed securities held to maturity............ 26,979 13,426 18,667 17,933 4,066
Mortgage-backed securities available for sale.......... 5,442 5,975 7,730 10,517 12,086
Proceeds from sales of investment securities
available for sale..................................... 6,007 -- -- -- 2,014
Loan originations, net of principal repayments........... (40,165) (20,936) (36,829) (39,814) (17,799)
Branch purchase premiums paid............................ -- -- -- (7,532) --
(Redemption) purchase of Federal Home Loan
Bank stock............................................. (49) (430) (430) (242) 21
Proceeds from sales of real estate owned................. 451 1,406 2,029 200 754
Purchases of premises and equipment...................... (761) (805) (1,260) (3,775) (1,593)
Proceeds from sales of premises and equipment............ 2 292 292 192 842
------- -------- ------- -------- -------
Net cash used in investing activities............... (31,652) (13,171) (23,063) (105,169) (42,694)
------- -------- ------- -------- -------
</TABLE>
(Continued)
F-6
<PAGE>
PROVIDENT BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(In thousands)
<TABLE>
<CAPTION>
NINE
MONTHS ENDED YEARS ENDED
JUNE 30, SEPTEMBER 30,
--------------------- ------------------------------
1998 1997 1997 1996 1995
-------- -------- ------- -------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits, including an increase of
$104,477 in 1996 from branch purchases................... $ 33,229 $ 12,648 $ 1,560 $ 101,619 $ 23,859
Net increase (decrease) in borrowings...................... 1,048 -- 11,000 (900) 3,733
Net (decrease) increase in bank overdraft.................. (17,476) (14,653) 466 1,970 13,090
Net increase (decrease) in mortgage escrow funds........... 9,912 8,166 (437) (1,497) 254
------- ------- ------ ------- ------
Net cash provided by financing activities.............. 26,713 6,161 12,589 101,192 40,936
------- ------- ------ ------- ------
Net increase (decrease) in cash and cash equivalents........ 3,594 (2,709) (4,478) 2,822 4,227
Cash and cash equivalents at beginning of period............ 9,191 13,669 13,669 10,847 6,620
------- ------- ------ ------- ------
Cash and cash equivalents at end of period.................. $ 12,785 $ 10,960 $ 9,191 $ 13,669 $ 10,847
======= ======= ====== ======= ======
Supplemental information:
Interest paid.............................................. $ 15,487 $ 15,106 $ 20,100 $ 18,758 $ 15,082
Income taxes paid.......................................... 3,122 389 1,808 3,140 3,277
Non-cash investing activities:
Transfers of loans receivable to real estate owned....... 597 694 715 1,362 255
Transfer of mortgage-backed securities from held to
maturity to available for sale.......................... -- -- -- 6,519 --
======= ======= ====== ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Provident Bank (the "Bank") is a community bank that offers financial
services to individuals and businesses primarily in Rockland County, New
York and its contiguous communities. The Bank's principal business is
accepting deposits and, together with funds generated from operations and
borrowings, investing in various types of loans and securities. The Bank's
deposits are insured up to applicable limits by the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
("FDIC") and, as a federally-chartered savings bank, its primary regulator
is the Office of Thrift Supervision ("OTS"). As discussed in Note 18, the
Bank's Board of Directors has adopted a Plan of Reorganization and Stock
Issuance Plan pursuant to which the Bank will convert from mutual to stock
form of ownership under a two-tier mutual holding company structure and
shares of common stock will be sold in an initial public offering.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of the Bank and
its wholly-owned subsidiaries -- Provest Services Corp. I which became
active in fiscal 1996 and invests in an affordable housing partnership, and
Provest Services Corp. II which became active in fiscal 1997 and has engaged
a third-party provider to sell mutual funds and annuities to the Bank's
customers. Financial statement amounts for these subsidiaries have been
insignificant. Intercompany transactions and balances are eliminated in
consolidation.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets, liabilities, income
and expense. A material estimate that is particularly susceptible to near-
term change is the allowance for loan losses, which is discussed below.
The consolidated statement of financial condition as of June 30, 1998, and
the related consolidated statements of income and cash flows for the nine-
month periods ended June 30, 1998 and 1997 and the consolidated statement of
changes in equity for the nine-month period ended June 30, 1998 are
unaudited but, in the opinion of management, reflect all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation of financial condition and results of operations.
For purposes of reporting cash flows, cash equivalents consist of overnight
Federal funds sold.
SECURITIES
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," requires entities to
classify securities among three categories -- held to maturity, trading, and
available for sale. Management determines the appropriate classification of
the Bank's securities at the time of purchase.
Held-to-maturity securities are limited to those debt securities for which
management has the intent and the Bank has the ability to hold to maturity.
These securities are reported at amortized cost.
F-8
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
Trading securities are those debt and equity securities bought and held
principally for the purpose of selling them in the near term. These
securities are reported at fair value, with unrealized gains and losses
included in earnings. The Bank does not engage in security trading
activities.
All other debt and equity securities are classified as available for sale.
These securities are reported at fair value, with unrealized gains and
losses (net of the related income tax effect) excluded from earnings and
reported in a separate component of equity. Available-for-sale securities
include securities that management intends to hold for an indefinite period
of time, such as securities to be used as part of the Bank's asset/liability
management strategy or securities that may be sold in response to changes in
interest rates, changes in prepayment risks, the need to increase capital,
or similar factors.
Federal Home Loan Bank stock is a non-marketable security held in accordance
with regulatory requirements and, accordingly, is carried at cost.
Premiums and discounts on debt securities are recognized in interest income
on a level-yield basis over the period to maturity. The cost of securities
sold is determined using the specific identification method. Unrealized
losses are charged to earnings when the decline in fair value of a security
is judged to be other than temporary.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans, other than those classified as held for sale, are carried at
amortized cost less the allowance for loan losses. Mortgage loans
originated and held for sale in the secondary market are carried at the
lower of aggregate cost or estimated market value. Net unrealized losses,
if any, are recognized in a valuation allowance by a charge to earnings.
Effective October 1, 1995, the Bank prospectively adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No.
118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition
and Disclosures." Under SFAS No. 114, a loan is considered impaired when,
based on current information and events, it is probable that a creditor will
be unable to collect all principal and interest due according to the
contractual terms of the loan. Impaired loans are measured and reported
based on one of three approaches -- the present value of expected future
cash flows discounted at the loan's effective interest rate; the loan's
observable market price; or the fair value of the collateral if the loan is
collateral dependent. If the approach used results in a measurement that is
less than the recorded investment in an impaired loan, an impairment loss is
recognized as part of the allowance for loan losses. SFAS No. 118 allows
creditors to continue to use existing methods for recognizing interest
income on impaired loans. The adoption of these statements did not affect
the Bank's overall allowance for loan losses or income recognition policies.
F-9
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
The allowance for loan losses is established through provisions for losses
charged to earnings. Loan losses are charged against the allowance when
management believes that the collection of principal is unlikely.
Recoveries of loans previously charged-off are credited to the allowance
when realized.
The allowance for loan losses is an amount that management believes will be
adequate to absorb probable losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of the loans.
Management's evaluations, which are subject to periodic review by the Bank's
regulators, take into consideration such factors as the Bank's past loan
loss experience, changes in the nature and volume of the loan portfolio,
overall portfolio quality, review of specific problem loans and collateral
values, and current economic conditions that may affect the borrowers'
ability to pay. Future adjustments to the allowance for loan losses may be
necessary based on changes in economic and real estate market conditions,
further information obtained regarding known problem loans, regulatory
examinations, the identification of additional problem loans, and other
factors.
INTEREST AND FEES ON LOANS
A loan is placed on non-accrual status when management has determined that
the borrower may be unable to meet contractual principal or interest
obligations, or when interest and principal is 90 days or more past due.
Accrual of interest ceases and, in general, uncollected past due interest
(including interest applicable to prior years, if any) is reversed and
charged against current income. Interest payments received on non-accrual
loans (including impaired loans under SFAS No. 114) are not recognized as
income unless warranted based on the borrower's financial condition and
payment record. Interest on loans that have been restructured is accrued in
accordance with the renegotiated terms.
The Bank defers non-refundable loan origination and commitment fees and
certain direct loan origination costs, and amortizes the net amount as an
adjustment of the yield over the contractual term of the loan. If a loan is
prepaid or sold, the net deferred amount is recognized in income at that
time.
REAL ESTATE OWNED
Real estate properties acquired through loan foreclosure are recorded
initially at estimated fair value less expected sales costs, with any
resulting writedown charged against the allowance for loan losses.
Subsequent valuations are periodically performed by management, and the
carrying value of a real estate owned property is adjusted by a charge to
expense to reflect any subsequent declines in estimated fair value. Fair
value estimates are based on recent appraisals and other available
information. Routine holding costs are charged to expense as incurred,
while significant improvements are capitalized. Gains and losses on sales
of real estate owned are recognized upon disposition.
F-10
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method
over the estimated useful lives of the related assets ranging from 3 to 40
years. Leasehold improvements are amortized on a straight-line basis over
the terms of the respective leases or the estimated useful lives of the
improvements, whichever is shorter. Routine holding costs are charged to
expense as incurred, while significant improvements are capitalized.
BRANCH PURCHASE PREMIUMS
Premiums attributable to the acquisition of core deposits in branch purchase
transactions are amortized using the straight-line method over periods not
exceeding the estimated average remaining life of the acquired customer base
(initial five-year periods for the Bank's 1996 branch purchases). The
weighted average remaining amortization period for these premiums was
approximately 2.5 years at June 30, 1998. The unamortized premiums are
reviewed for impairment if events or changes in circumstances indicate that
the carrying amount may not be fully recoverable.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," establishes financial reporting
standards for a broad range of transactions including sales of loans with
servicing retained, loan securitizations, loan participations, repurchase
agreements, securities lending and in-substance defeasances of debt. Among
other things, the standard requires recognition of servicing rights as an
asset when loans are sold with servicing retained. SFAS No. 125 is
generally effective for transactions entered into on or after January 1,
1997 and superseded SFAS No. 122, "Accounting for Mortgage Servicing
Rights," which became effective for the Bank on October 1, 1996.
In accordance with these standards, the Bank recognizes mortgage servicing
rights as an asset when loans are sold with servicing retained, by
allocating the cost of an originated mortgage loan between the loan and the
servicing right based on estimated relative fair values. The cost allocated
to the servicing right is capitalized as a separate asset which is amortized
thereafter in proportion to, and over the period of, estimated net servicing
income. Asset recognition of servicing rights on sales of originated loans
was not permitted under previous accounting standards. Capitalized mortgage
servicing rights are assessed for impairment based on the fair value of
those rights, and any impairment loss is recognized in a valuation allowance
by charges to income. SFAS No. 125 has not had a significant impact on the
Bank's consolidated financial statements through June 30, 1998.
F-11
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
INCOME TAXES
In accordance with SFAS No. 109, "Accounting for Income Taxes", deferred
taxes are recognized for the estimated future tax effects attributable to
"temporary differences" between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. A deferred tax liability
is recognized for all temporary differences that will result in future
taxable income. A deferred tax asset is recognized for all temporary
differences that will result in future tax deductions, subject to reduction
of the asset by a valuation allowance in certain circumstances. This
valuation allowance is recognized if, based on an analysis of available
evidence, management determines that it is more likely than not that some
portion or all of the deferred tax asset will not be realized. The
valuation allowance is subject to ongoing adjustment based on changes in
circumstances that affect management's judgment about the realizability of
the deferred tax asset. Adjustments to increase or decrease the valuation
allowance are charged or credited, respectively, to income tax expense.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which the temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax laws or rates is recognized in
income tax expense in the period that includes the enactment date of the
change.
INTEREST RATE CAP AGREEMENTS
The Bank uses the accrual method of accounting for interest rate cap
agreements entered into for interest rate risk management purposes.
Interest payments (if any) due from the counterparties are recognized in the
consolidated statements of income as an adjustment to interest income or
expense on the assets or liabilities designated in the Bank's interest rate
risk management strategy. Premiums paid by the Bank at inception of the
agreements are included in other assets and amortized on a straight-line
basis as an adjustment to interest income or expense over the term of the
agreements.
F-12
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
(2) INVESTMENT SECURITIES
---------------------
The following are summaries of investment securities:
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY
U.S. Government and Agency securities due:
Within one year..................................... $10,009 $ - $ (4) $ 10,005
After one year, but within five years............... 9,477 7 (21) 9,463
Municipal and other securities....................... 711 - _ 711
------- ------- ------- -------
20,197 7 (25) 20,179
------- ------- ------- -------
SECURITIES AVAILABLE FOR SALE
U.S. Government and Agency securities due:
Within one year..................................... 9,995 4 (7) 9,992
After one year, but within five years............... 34,261 170 (48) 34,383
Corporate debt securities............................ 1,998 _ (2) 1,996
Equity securities.................................... 2,017 241 _ 2,258
------- ------- ------- -------
48,271 415 (57) 48,629
------- ------- ------- -------
Total investment securities........................ $68,468 $ 422 $ (82) $68,808
======= ======= ======= =======
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY
U.S. Government and Agency securities due:
Within one year..................................... $ 1,025 $ 2 $ $ 1,027
After one year, but within five years............... 20,448 1 (106) 20,343
Municipal and other securities....................... 722 - (1) 721
------- ------- ------- -------
22,195 3 (107) 22,091
------- ------- ------- -------
SECURITIES AVAILABLE FOR SALE
U.S. Government and Agency securities due:
Within one year..................................... 16,028 49 - 16,077
After one year, but within five years............... 27,238 128 (108) 27,258
Corporate debt securities............................ 3,007 1 (3) 3,005
Equity securities.................................... 2,017 182 (22) 2,177
------- ------- ------- -------
48,290 360 (133) 48,517
------- ------- ------- -------
Total investment securities....................... $70,485 $ 363 $ (240) $70,608
======= ======= ======= =======
</TABLE>
F-13
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY
U.S. Government and Agency securities due
after one year, but within five years............ $21,402 $ - $ (332) $21,070
Municipal and other securities....................... 736 - (6) 730
------- ------- ------- -------
22,138 - (338) 21,800
------- ------- ------- -------
SECURITIES AVAILABLE FOR SALE
U.S. Government and Agency securities due
after one year, but within five years............ 41,161 (301) 40,860
Corporate debt securities............................ 4,037 (4) 4,033
Equity securities.................................... 2,017 403 2,420
------- ------- ------- -------
47,215 403 (305) 47,313
------- ------- ------- -------
Total investment securities....................... $69,353 $ 403 $(643) $69,113
======= ======= ======= =======
</TABLE>
The following is an analysis, by type of interest rate, of the amortized
cost and weighted average yields of the debt securities in the Bank's
investment securities portfolio:
<TABLE>
<CAPTION>
FIXED ADJUSTABLE
RATE RATE TOTAL
--------------- --------------- ---------------
<S> <C> <C> <C>
JUNE 30, 1998
Amortized cost..................................... $63,930 $2,521 $66,451
Weighted average yield............................. 5.83% 5.29% 5.81%
SEPTEMBER 30, 1997
Amortized cost..................................... $65,950 $2,518 $68,468
Weighted average yield............................. 6.08% 5.65% 6.06%
SEPTEMBER 30, 1996
Amortized cost..................................... $64,822 $2,514 $67,336
Weighted average yield............................. 5.92% 5.96% 5.92%
</TABLE>
Proceeds from sales of investment securities available for sale were $6,007
in the nine months ended June 30, 1998 (resulting in gross realized gains of
$10) and $2,014 in the year ended September 30, 1995 (resulting in gross
realized gains of $14). These gains are included in other non-interest
income. There were no sales of investment securities in the years ended
September 30, 1997 and 1996.
U.S. Government securities with a carrying value of $1,500 and $1,350 were
pledged to secure public funds on deposit at June 30, 1998 and September 30,
1997, respectively.
F-14
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
(3) MORTGAGE-BACKED SECURITIES
--------------------------
The Bank's mortgage-backed securities are principally Freddie Mac
participation certificates, and pass-through certificates guaranteed by
Fannie Mae or Ginnie Mae. Certain Freddie Mac and Fannie Mae collateralized
mortgage obligations are also held in the portfolio. Mortgage-backed
securities are collateralized by one- to four-family residential loans which
contractually may be prepaid.
The following are summaries of mortgage-backed securities:
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY
Freddie Mac................................... $ 41,915 $ 440 $ (3) $ 42,352
Fannie Mae.................................... 38,345 159 (55) 38,449
Ginnie Mae.................................... 6,901 82 - 6,983
Other......................................... 2,173 106 - 2,279
-------- -------- -------- --------
89,334 787 (58) 90,063
-------- -------- -------- --------
SECURITIES AVAILABLE FOR SALE
Freddie Mac................................... 16,123 168 (15) 16,276
Fannie Mae.................................... 23,219 150 (21) 23,348
Other......................................... 4,145 6 - 4,151
-------- -------- -------- --------
43,487 324 (36) 43,775
-------- -------- -------- --------
Total mortgage-backed securities........... $132,821 $ 1,111 $ (94) $133,838
======== ======== ======== ========
</TABLE>
F-15
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY
Freddie Mac................................... $ 55,950 $ 436 $ (59) $ 56,327
Fannie Mae.................................... 37,928 121 (148) 37,901
Ginnie Mae.................................... 7,971 143 - 8,114
Other......................................... 2,222 60 - 2,282
-------- ------- -------- --------
104,071 760 (207) 104,624
-------- ------- -------- --------
SECURITIES AVAILABLE FOR SALE
Freddie Mac................................... 10,289 224 (5) 10,508
Fannie Mae.................................... 20,912 219 (53) 21,078
Other......................................... 4,584 - (17) 4,567
-------- ------- -------- --------
35,785 443 (75) 36,153
-------- ------- -------- --------
Total mortgage-backed securities........... $139,856 $ 1,203 $ (282) $140,777
======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY
Freddie Mac................................... $ 62,977 $ 194 $ (846) $ 62,325
Fannie Mae.................................... 44,345 48 (798) 43,595
Ginnie Mae.................................... 3,284 78 - 3,362
Other......................................... 2,257 - (20) 2,237
-------- -------- -------- --------
112,863 320 (1,664) 111,519
-------- -------- -------- --------
SECURITIES AVAILABLE FOR SALE
Freddie Mac................................... 13,844 196 (29) 14,011
Fannie Mae.................................... 22,696 136 (243) 22,589
Other......................................... 4,896 - (14) 4,882
-------- -------- -------- --------
41,436 332 (286) 41,482
-------- -------- -------- --------
Total mortgage-backed securities.......... $154,299 $ 652 $ (1,950) $153,001
======== ======== ======== ========
</TABLE>
F-16
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
The following is an analysis, by type of interest rate, of the amortized
cost and weighted average yields of the Bank's mortgage-backed securities
portfolio:
<TABLE>
<CAPTION>
FIXED ADJUSTABLE
RATE RATE TOTAL
-------------- -------------- --------------
<S> <C> <C> <C>
JUNE 30, 1998
Amortized cost..................................... $86,234 $46,587 $132,821
Weighted average yield............................. 6.49% 6.50% 6.49%
SEPTEMBER 30, 1997
Amortized cost..................................... $86,702 $53,154 $139,856
Weighted average yield............................. 6.65% 6.66% 6.65%
SEPTEMBER 30, 1996
Amortized cost..................................... $94,204 $60,095 $154,299
Weighted average yield............................. 6.44% 6.57% 6.49%
</TABLE>
In November 1995, the Financial Accounting Standards Board ("FASB") issued a
special report concerning SFAS No. 115 which provided an opportunity to
reclassify debt securities from the held-to-maturity category to the
available-for-sale category prior to December 31, 1995, without calling into
question the intent to hold other debt securities to maturity. In November
1995, the Bank reclassified mortgage-backed securities with an amortized
cost of $6,519 and a fair value of $6,582 from the held-to-maturity category
to the available-for-sale category. An after-tax net unrealized gain of $37
was recorded as an increase in equity at the time of transfer.
There were no sales of mortgage-backed securities in the nine months ended
June 30, 1998 or the years ended September 30, 1997, 1996 and 1995.
F-17
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
(4) LOANS RECEIVABLE
----------------
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, ------------------------
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
First mortgage loans:
One- to four-family residential:
Fixed rate........................ $ 188,779 $ 158,596 $ 137,987
Adjustable rate................... 82,814 83,299 81,881
Multi-family residential................ 7,108 7,358 7,743
Commercial real estate.................. 63,712 55,747 58,640
Construction and land................... 27,785 31,740 28,035
--------- --------- ---------
370,198 336,740 314,286
--------- --------- ---------
Other loans:
Home equity lines of credit......... 28,362 31,456 31,306
Homeowner loans..................... 25,418 18,678 12,575
Other consumer loans................ 8,855 10,670 10,916
Commercial business loans........... 24,036 21,651 15,263
--------- --------- ---------
86,671 82,455 70,060
--------- --------- ---------
Total loans receivable............ 456,869 419,195 384,346
Loans in process...................... (12,732) (11,424) (11,775)
Allowance for loan losses............. (4,548) (3,779) (3,357)
Deferred loan origination costs, net.. 771 505 273
--------- --------- ---------
Total loans receivable, net....... $ 440,360 $ 404,497 $ 369,487
========= ========= =========
</TABLE>
The Bank originates mortgage loans secured by existing one- to four-family
residential properties. The Bank also originates multi-family and
commercial real estate loans, construction and land loans, consumer loans
and commercial business loans. A substantial portion of the loan portfolio
is secured by residential and commercial real estate located in Rockland
County, New York. The ability of the Bank's borrowers to make principal and
interest payments is dependent upon, among other things, the level of
overall economic activity and the real estate market conditions prevailing
within the Bank's concentrated lending area.
The Bank originated commercial real estate loans and construction and land
loans totaling $25,361 in the nine months ended June 30, 1998, and $23,884,
$32,371 and $16,896 in the years ended September 30, 1997, 1996 and 1995,
respectively. These loans are considered by management to be of somewhat
greater credit risk than loans to fund the
F-18
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
purchase of a primary residence due to the generally larger loan amounts and
dependency on income production or sale of the real estate. Substantially
all of these loans are collateralized by real estate located in the Bank's
primary market area.
The principal balances of non-accrual loans were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, -----------------
1998 1997 1996
-------- ----- ------
<S> <C> <C> <C>
First mortgage loans:
One- to four-family...... $ 3,323 $ 2,549 $ 2,731
Commercial real estate... 848 1,375 2,087
Construction and land.... 1,142 276 920
Consumer loans............. 230 234 503
Commercial business loans.. 194 243 109
-------- ------- --------
Total non-accrual loans.... $ 5,737 $ 4,677 $ 6,350
======== ======= ========
</TABLE>
The allowance for uncollected interest, representing the amount of interest
on non-accrual loans that has not been recognized in interest income, was
$505, $433 and $540 at June 30, 1998, September 30, 1997 and September 30,
1996, respectively. For the year ended September 30, 1997 and for the
nine months ended June 30, 1998, gross interest income that would have been
recorded had the non-accrual loans at the end of the period remained on
accrual status throughout the period amounted to $411 and $523,
respectively. Interest income actually recognized on such loans totaled
$147 for the year ended September 30, 1997 and $241 for the nine months
ended June 30, 1998.
SFAS No. 114 applies to loans that are individually evaluated for
collectibility in accordance with the Bank's ongoing loan review procedures
(principally commercial real estate loans, construction and land loans, and
commercial business loans). The standard does not generally apply to
smaller-balance homogeneous loans that are collectively evaluated for
impairment, such as residential mortgage loans and consumer loans. The
Bank's recorded investment in impaired loans, as defined by SFAS No. 114, is
summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, ---------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Loans with an allowance for loan impairment
under SFAS No. 114 (allowance of $168 and
$25 at September 30, 1997 and 1996,
respectively).............................. $ _ $ 615 $ 675
Loans for which an allowance for loan
impairment was not required................ 2,184 1,279 2,441
------- ------- -------
Total impaired loans..................... $ 2,184 $ 1,894 $ 3,116
======= ======= =======
</TABLE>
F-19
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
Substantially of all of these impaired loans were collateral-dependent loans
measured based on the fair value of the collateral in accordance with SFAS
No. 114. The Bank determines the need for an allowance for loan impairment
under SFAS No. 114 on a loan-by-loan basis. The Bank's recorded investment
in impaired loans averaged $3,047 and $2,315 in the nine months ended June
30, 1998 and 1997, respectively, and $2,210 and $3,663 in the years ended
September 30, 1997 and 1996, respectively.
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED
ENDED JUNE 30, SEPTEMBER 30,
------------------------ ----------------------------------------
1998 1997 1997 1996 1995
----------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period................ $3,779 $3,357 $3,357 $ 3,472 $2,837
Provision for losses.......................... 1,347 875 1,058 911 760
Charge-offs................................... (611) (396) (759) (1,076) (152)
Recoveries.................................... 33 41 123 50 27
------ ------ ------ ------- ------
Balance at end of period...................... $4,548 $3,877 $3,779 $ 3,357 $3,472
====== ====== ====== ======= ======
</TABLE>
Certain residential mortgage loans originated by the Bank are sold in the
secondary market. Other non-interest income for the nine months ended June
30, 1998 includes a net gain of $185 on sales of residential mortgage loans
held for sale (net gains in fiscal 1997, 1996 and 1995 were insignificant).
Fixed-rate residential mortgage loans include loans held for sale with a
carrying value of $486 at September 30, 1997 and $745 at September 30, 1996,
which approximated market value at those dates. There were no loans held
for sale at June 30, 1998. Other assets at June 30, 1998 include
capitalized mortgage servicing rights with an amortized cost of $163, which
approximated fair value.
The Bank generally retains the servicing rights on loans sold. Servicing
loans for others generally consists of collecting mortgage payments,
maintaining escrow accounts, disbursing payments to investors and, if
necessary, processing foreclosures. Loans serviced for others totaled
approximately $128,500, $127,600 and $143,000 at June 30, 1998, September
30, 1997 and September 30, 1996, respectively. These amounts include loans
sold with recourse of approximately $2,900, $3,500 and $4,200, respectively,
for which management does not expect the Bank to incur any significant
losses. Loan servicing income includes servicing fees from investors and
certain charges collected from borrowers, such as late payment fees.
Mortgage escrow funds include amounts held in connection with loans serviced
for others of $5,271, $1,873 and $2,076 at June 30, 1998, September 30, 1997
and September 30, 1996, respectively.
F-20
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
(5) ACCRUED INTEREST RECEIVABLE
---------------------------
The components of accrued interest receivable were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, ------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Loans receivable......................... $ 2,997 $ 2,933 $ 2,910
Allowance for uncollected interest....... (505) (433) (540)
------ ----- -----
2,492 2,500 2,370
Investment securities.................... 1,311 868 787
Mortgage-backed securities............... 822 894 939
------ ----- -----
Total accrued interest receivable, net.. $ 4,625 $ 4,262 $ 4,096
===== ===== =====
</TABLE>
(6) PREMISES AND EQUIPMENT
----------------------
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, ----------------
1998 1997 1996
--------- ------ --------
<S> <C> <C> <C>
Land and land improvements............... $ 1,088 $ 1,082 $ 1,006
Buildings................................ 3,159 3,348 3,136
Leasehold improvements................... 2,893 2,642 2,614
Furniture and fixtures................... 6,510 5,820 5,310
------ ------ -------
13,650 12,892 12,066
Accumulated depreciation and amortization (6,888) (5,845) (4,472)
------ ------ -------
Total premises and equipment, net....... $ 6,762 $ 7,047 $ 7,594
====== ====== ======
</TABLE>
Depreciation and amortization expense, which is included in occupancy and
office operations expense, amounted to $1,044 and $1,084 in the nine months
ended June 30, 1998 and 1997, respectively, and $1,462, $1,297 and $975 in
the years ended September 30, 1997, 1996 and 1995, respectively.
F-21
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
(7) REAL ESTATE OWNED
-----------------
Real estate owned consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, ----------------------
1998 1997 1996
-------- ------ ------
<S> <C> <C> <C>
One- to four-family properties.. $ 92 $ 212 $ 347
Commercial properties........... 274 -- 1,010
Allowance for losses............ -- (26) (50)
----- ------ ------
Real estate owned, net......... $ 366 $ 186 $ 1,307
=== === =====
</TABLE>
Activity in the allowance for losses on real estate owned is summarized as
follows:
<TABLE>
<CAPTION>
Nine Months Years Ended
Ended June 30, September 30,
--------------------------- -----------------------------------------
1998 1997 1997 1996 1995
------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period................ $ 26 $ 50 $ 50 $ -- $ --
Provision for losses.......................... -- -- 75 64 90
Losses charged to allowance................... (26) (50) (99) (14) (90)
----- ----- ----- ----- -----
Balance at end of period...................... $ -- $ -- $ 26 $ 50 $ --
===== ===== ===== ===== =====
</TABLE>
Foreclosed real estate expense (income) consisted of the following:
<TABLE>
<CAPTION>
Nine Months Years Ended
Ended June 30, September 30,
--------------------------- ----------------------------------------
1998 1997 1997 1996 1995
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Holding costs................................. $ 100 $ 145 $ 164 $ 382 $ 66
Provision for losses.......................... -- -- 75 64 90
Income from operations........................ -- -- (11) (4) (9)
Net gain on sales of properties............... (34) (254) (268) (1) (47)
----- ----- ----- ----- -----
Expense (income), net........................ $ 66 $ (109) $ (40) $ 441 $ 100
===== ===== ===== ===== =====
</TABLE>
F-22
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
(8) DEPOSITS
--------
Deposit accounts and weighted average interest rates are summarized as
follows:
<TABLE>
<CAPTION>
JUNE 30, 1998 September 30, 1997 SEPTEMBER 30, 1996
----------------- ------------------ ------------------
AMOUNT RATE Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Demand deposits....................... $ 55,072 --% $ 49,221 --% $ 42,700 %
NOW deposits.......................... 40,969 1.25 32,985 1.25 30,950 1.25
Savings deposits...................... 161,263 2.25 153,171 2.25 153,565 2.25
Money market deposits................. 79,436 2.96 75,339 2.96 77,111 2.97
Certificates of deposit............... 243,335 5.22 236,130 5.31 240,960 5.10
-------- -------- --------
Total deposits....................... $580,075 3.31% $546,846 3.40% $ 545,286 3.38%
======== ==== ======== ==== ======== ====
</TABLE>
Certificates of deposit had remaining periods to contractual
maturity as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, -------------
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
Remaining period to maturity:
Less than one year............................ $ 180,515 $ 185,557 $ 186,737
One to two years.............................. 50,003 24,075 29,721
Two to three years............................ 7,088 19,086 10,328
Over three years.............................. 5,729 7,412 14,174
------- -------- -------
Total certificates of deposit................. $ 243,335 $ 236,130 $ 240,960
======= ======== =======
</TABLE>
Certificate of deposit accounts with a denomination of $100 or more
totaled $25,780, $25,137 and $26,263 at June 30, 1998, September 30, 1997
and September 30, 1996, respectively. The FDIC generally insures depositor
accounts up to $100, as defined in the applicable regulations.
The Bank purchased two branch offices in separate transactions consummated
in March and May 1996. In these transactions, the Bank assumed deposit
liabilities of $104,477; received cash of $96,165 and other assets of
$780; and recorded a core deposit purchase premium of $7,532. Premium
amortization charged to expense amounted to $1,200 and $1,129 in the nine
months ended June 30, 1998 and 1997, respectively, and $1,506 and $691 in
the years ended September 30, 1997 and 1996, respectively. Unamortized
premiums of $4,091, $5,280 and $6,841 are included in other assets at June
30, 1998, September 30, 1997 and September 30, 1996, respectively.
F-23
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS Years Ended
Ended June 30, September 30,
------------------------- -------------------------------------
1998 1997 1997 1996 1995
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Savings deposits.............................. $ 2,731 $ 2,713 $ 3,670 $ 3,592 $ 3,741
Money market and NOW deposits 2,016 1,992 2,675 2,480 2,136
Certificates of deposit....................... 9,568 9,184 12,347 11,041 8,563
------- ------- ------- ------- -------
Total interest expense....................... $14,315 $13,889 $18,692 $17,113 $14,440
======= ======= ======= ======= =======
</TABLE>
(9) BORROWINGS
----------
The Bank's borrowings consist of Federal Home Loan Bank ("FHLB") advances
with weighted average interest rates and remaining periods to maturity as
follows:
<TABLE>
<CAPTION>
JUNE 30, 1998 September 30, 1997 SEPTEMBER 30, 1996
------------------- --------------------- -------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
--------- ----- ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Remaining period to maturity:
Less than one year.................. $ -- --% $ -- --% $ 5,000 5.44%
One to two years.................... 10,000 6.20 11,000 7.16 5,000 7.81
Two to three years.................. 5,000 6.35 3,000 6.58 3,000 6.58
Three to four years................. -- -- 5,000 6.12 -- --
Four to five years.................. 10,048 5.94 5,000 6.28 -- --
------- ------- -------
Total borrowings.................. $25,048 6.13% $24,000 6.69% $ 13,000 6.61%
======= ==== ======= ==== ======= ====
</TABLE>
As a member of the FHLB of New York, the Bank may have outstanding FHLB
borrowings of up to 30% of its total assets, or approximately $203,700 at
June 30, 1998 and $194,600 at September 30, 1997, in a combination of term
advances and overnight funds. The Bank's unused FHLB borrowing capacity was
approximately $178,700 at June 30, 1998 and $170,600 at September 30, 1997.
Borrowings are secured by the Bank's investment in FHLB stock and by a
blanket security agreement. This agreement requires the Bank to maintain as
collateral certain qualifying assets (principally securities and residential
mortgage loans) not otherwise pledged. The Bank satisfied this collateral
requirement at June 30, 1998, September 30, 1997 and September 30, 1996.
F-24
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
(10) INCOME TAXES
------------
Income tax expense consists of the following components:
<TABLE>
<CAPTION>
NINE MONTHS Years Ended
Ended June 30, September 30,
------------------------ --------------------------------------
1998 1997 1997 1996 1995
------------ ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Current tax expense:
Federal.................................... $2,075 $1,549 $1,898 $ 2,743 $2,431
State...................................... 506 336 435 498 645
------ ------ ------ ------- ------
2,581 1,885 2,333 3,241 3,076
------ ------ ------ ------- ------
Deferred tax (benefit) expense:
Federal.................................... (435) 348 356 (1,662) (78)
State...................................... (151) 137 140 (889) 241
------ ------ ------ ------- ------
(586) 485 496 (2,551) 163
------ ------ ------ ------- ------
Total income tax expense.................... $1,995 $2,370 $2,829 $ 690 $3,239
====== ====== ====== ======= ======
</TABLE>
The Bank's actual income tax expense differs from the amounts determined by
applying the statutory Federal income tax rate to income before income taxes
for the following reasons:
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
--------------------------------------------
1998 1997
------------------- -------------------
AMOUNT Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Tax at Federal statutory rate............. $ 1,849 34.0% $1,984 34.0%
State income taxes, net of
Federal tax effect.... 234 4.3 312 5.3
Other, net................................ (88) (1.6) 74 1.3
----- ---- ------ ----
Actual income tax expense................. $ 1,995 36.7% $2,370 40.6%
====== ==== ====== ====
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
1997 1996 1995
------------------------ ------------------------ ------------------------
AMOUNT Percent Amount Percent Amount PERCENT
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Tax at Federal statutory rate............. $2,525 34.0% $ 948 34.0% $2,734 34.0%
State income taxes, net of
Federal tax effect................ 380 5.1 (258) (9.2) 585 7.3
Other, net................................ (76) (1.0) -- -- (80) (1.0)
------ ------ ------ ------ ------ ------
Actual income tax expense................. $2,829 38.1% $ 690 24.8% $3,239 40.3%
====== ====== ====== ====== ====== ======
</TABLE>
F-25
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
Deferred tax assets and liabilities have been recognized for temporary
differences between the financial statement carrying amounts and the tax
bases of assets and liabilities. The sources of these temporary differences
and their deferred tax effects are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, ---------------
1998 1997 1996
-------- ----- -----
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses............... $ 1,777 $ 1,470 $ 1,112
Deferred compensation................... 846 789 681
Deposit premium amortization............ 899 594 --
Depreciation of premises and equipment.. 135 122 175
Accrued SAIF special assessment......... -- -- 1,351
Other................................... 83 65 --
----- ----- -----
Total deferred tax assets............. 3,740 3,040 3,319
----- ----- -----
Deferred tax liabilities:
Federal tax bad debt reserve in
excess of base-year amount............ 444 444 476
Prepaid pension expense................. 354 355 253
Deferred loan origination costs, net.... 329 213 72
Net unrealized gain on securities
available for sale.................... 260 245 59
----- ----- -----
Total deferred tax liabilities........ 1,387 1,257 860
----- ----- -----
Net deferred tax asset.................... $ 2,353 $ 1,783 $ 2,459
===== ===== =====
</TABLE>
Based on recent historical and anticipated future pre-tax earnings,
management believes it is more likely than not that the Bank will realize
its deferred tax assets.
As a savings institution, the Bank is subject to special provisions in the
Federal and New York State tax laws regarding its allowable tax bad debt
deductions and related tax bad debt reserves. These deductions historically
were determined using methods based on loss experience or a percentage of
taxable income. Tax bad debt reserves represent the excess of allowable
deductions over actual bad debt losses and other reserve reductions. These
reserves consist of a defined base-year amount, plus additional amounts
("excess reserves") accumulated after the base year. SFAS No. 109 requires
recognition of deferred tax liabilities with respect to such excess
reserves, as well as any portion of the base-year amount which is expected
to become taxable (or "recaptured") in the foreseeable future.
F-26
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
Certain amendments to the Federal and New York State tax laws regarding bad
debt deductions were enacted in the quarter ended September 30, 1996. The
Federal amendments eliminated the percentage-of-taxable-income method for
tax years beginning after December 31, 1995 and imposed a requirement to
recapture into taxable income (over a six-year period) the bad debt
reserves in excess of the base-year amounts. The Bank previously
established, and has continued to maintain, a deferred tax liability with
respect to such excess Federal reserves. The New York State amendments
redesignated all then-existing State bad debt reserves as the base-year
amount and provide for future additions to that base-year reserve using the
percentage-of-taxable-income method. These changes effectively eliminated
the Bank's excess New York State reserves for which a deferred tax
liability had been recognized and, accordingly, such liability was reversed
in the quarter ended September 30, 1996 and a $500 reduction in income tax
expense was recognized.
The Bank's Federal and State base-year reserves were approximately $4,600
and $24,500, respectively, at June 30, 1998 ($4,600 and $22,800,
respectively, at September 30, 1997). In accordance with SFAS No. 109,
deferred tax liabilities have not been recognized with respect to these
reserves, since the Bank does not expect that these amounts will become
taxable in the foreseeable future. Under the tax laws as amended, events
that would result in taxation of certain of these reserves include failure
to maintain a specified qualifying-assets ratio or meet other thrift
definition tests for New York State tax purposes. At June 30, 1998 and
September 30, 1997, the Bank's unrecognized deferred tax liabilities with
respect to its base-year reserves totaled approximately $3,300 and $3,200,
respectively.
(11) REGULATORY MATTERS
------------------
CAPITAL REQUIREMENTS
OTS regulations require savings institutions to maintain a minimum ratio of
tangible capital to total adjusted assets of 1.5%; a minimum ratio of Tier
1 (core) capital to total adjusted assets of 3.0%; and a minimum ratio of
total (core and supplementary) capital to risk-weighted assets of 8.0%.
Under its prompt corrective action regulations, the OTS 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 Tier 1 (core) 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%.
F-27
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the OTS about
capital components, risk weightings and other factors.
Management believes that, as of June 30, 1998, September 30, 1997 and
September 30, 1996, the Bank met all capital adequacy requirements to which
it was subject. Further, the most recent OTS 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,
compared to the OTS minimum capital adequacy requirements and the OTS
requirements for classification as a well-capitalized institution:
<TABLE>
<CAPTION>
OTS Requirements
------------------------------------------------------
MINIMUM CAPITAL CLASSIFICATION
BANK ACTUAL ADEQUACY AS WELL CAPITALIZED
------------------------- -------------------------- --------------------------
Amount RATIO AMOUNT RATIO AMOUNT RATIO
------------ ----------- ------------- ----------- ------------- -----------
JUNE 30, 1998
<S> <C> <C> <C> <C> <C> <C>
Tangible capital........... $49,402 7.3% $10,120 1.5% $ -- --%
Tier 1 (core) capital...... 49,402 7.3 20,239 3.0 33,732 5.0
Risk-based capital:
Tier 1................. 49,402 13.0 -- -- 22,748 6.0
Total.................. 53,950 14.2 30,331 8.0 37,913 10.0
======= ==== ======= === ======= ====
September 30, 1997
Tangible capital........... $44,769 7.0% $ 9,650 1.5% $ --%
Tier 1 (core) capital...... 44,769 7.0 19,299 3.0 32,165 5.0
Risk-based capital:
Tier 1................. 44,769 12.7 21,168 6.0
Total.................. 48,336 13.7 28,224 8.0 35,280 10.0
======= ==== ======= === ======= ====
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
<S> <C> <C> <C> <C> <C> <C>
Tangible capital........... $38,610 6.2% $ 9,410 1.5% $ %
Tier 1 (core) capital...... 38,610 6.2 18,820 3.0 31,366 5.0
Risk-based capital:
Tier 1................. 38,610 11.5 20,149 6.0
Total.................. 41,326 12.3 26,865 8.0 33,582 10.0
======= ==== ======= === ====== ====
</TABLE>
F-28
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
The following is a reconciliation of the Bank's equity under generally
accepted accounting principles and its regulatory capital amounts:
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, ------------------
1998 1997 1996
--------- ------- -------
<S> <C> <C> <C>
Equity under generally accepted
accounting principles...................... $ 53,879 $ 50,399 $ 45,536
Core deposit purchase premiums............... (4,091) (5,280) (6,841)
Net unrealized gain on securities available
for sale, net of income taxes.............. (386) (350) (85)
------ ------ ------
Tangible capital, Tier 1 (core) capital
and Tier 1 risk-based capital.............. 49,402 44,769 38,610
Allowance for loan losses includable
in regulatory capital...................... 4,548 3,567 2,716
------ ------ ------
Total risk-based capital..................... $ 53,950 $ 48,336 $ 41,326
====== ====== ======
</TABLE>
SAIF SPECIAL ASSESSMENT
The Deposit Insurance Funds Act of 1996 (the "Act") was signed into law on
September 30, 1996. Among other things, the Act required depository
institutions to pay a one-time special assessment of 65.7 basis points on
their SAIF-assessable deposits, in order to recapitalize the SAIF to the
reserve level required by law. The Bank's consolidated financial statements
for the year ended September 30, 1996 reflect a separate expense charge of
$3,298 for this special assessment.
(12) EMPLOYEE BENEFITS
-----------------
PENSION PLANS
The Bank has a noncontributory defined benefit pension plan covering
substantially all of its employees. Employees who are twenty-one years of
age or older and have worked for the Bank for one year are eligible to
participate in the plan. The Bank's funding policy is to contribute
annually an amount sufficient to meet statutory minimum funding
requirements, but not in excess of the maximum amount deductible for Federal
income tax purposes. Contributions are intended to provide not only for
benefits attributed to service to date, but also for those expected to be
earned in the future.
F-29
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
The following is a reconciliation of the funded status of the plan and the
prepaid pension costs recognized in the consolidated statements of financial
condition at September 30:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits
of $2,768 in 1997 and $2,301 in 1996...................... $ 3,099 $ 2,439
===== =====
Projected benefit obligation for service rendered to date... $ 4,411 $ 3,522
Plan assets at fair value................................... 4,906 3,821
----- -----
Plan assets in excess of projected benefit obligation....... 495 299
Transition obligation....................................... 190 216
Unrecognized prior service cost............................. (138) (151)
Unrecognized net loss....................................... 319 254
----- -----
Prepaid pension cost........................................ $ 866 $ 618
===== =====
</TABLE>
Pension plan assets at September 30, 1997 and 1996 were invested principally
in a managed growth fund and certificates of deposit with the Bank.
The components of the net periodic pension expense were as follows for the
years ended September 30:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Service cost (benefits earned during the year)............ $ 348 $ 292 $ 307
Interest cost on projected benefit obligation............. 329 273 248
Return on plan assets..................................... (306) (227) (221)
Amortization:
Transition obligation................................... 26 26 26
Unrecognized prior service cost.......................... (14) (14) (14)
Unrecognized net loss.................................... 21 7 --
----- ----- -----
Net periodic pension expense.............................. $ 404 $ 357 $ 346
===== ===== =====
</TABLE>
Net periodic pension expense was $325 and $317 in the nine months ended June
30, 1998 and 1997, respectively.
The actuarial present values of the projected benefit obligation at
September 30, 1997 and 1996 were determined using a discount rate of 7.75%
and a rate of increase in future compensation of 6.0% (8.5% and 6.75%,
respectively, at September 30, 1995). The expected long-term rate of return
on plan assets was 8.0%, 7.5% and 7.5% for the years ended September 30,
1997, 1996 and 1995, respectively.
F-30
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
The Bank also has established a non-qualified Supplemental Executive
Retirement Plan to provide certain executives with supplemental retirement
benefits in addition to the benefits provided by the pension plan. The
periodic pension expense related to the supplemental plan amounted to $32
and $31 for the nine months ended June 30, 1998 and 1997, respectively,
and $40 and $34 for the years ended September 30, 1997 and 1996,
respectively. The actuarial present value of the accumulated benefit
obligation was approximately $74 at September 30, 1997, all of which is
unfunded. This amount was determined using a discount rate of 7.75% and a
rate of increase in future compensation of 4.5%.
OTHER POSTRETIREMENT BENEFITS
The Bank's postretirement health care plan, which is unfunded, provides
optional medical, dental and life insurance benefits to retirees. The Bank
adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions", effective October 1, 1995. SFAS No. 106 requires
accrual of the cost of postretirement benefits over the years in which
employees provide services to the date of their full eligibility for such
benefits. In accordance with SFAS No. 106, the Bank elected to amortize
the transition obligation for accumulated benefits (which amounted to $237
at the adoption date) as an expense over a 20-year period. The total
periodic expense recognized under SFAS No. 106 amounted to $30 and $32 in
the nine months ended June 30, 1998 and 1997, respectively, and $37 and
$42 in the years ended September 30, 1997 and 1996, respectively.
401(k) SAVINGS PLAN
The Bank also sponsors a defined contribution plan established under
Section 401(k) of the Internal Revenue Code, pursuant to which eligible
employees may elect to contribute up to 10% of their compensation. The
Bank makes contributions equal to 100% of the participant's contributions
up to a maximum contribution equal to 6% of the participant's
compensation. Voluntary and matching contributions are invested, in
accordance with the participant's direction, in one or a number of
investment options. Compensation and employee benefits expense includes
401(k) savings plan expense of $225 and $200 in the nine months ended
June 30, 1998 and 1997, respectively, and $276, $234 and $228 in the years
ended September 30, 1997, 1996 and 1995, respectively.
(13) COMMITMENTS AND CONTINGENCIES
-----------------------------
Certain premises and equipment are leased under operating leases with
terms expiring through 2025. The Bank has the option to renew certain of
these leases for terms of up to five years. Future minimum rental payments
due under non-cancelable operating leases with initial or remaining terms
of more than one year at September 30, 1997 are $834 for fiscal 1998; $823
for fiscal 1999; $748 for fiscal 2000; $782 for fiscal 2001; $800 for
fiscal 2002; and $7,683 for later years. There were no significant changes
in future minimum lease rentals during the nine months ended June 30,
1998. Net rent expense, which is
F-31
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
included in occupancy and office operations expense, amounted to $716 and
$672 in the nine months ended June 30, 1998 and 1997, respectively, and
$951, $941 and $858 in the years ended September 30, 1997, 1996 and 1995,
respectively.
The Bank is a defendant in certain claims and legal actions arising in the
ordinary course of business. Management, after consultation with legal
counsel, does not anticipate losses on any of these claims or actions
which would have a material adverse effect on the Bank's consolidated
financial statements.
(14) OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
---------------------------------------
In the normal course of business, the Bank is a party to off-balance-sheet
financial instruments that involve, to varying degrees, elements of credit
risk and interest rate risk in addition to the amounts recognized in the
consolidated financial statements. The contractual or notional amounts of
these instruments, which reflect the extent of the Bank's involvement in
particular classes of off-balance-sheet financial instruments, are
summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, ------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
LENDING-RELATED INSTRUMENTS:
Commitments to extend credit:
Fixed-rate loans.............. $ 9,694 $ 8,610 $ 3,925
Adjustable-rate loans......... 20,086 14,503 10,393
Unused lines of credit.......... 27,574 25,883 29,373
Standby letters of credit....... 3,893 4,222 2,470
INTEREST RATE RISK MANAGEMENT:
Interest rate cap agreement..... 20,000 -- --
======= ======= =======
</TABLE>
LENDING-RELATED INSTRUMENTS
The contractual amounts of the lending-related instruments set forth above
represent the Bank's maximum potential exposure to credit loss, assuming
(i) the instruments are fully funded at a later date, (ii) the borrower
does not meet the contractual payment obligations and (iii) any collateral
or other security proves to be worthless. The contractual amounts of these
instruments do not necessarily represent future cash requirements since
certain of these instruments may expire without being funded and others
may not be fully drawn upon. Substantially all of these lending-related
instruments have been entered into with customers located in the Bank's
primary market area described in Note 4.
F-32
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
Commitments to extend credit are legally-binding agreements to lend to a
customer as long as there is no violation of any condition established in
the contract. Commitments have fixed expiration dates (generally ranging
up to 45 days) or other termination clauses, and may require payment of a
fee by the customer. The Bank evaluates each customer's credit worthiness
on a case-by-case basis. The amount of collateral, if any, obtained by the
Bank upon extension of credit, is based on management's credit evaluation
of the borrower. Collateral held varies but may include mortgages on
residential and commercial real estate, deposit accounts with the Bank,
and other property. The Bank's fixed-rate loan commitments at June 30,
1998 provide for interest rates ranging from 6.125% to 10.25%.
Unused lines of credit are legally-binding agreements to lend to a
customer as long as there is no violation of any condition established in
the contract. Lines of credit generally have fixed expiration dates or
other termination clauses. The amount of collateral obtained, if deemed
necessary by the Bank, is based on management's credit evaluation of the
borrower.
Standby letters of credit are conditional commitments issued by the Bank
to assure the performance of financial obligations of a customer to a
third party. These commitments are primarily issued in favor of local
municipalities to support the obligor's completion of real estate
development projects. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers.
INTEREST RATE CAP AGREEMENT
At June 30, 1998, the Bank was a party to an interest rate cap agreement
with a notional amount of $20,000 and a five-year term ending in March
2003. This agreement was entered into to reduce the Bank's exposure to
potential increases in interest rates on a portion of its certificate of
deposit accounts. The counterparty in the transaction has agreed to make
interest payments to the Bank, based on the notional amount, to the extent
that the three-month LIBOR rate exceeds 6.50% over the term of the cap
agreement. No payments were due from the counterparty through June 30,
1998. The carrying amount of the cap agreement at June 30, 1998
represented the unamortized premium of $286, which is included in other
assets. Premium amortization of $20 is included in deposit interest
expense for the nine months ended June 30, 1998. The estimated fair value
of the interest rate cap agreement at June 30, 1998 was approximately
$158, representing the estimated amount the Bank would receive to
terminate the contract at that date.
(15) RELATED PARTY TRANSACTIONS
--------------------------
The Bank was indebted to its directors for deferred directors fees (and
accrued interest thereon) totaling $1,964, $1,859 and $1,663 at June 30,
1998, September 30, 1997 and September 30, 1996, respectively. The
interest rates on these amounts were 6.53%, 6.64% and 6.41% at the
respective dates.
F-33
<PAGE>
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
The Bank has had, and expects to have in the future, banking transactions
in the ordinary course of business with its directors, senior officers and
their affiliates. Loans are made to these individuals on the same terms as
those prevailing for comparable transactions with other borrowers and do
not involve more than normal collection risk. Loans receivable from
related parties totaled $378, $426 and $456 at June 30, 1998, September
30, 1997 and September 30, 1996, respectively. Repayments on related party
loans were $48 in the nine months ended June 30, 1998 and $30 in the year
ended September 30, 1997. No new loans were granted to such related
parties during these periods.
(16) FAIR VALUES OF FINANCIAL INSTRUMENTS
------------------------------------
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value information for those financial
instruments for which it is practicable to estimate fair value, whether or
not such financial instruments are recognized in the consolidated
statements of financial condition. Fair value is the amount at which a
financial instrument could be exchanged in a current transaction between
willing parties, other than in a forced sale or liquidation.
Quoted market prices are used to estimate fair values when those prices
are available. However, active markets do not exist for many types of
financial instruments. Consequently, fair values for these instruments
must be estimated by management using techniques such as discounted cash
flow analysis and comparison to similar instruments. These estimates are
highly subjective and require judgments regarding significant matters,
such as the amount and timing of future cash flows and the selection of
discount rates that appropriately reflect market and credit risks. Changes
in these judgments often have a material effect on the fair value
estimates. Since these estimates are made as of a specific point in time,
they are susceptible to material near-term changes. Fair values disclosed
in accordance with SFAS No. 107 do not reflect any premium or discount
that could result from the sale of a large volume of a particular
financial instrument, nor do they reflect possible tax ramifications or
estimated transaction costs.
F-34
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
The following is a summary of the carrying amounts and estimated fair
values of financial assets and liabilities (none of which were held for
trading purposes):
<TABLE>
<CAPTION>
JUNE 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
--------------------- --------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and due from banks.......... $ 7,785 $ 7,785 $ 9,191 $ 9,191 $ 8,669 $ 8,669
Federal funds sold............... 5,000 5,000 5,000 5,000
Investment securities............ 68,826 68,808 70,712 70,608 69,451 69,113
Mortgage-backed securities....... 133,109 133,838 140,224 140,777 154,345 153,001
Loans receivable................. 440,360 446,624 404,497 410,382 369,487 373,068
Accrued interest receivable...... 4,625 4,625 4,262 4,262 4,096 4,096
Federal Home Loan Bank stock..... 3,690 3,690 3,641 3,641 3,211 3,211
======== ======== ======== ======== ======== ========
Financial liabilities:
Deposits......................... $580,075 $579,437 $546,846 $547,557 $545,286 $546,039
Borrowings....................... 25,048 24,139 24,000 24,071 13,000 13,299
Bank overdraft................... 147 147 17,623 17,623 17,157 17,157
Mortgage escrow funds............ 14,471 14,471 4,559 4,559 4,996 4,996
======== ======== ======== ======== ======== ========
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
The estimated fair values of securities were based on quoted market
prices.
LOANS RECEIVABLE
Fair values were estimated for portfolios of loans with similar financial
characteristics. For valuation purposes, the total loan portfolio was
segregated into performing and non-performing categories. Performing loans
were segregated by adjustable-rate and fixed-rate loans; fixed-rate loans
were further segmented by type, such as residential mortgage, commercial
mortgage, commercial business and consumer loans. Residential loans were
also segmented by maturity.
F-35
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
Fair values were estimated by discounting scheduled future cash flows
through estimated maturity using a discount rate equivalent to the rate at
which the Bank would currently make loans which are similar with regard to
collateral, maturity and the type of borrower. The discounted value of the
cash flows was reduced by a credit risk adjustment based on loan
categories. Based on the current composition of the Bank's loan portfolio,
as well as both past experience and current economic conditions and
trends, the future cash flows were adjusted by prepayment assumptions
which shortened the estimated remaining time to maturity and therefore
impacted the fair value estimates.
Estimated fair values of loans held for sale were based on contractual
sale prices for loans covered by forward sale commitments. Any remaining
loans held for sale were valued based on current secondary market prices
and yields.
DEPOSITS
In accordance with SFAS No. 107, deposits with no stated maturity (such as
savings, demand and money market deposits) were assigned fair values equal
to the carrying amounts payable on demand. Certificates of deposit were
segregated by account type and original term, and fair values were
estimated based on the discounted value of contractual cash flows. The
discount rate for each account grouping was equivalent to the then-current
rate offered by the Bank for deposits of similar type and maturity.
These fair values do not include the value of core deposit relationships
which comprise a significant portion of the Bank's deposit base.
Management believes that the Bank's core deposit relationships provide a
relatively stable, low-cost funding source which has a substantial
unrecognized value separate from the deposit balances.
BORROWINGS
Estimated fair values of FHLB advances were based on the discounted value
of contractual cash flows. A discount rate was utilized for each
outstanding advance equivalent to the then-current rate offered by the
FHLB on borrowings of similar type and maturity.
OTHER FINANCIAL INSTRUMENTS
The other financial assets and liabilities listed in the preceding table
have estimated fair values that approximate the respective carrying
amounts because the instruments are payable on demand or have short-term
maturities and present relatively low credit risk and interest rate risk.
The carrying amount and estimated fair value of the Bank's interest rate
cap agreement at June 30, 1998 is set forth in Note 14. The fair values of
the Bank's lending-related off-balance-sheet financial instruments
described in Note 14 were estimated based on the
F-36
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
interest rates and fees currently charged to enter into similar
agreements, considering the remaining terms of the agreements and the
present credit worthiness of the counterparties. At June 30, 1998,
September 30, 1997 and September 30, 1996, the estimated fair values of
these instruments approximated the related carrying amounts which were not
significant.
(17) ACCOUNTING STANDARDS
--------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive income (and its components) in financial statements. The
standard does not, however, specify when to recognize or how to measure
items that make up comprehensive income. Comprehensive income represents
net income and certain amounts reported directly in equity, such as the
net unrealized gain or loss on available-for-sale securities. While SFAS
No. 130 does not require a specific reporting format, it does require that
an enterprise display in the financial statements an amount representing
total comprehensive income for the period. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997 and, accordingly, will be
adopted by the Bank in the fiscal year beginning October 1, 1998.
Management does not anticipate that the adoption of this standard will
significantly affect the Bank's financial reporting.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which standardizes the
disclosure requirements for pensions and other postretirement benefits;
requires additional information on changes in the benefit obligations and
fair values of plan assets; and eliminates certain present disclosure
requirements. The standard does not change the recognition or measurement
requirements for postretirement benefits. SFAS No. 132 is effective for
fiscal years beginning after December 15, 1997 and, accordingly, will be
adopted by the Bank in the fiscal year beginning October 1, 1998.
Management does not anticipate that the adoption of this standard will
significantly affect the Bank's financial reporting.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to recognize
all derivatives as either assets or liabilities in the statement of
financial condition at fair value. If certain conditions are met, a
derivative may be specifically designated as a fair value hedge, a cash
flow hedge, or a foreign currency hedge. A specific accounting treatment
applies to each type of hedge. Entities may reclassify securities from the
held-to-maturity category to the available-for-sale category at the time
of adopting SFAS No. 133. The Bank has not yet determined whether it will
reclassify securities between categories. SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999 and,
accordingly, will be adopted by the Bank in the fiscal year beginning on
October 1, 1999. The Bank has engaged in limited derivatives and hedging
activities covered by the new standard and, accordingly, SFAS No. 133 is
not expected to have a material impact on the Bank's consolidated
financial statements.
F-37
<PAGE>
PROVIDENT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
(Dollars in thousands)
(18) MUTUAL HOLDING COMPANY REORGANIZATION AND OFFERING
--------------------------------------------------
On April 23, 1998, the Board of Directors of the Bank adopted a Plan of
Reorganization and Stock Issuance Plan ("the Plan") pursuant to which the
Bank will convert from mutual to stock form of ownership under a two-tier
mutual holding company structure and shares of common stock will be sold
in an initial public offering. As part of the Plan, the Bank will
establish a federally-chartered mutual holding company known as Provident
Bancorp, MHC (the "Mutual Holding Company") and a capital stock holding
company known as Provident Bancorp, Inc. (the "Company"). The Bank will
become a federally-chartered capital stock savings bank, wholly owned by
the Company.
The Company plans to offer for sale 46.6% of its common shares in a
subscription offering (the "Offering") initially to eligible Bank
depositors; tax-qualified employee benefit plans of the Bank; certain
other Bank depositors and borrowers; and employees, officers and directors
of the Bank. Any shares of common stock not sold in the Offering will be
offered to certain members of the general public in a community offering,
with preference given to natural persons residing in Rockland County, New
York. The Mutual Holding Company will own the remaining 53.4% of the
Company's issued common shares.
Following the completion of the reorganization, all depositors who had
liquidation rights with respect to the Bank as of the effective date of
the reorganization will continue to have such rights solely with respect
to the Mutual Holding Company so long as they continue to hold deposit
accounts with the Bank. In addition, all persons who become depositors of
the Bank subsequent to the reorganization will have such liquidation
rights with respect to the Mutual Holding Company.
Offering costs will be deferred and reduce the proceeds from the shares
sold in the Offering. If the Offering is not completed, these costs will
be charged to expense. At June 30, 1998, offering costs of $49 had been
incurred and are included in other assets.
F-38
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE PROVIDENT BANCORP, INC. OR PROVIDENT BANK. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY TO ANY PERSON IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
PROVIDENT BANCORP, INC.
(Proposed Holding Company for
Provident Bank)
UP TO 3,484,500 SHARES
Common Stock
($0.10 par value per share)
SUBSCRIPTION AND
COMMUNITY OFFERING
PROSPECTUS
RYAN BECK & CO., INC.
November __, 1998
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED
Until December __, 1998 or 25 days after the commencement of the offering of
Common Stock, all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
Amount
------
<S> <C> <C>
* Legal Fees and Expenses (including Blue Sky fees)...... $180,000
** Underwriter's fees..................................... 470,000
* Printing, Postage, EDGAR and Mailing................... 225,000
* Appraisal and Business Plan Fees and Expenses.......... 52,500
* Accounting Fees and Expenses........................... 125,000
* Underwriter's Counsel Fees............................. 42,000
* Filing Fees (NASD, NASDAQ, OTS and SEC)................ 95,900
* Conversion Agent/Transfer Agent........................ 25,000
* Other Expenses......................................... 34,000
----------
* Total.................................................. $1,250,000
==========
</TABLE>
_____________
* Estimated
** Provident Bancorp, Inc. has retained Ryan, Beck & Co., Inc. ("Ryan, Beck")
to assist in the sale of common stock on a best efforts basis in the
Offerings. Ryan, Beck will receive fees of approximately $450,000,
exclusive of estimated expenses of $20,000.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS OF PROVIDENT BANK AND
PROVIDENT BANCORP, INC.
Generally, federal regulations define areas for indemnity coverage for
federal savings associations, and proposed federal regulations define areas for
indemnity coverage for federal MHC subsidiary holding companies, as follows:
(a) Any person against whom any action is brought or threatened
because that person is or was a director or officer of the savings association
shall be indemnified by the savings association for:
(i) Any amount for which that person becomes liable under a
judgment in such action; and
(ii) Reasonable costs and expenses, including reasonable
attorneys' fees, actually paid
or incurred by that person in defending or settling such action, or in
enforcing his or her rights under this section if he or she attains a
favorable judgement in such enforcement action.
(b) Indemnification shall be made to such person under paragraph (b)
of this Section only if:
(i) Final judgement on the merits is in his or her favor; or
(ii) In case of:
a. Settlement,
b. Final judgement against him or her, or
c. Final judgement in his or her favor, other than on the
merits, if a majority of the disinterested directors of
the savings association determine that he or she was
acting in good faith within the scope of his or her
employment or authority as he or she could reasonably
have perceived it under the circumstances and for a
purpose he or she could reasonably have believed under
the circumstances was in the best interest of the
savings association or its members. However, no
indemnification shall be made unless the association
gives the Office at least 60 days
II-1
<PAGE>
notice of its intention to make such indemnification.
Such notice shall state the facts on which the action
arose, the terms of any settlement, and any disposition
of the action by a court. Such notice, a copy thereof,
and a certified copy of the resolution containing the
required determination by the board of directors shall
be sent to the Regional Director, who shall promptly
acknowledge receipt thereof. The notice period shall
run from the date of such receipt. No such
indemnification shall be made if the OTS advises the
association in writing, within such notice period, of
its objection thereto.
(c) As used in this paragraph:
(i) "Action" means any judicial or administrative proceeding,
or threatened proceeding, whether civil, criminal, or otherwise,
including any appeal or other proceeding for review;
(ii) "Court" includes, without limitation, any court to which or
in which any appeal or any proceeding for review is brought;
(iii) "Final Judgment" means a judgment, decree, or order which
is not appealable or as to which the period for appeal has expired
with no appeal taken;
(iv) "Settlement" includes the entry of a judgment by consent or
confession or a plea of guilty or of nolo contendere.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:
See the Exhibit Index which immediately preceeds the Exhibits to the
Form S-1.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to:
(1) File, during any period in which it offers or sales are being
made, 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;
(ii) Reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the 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 and 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 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 material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
II-2
<PAGE>
(2) For the purpose of determining liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering.
(3) Remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The registrant will provide to the underwriter at the closing
specified in the Underwriting Agreement certificates in such documentation and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
As filed with the Securities and Exchange Commission on September 17, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
EXHIBITS
TO
REGISTRATION STATEMENT
ON
FORM S-1
___________________
PROVIDENT BANCORP, INC.
MONTEBELLO, NEW YORK
<PAGE>
EXHIBIT INDEX
1.1 Engagement Letter between Provident Bank and Ryan, Beck & Co., Inc.
1.2 Agency Agreement among Provident Bancorp, Inc., Provident Bank and Ryan,
Beck & Co., Inc.*
2 Plan of Reorganization from Mutual Savings Association to Mutual Holding
Company and
Stock Issuance Plan
3.1 Proposed Federal Holding Company Charter of Provident Bancorp, Inc.
(contained in Exhibit 2)
3.2 Proposed Bylaws of Provident Bancorp, Inc (contained in Exhibit 2)
4 Form of Common Stock Certificate of Provident Bancorp, Inc
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding legality of
securities being registered
8.1 Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.
8.2 Opinion of RP Financial, LC with respect to Subscription Rights
10.1 Form of Employee Stock Ownership Plan
10.2 Employment Agreement with George Strayton, as amended
10.3 Form of Employment Agreement
10.4 Deferred Compensation Agreement
10.5 Supplemental Executive Retirement Plan, as amended
10.6 Management Incentive Program*
10.7 1996 Long-Term Incentive Plan for Officers and Directors*
21 Subsidiaries of the Registrant
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in
Opinions included on Exhibits 5 and 8.1)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Deloitte & Touche LLP
23.4 Consent of RP Financial, LC
24 Power of Attorney (set forth on signature page)
27 EDGAR Financial Data Schedule
99.1 Appraisal Agreement between Provident Bank and RP Financial, LC.
99.2 Business Plan Agreement between Provident Bank and RP Financial, LC.
99.3 Appraisal Report of RP Financial, LC*
99.4 Proxy Statement
99.5 Marketing Materials*
99.6 Order Form*
99.7 401(k) Supplement*
___________________
* To be filed supplementally or by amendment.
<PAGE>
EXHIBIT 1.1
[LETTERHEAD OF RYAN, BECK & CO. APPEARS HERE]
CONFIDENTIAL
------------
June 12, 1998
Mr. George Strayton
President & Chief Executive Officer
Provident Bank
400 Rella Boulevard, Suite 308
Montebello, NY 10901
Re: Mutual Holding Company Formation - Subscription Enhancement &
-------------------------------------------------------------
Administrative Services
-----------------------
Dear Mr. Strayton:
Ryan, Beck & Co. ("Ryan, Beck") is pleased to submit this engagement letter
setting forth the terms of the proposed engagement between Ryan, Beck and
Provident Bank, (the "Institution") in connection with the proposed formation of
a mutual holding company and sale of common stock by the Institution.
1. BACKGROUND ON RYAN, BECK
Ryan, Beck, Inc., was organized in 1946 and is one of the nation's leading
investment bankers for financial institutions. The firm is a registered broker-
dealer with the Securities and Exchange Commission, a member of the National
Association of Securities Dealers, Inc., Securities Industry Association and a
member of the Securities Investor Protection Corporation. Ryan, Beck's
corporate finance department is one of the largest such groups devoted solely to
financial institution matters in the country. Moreover, Ryan, Beck is one of
the largest market makers in bank and thrift stocks.
2. MUTUAL HOLDING COMPANY FORMATION AND STOCK OFFERING
It is our understanding that the Institution proposes to reorganize into a two-
tier mutual holding company structure (the "Reorganization") by forming a mutual
holding company and middle-tier holding company ("Holding Company") pursuant to
applicable regulations, whereby the Holding Company will sell up to 49% of its
common stock (the "Common Stock") in a subscription offering with any remaining
shares sold in a community offering (collectively the "Offering"). In
connection therewith, the Institution's Board of Directors have adopted a stock
issuance plan (the "Plan") whereby shares of Common Stock will be offered for
sale in the
<PAGE>
George Strayton
June 12, 1998
Page 2
Offering. In connection with the Reorganization and Offering, Ryan, Beck
proposes to act as financial advisor to the Institution with respect to the Plan
and selling agent/manager with respect to the Offering of the shares of Common
Stock in the Offering. Specific terms of services shall be set forth in a
definitive agency agreement (the "Definitive Agreement") between Ryan, Beck and
the Institution to be executed on the date the offering document is declared
effective by the appropriate regulatory authorities.
3. SERVICES TO BE PROVIDED BY RYAN, BECK
a. Advisory Services - Thorough planning is essential to a successful
-----------------
offering. Ryan, Beck serves as lead coordinator of the marketing and
logistic efforts necessary to prepare for an offering. Our actions are
intended to clearly define responsibilities and timetables, while avoiding
costly surprises. We assume responsibility for the initial preparation of
marketing materials--saving you time and legal expense. Moreover, as your
investment banker, Ryan, Beck will evaluate the financial, marketing and
regulatory issues involved in the Offering. Our specific responsibilities
include:
- Participate in drafting the Prospectus and assist in obtaining all
requisite regulatory approvals;
- Review and opine to the Board of Directors on the adequacy of the
appraisal process;
- Develop a marketing plan for the Offering including direct mail,
advertising, community meetings and telephone solicitation;
- Provide specifications and assistance in selecting a conversion agent,
printer and other professionals;
- Calculate the number of new phone lines required;
- Provide a list of equipment and supplies needed for the Conversion
Center;
- Draft marketing materials including letters, brochures, slide show script
advertisements; and
- Assist in arranging market-makers for post-conversion trading.
b. Administrative Services and Conversion Center Management - Ryan, Beck will
--------------------------------------------------------
manage all aspects of the Offering which will be conducted on a "best
efforts" basis. A successful Offering requires an enormous amount of
attention to detail. Working knowledge and familiarity with the law and
"lore" of bank regulators, Securities and Exchange Commission and NASD is
essential. Ryan, Beck's experience in managing many thrift conversions and
mutual holding company minority stock offerings will minimize the burden on
your management and disruption to normal banking business. At the same
time, our legal, accounting and regulatory background ensures that details
are attended to in a professional fashion. An Offering requires accurate
and timely record keeping and reporting. Furthermore, customer inquiries
must be handled professionally and accurately. The Conversion Center
centralizes all data and work effort relating to the Offering.
<PAGE>
George Strayton
June 12, 1998
Page 3
Ryan, Beck will supervise and administer the Conversion Center. We will
train Conversion Center staff to help record stock orders, answer customer
inquiries and handle special situations as they arise. Conversion Center
activities include the following:
- Provide experienced on-site registered representatives to minimize
disruption of day-to-day business.
- Identify and organize space for the on-site Conversion Center, the focal
point of conversion activity;
- Administer the Conversion Center. All substantive stock and proxy
related matters will be handled by employees of Ryan, Beck.
- Organize and implement all proxy solicitation efforts;
- Prepare procedures for processing proxies, stock orders and cash, and for
handling requests for information;
- Ryan, Beck will outsource all conversion agent/data processing/transfer
agent functions to Chase/Mellon Shareholder Services. The cost of such
services will be borne by the Institution, are subject to separate
agreement and are not expected to exceed $50,000. Ryan, Beck will
provide the Institution with the proposed agreements for such services
prior to the execution of such agreements by Ryan, Beck or the
Institution;
- Provide scripts, training and guidance for the telephone team in
soliciting proxies and in the stock sales telemarketing effort;
- Educate the Institution's directors, officers and employees about the
Reorganization and Offering, their roles and relevant securities laws;
- Train branch managers and customer-contact employees on the proper
response to stock purchase inquiries;
- Train and supervise Conversion Center staff assisting with proxy and
order processing;
- Prepare daily sales reports for management and ensure funds received
balance to such reports;
- Coordinate functions with the data processing agent, printer, transfer
agent, stock certificate printer and other professionals;
- Design and implement procedures for handling IRA and Keogh orders; and
- Provide post-offering subscriber assistance and management of the pro-
ration process.
<PAGE>
George Strayton
June 12, 1998
Page 4
c. Securities Marketing Services - Ryan, Beck uses various sales techniques
-----------------------------
including direct mail, advertising, community investor meetings, telephone
solicitation, and if necessary, selling group formation. The sales approach
is tailored to fit your specific situation. Our techniques are designed to
attract a stockholder base comprised largely of community oriented
individuals loyal to the Institution.
Our specific actions include:
- Assign licensed registered representatives from our staff to work at the
Conversion Center to solicit orders on behalf of the Institution from
eligible prospects who have been targeted as likely and desirable
stockholders;
- Assist management in developing a list of potential investors who are
viewed as priority prospects;
- Respond to inquiries concerning the Offering and investment
opportunities;
- Organize, coordinate and participate in community informational meetings.
These meetings are intended to both relieve customer anxiety and attract
potential investors. The meetings generate widespread publicity for the
Offering while providing local exposure of the Institution and promoting
favorable stockholder relations;
- Supervise and conduct a telemarketing campaign to identify prospects from
among the Institution's customer base;
- Continually advise management on market conditions and the community's
responsiveness to the Offering; and
- If appropriate, assemble a selling group of selected local broker-dealers
to assist in selling stock during the offering. In so doing, prepare
broker "fact sheets" and arrange "road shows" for the purpose of
stimulating local interest in the stock and informing the brokerage
community of the particulars of the Offering.
4. COMPENSATION
a. For its services under this Agreement, the Institution will pay to Ryan,
Beck a total inclusive Advisory and Marketing fee of $450,000. The parties
will negotiate an adjustment to this fee in the event the total Offering is
less than $45 million or exceeds $60 million.
In the event of an undersubscription, Ryan, Beck will form a selling group
of NASD member firms (including Ryan, Beck) under a selected dealer
agreements (the "Selling Group"), a fee equal to five and one-half percent
(5.5%) in the aggregate. Ryan, Beck will not commence sales of the stock
through members of the Selling Group without prior approval of the
Institution.
Such fees (less the amount of any advance payments) are to be paid to Ryan,
Beck at the closing of the Conversion. The Institution will pay Ryan, Beck
$25,000 upon execution
<PAGE>
George Strayton
June 12, 1998
Page 5
of this letter which will be applied to any fees due hereunder, including
fees payable pursuant to subparagraph (b) below. If, pursuant to a
resolicitation undertaken by the Institution, Ryan, Beck is required to
provide significant additional services, the parties shall mutually agree to
the dollar amount of the additional compensation due (if any).
b. If (i) the Plan is abandoned or terminated by the Institution; (ii) the
Offering is not consummated by June 30, 1999; (iii) Ryan, Beck terminates
this relationship because there has been a material adverse change in the
financial condition or operations of the Institution since March 31, 1998; or
(iv) immediately prior to commencement of the Offering, Ryan, Beck terminates
this relationship for failure to satisfactorily disclose all relevant
information in the disclosure documents or the existence of market conditions
which might render the sale of the shares by the Institution hereby
contemplated inadvisable; Ryan, Beck shall not be entitled to the fees set
forth above under subparagraph (a), but in addition to reimbursement of its
reasonable out-of-pocket expenses as set forth in paragraph 7 below, shall be
entitled to receive for its advisory and administrative services a fee of
$25,000.
5. MARKET MAKING
Ryan, Beck agrees to use its best efforts to maintain a market and to solicit
other broker-dealers to make a market in the Common Stock after the Offering so
that there are at least three market makers for the Common Stock after the
Offering.
6. DOCUMENTS
The Institution and its counsel will complete, file with the appropriate
regulatory authorities and, as appropriate, amend from time to time, the
information to be contained in the Institution's applications to banking and
securities regulators and any related exhibits thereto. In this regard, the
Institution and its counsel will prepare a prospectus and any other necessary
disclosure documents relating to the offering of the Common Stock in conformance
with applicable rules and regulations. As the Institution's financial advisor,
Ryan, Beck will in conjunction with counsel, conduct an examination of the
relevant documents and records of the Institution and will make such other
reasonable investigation as deemed necessary and appropriate under the
circumstances. The Institution agrees to make all such documents, records and
other information deemed necessary by Ryan, Beck, or its counsel, available to
them upon reasonable request. Ryan, Beck's counsel will prepare, subject to the
approval of the Institution's counsel, the Definitive Agreement. Ryan, Beck's
counsel shall be selected by Ryan, Beck, subject to the approval of the
Institution which will not unreasonably be withheld.
<PAGE>
George Strayton
June 12, 1998
Page 6
7. EXPENSES AND REIMBURSEMENT
The Institution will bear all of its expenses in connection with the
Reorganization and the Offering of its Common Stock including, but not limited
to, the Institution's attorney fees, NASD filing fees, "blue sky" legal fees,
expenses for appraisal, auditing and accounting services, advertising expenses,
printing expenses, temporary personnel expenses and the preparation of stock
certificates. In the event Ryan, Beck incurs such expenses on behalf of the
Institution, the Institution shall pay or reimburse Ryan, Beck for such
reasonable fees and expenses regardless of whether the Conversion is
successfully completed. Ryan, Beck will not incur any single expense of more
than $1,000, pursuant to this paragraph without the prior approval of the
Institution.
The Institution also agrees to reimburse Ryan, Beck for reasonable out-of-pocket
expenses, including legal fees and expenses, incurred by Ryan, Beck in
connection with the services contemplated hereunder. In no event shall the
Institution be required to reimburse Ryan, Beck for more than $40,000 in legal
fees, and $20,000 in other out-of-pocket expenses. The parties acknowledge,
however, that such caps may be exceeded in the event of any material delay in
the Offerings which would require an update of the financial information in
tabular form contained in the Prospectus for a period later than that set forth
in the original Prospectus filing. Not later than three days before closing, we
will provide you with a detailed accounting of all reimbursable expenses to be
paid at closing.
8. BLUE SKY
To the extent required by applicable state law, Ryan, Beck and the Institution
will need to obtain or confirm exemptions, qualifications or registration of the
Common Stock under applicable state securities laws and NASD policies. The cost
of such legal work and related filing fees will be paid by the Institution to
the law firm furnishing such legal work. The Institution will cause the counsel
performing such services to prepare a Blue Sky memorandum related to the
Offerings including Ryan, Beck's participation therein and shall furnish Ryan,
Beck a copy thereof addressed to Ryan, Beck or upon which such counsel shall
state Ryan, Beck may rely.
9. AVAILABILITY OF "STARS" PROGRAM
As an additional service to the Institution, Ryan, Beck will make available for
a period of 1 year following the completion of the Offering, advisory services
through the Ryan, Beck Strategic Advisory Services ("STARS") program. The
undersigned will serve as the senior relationship manager for this program. If
the Institution elects to avail itself of the STARS program, Ryan, Beck will
meet with the Institution at its request. Ryan, Beck also will provide opinions
and recommendations, upon request, for the areas covered below:
Valuation Analysis
Merger and Acquisition Analysis
Merger and Acquisition Trends
<PAGE>
George Strayton
June 12, 1998
Page 7
Planning, Forecasting & Competitive Strategy
Capital, Asset & Liability Structure & Management
Stock Repurchase Programs
Dividend Policy
Dividend Reinvestment Programs
Market Development and Sponsorship of Bank Securities
Financial Disclosure
Financial Relations
Financial Reports
Branch Sales and Purchases
Stock Benefit Plan Analysis and Advisory
Stockholder & Investor Relations Presentations & Programs
Fairness Opinions
Scanning of Potential Acquisition Candidates
Based on Published Statement Information
(This screening does not extend to any in-depth merger and acquisition
analyses or studies which are available under Ryan, Beck's normal fee
schedule, and does not include retention of Ryan, Beck by the
Institution for any specific merger/acquisition situation.)
If the Institution elects to utilize the STARS program Ryan, Beck will waive the
regular retainer fee and hourly charges for this program for the first year. The
Institution also will reimburse Ryan, Beck's reasonable out-of-pocket expenses
incurred in conjunction with the performance of these services. Such out-of-
pocket expenses shall include travel, legal and other miscellaneous expenses.
Ryan, Beck will not incur any single expense in excess of $1,000 pursuant to
this paragraph without the prior approval of the Institution.
If negotiations for a transaction conducted during the term of the STARS
Advisory Agreement described above result in the execution of a definitive
agreement and/or consummation of a transaction for which Ryan, Beck customarily
would be entitled to a fee for its advisory or other investment banking
services, Ryan, Beck shall receive a contingent advisory fee ("Advisory Fee") in
accordance with the terms of a separate engagement letter with respect to such
transaction.
10. INDEMNIFICATION
The Definitive Agreement will provide for indemnification of the type usually
found in underwriting agreements as to certain liabilities, including
liabilities under the Securities Act of 1933. The Institution also agrees to
defend, indemnify and hold harmless Ryan, Beck and its officers, directors,
employees and agents against all claims, losses, actions, judgments, damages or
<PAGE>
George Strayton
June 12, 1998
Page 8
expenses, including but not limited to reasonable attorneys' fees, arising
solely out of the engagement described herein, except that such indemnification
shall not apply to Ryan, Beck's own bad faith, willful misconduct or gross
negligence.
11. ARBITRATION
Any claims, controversies, demands, disputes or differences between or among the
parties hereto or any persons bound hereby arising out of, or by virtue of, or
in connection with, or otherwise relating to this Agreement shall be submitted
to and settled by arbitration conducted in New City, New York before one or
three arbitrators, each of whom shall be knowledgeable in the field of
securities law and investment banking. Such arbitration shall otherwise be
conducted in accordance with the rules then obtaining of the American
Arbitration Association. The parties hereto agree to share equally the
responsibility for all fees of the arbitrators, abide by any decision rendered
as final and binding, and waive the right to appeal the decision or otherwise
submit the dispute to a court of law for a jury or non-jury trial. The parties
hereto specifically agree that neither party may appeal or subject the award or
decision of any such arbitrator to appeal or review in any court of law or in
equity or by any other tribunal, arbitration system or otherwise. Judgment
upon any award granted by such an arbitrator may be enforced in any court having
jurisdiction thereof.
12. NASD MATTERS
Ryan, Beck has an obligation to file certain documents and to make certain
representations to the National Association of Security Dealers ("NASD") in
connection with the Conversion. The Institution agrees to cooperate with Ryan,
Beck and provide such information as may be necessary for Ryan, Beck to comply
with all NASD requirements applicable to it in connection with its participation
as contemplated herein in the Conversion. Ryan, Beck is and will remain through
completion of the Conversion a member in a good standing of the NASD and will
comply with all applicable NASD requirements.
13. OBLIGATIONS
(a) Except as set forth below, this engagement letter is merely a statement of
intent. While Ryan, Beck and the Institution agree in principle to the
contents hereof and propose to proceed promptly and in good faith to work
out the arrangements with respect to the Conversion, any legal obligations
between Ryan, Beck and the Institution shall be only: (i) those set forth
herein in paragraphs 2, 3 and 4 regarding services and payments; (ii) those
set forth in paragraph 7 regarding reimbursement for certain expenses;
(iii) those set forth in paragraph 10 regarding indemnification; and (iv)
as set forth in a duly negotiated and executed Definitive Agreement.
<PAGE>
George Strayton
June 12, 1998
Page 9
(b) The obligation of Ryan, Beck to enter into the Definitive Agreement shall
be subject to there being, in Ryan, Beck's opinion, which shall have been
formed in good faith after reasonable determination and consideration of
all relevant factors: (i) no material adverse change in the condition or
operation of the Institution; (ii) satisfactory disclosure of all relevant
information in the disclosure documents and a determination that the sale
of stock is reasonable given such disclosures; (iii) no market conditions
which might render the sale of the shares by the Institution hereby
contemplated inadvisable; and (iv) agreement that the price established by
the independent appraiser is reasonable in the then prevailing market
conditions.
Please acknowledge your agreement to the foregoing by signing in the place
provided below and returning one copy of this letter to our office together with
the retainer payment in the amount of $25,000. We look forward to working with
you.
RYAN, BECK & CO., INC.
BY: /s/ Ben A. Plotkin
----------------------------------------------
Ben A. Plotkin
President & Chief Executive Officer
Accepted and Agreed to This 12 Day of June, 1998
PROVIDENT BANK
BY: /s/ George Strayton
----------------------------------------------
George Strayton
President & Chief Executive Officer
<PAGE>
PROVIDENT BANK
PLAN OF REORGANIZATION
FROM MUTUAL SAVINGS BANK
TO MUTUAL HOLDING COMPANY
AND STOCK ISSUANCE PLAN
<PAGE>
TABLE OF CONTENTS
Page
----
<TABLE>
<CAPTION>
<S> <C>
1. Introduction......................................................... 1
2. Definitions.......................................................... 1
3. The Reorganization................................................... 6
4. Conditions to Implementation of the Reorganization................... 8
5. Special Meeting of Members........................................... 9
6. Rights of Members of the MHC......................................... 9
7. Conversion of MHC to Stock Form...................................... 9
8. Timing of the Reorganization and Sale of Capital Stock............... 10
9. Number of Shares to be Offered....................................... 11
10. Independent Valuation and Purchase Price of Shares................... 11
11. Method of Offering Shares and Rights to Purchase Stock............... 12
12. Additional Limitations on Purchases of Common Stock.................. 15
13. Payment for Stock.................................................... 17
14. Manner of Exercising Subscription Rights Through Order Forms......... 18
15. Undelivered, Defective or Late Order Form; Insufficient Payment...... 19
16. Completion of the Stock Offering..................................... 19
17. Market for Common Stock.............................................. 19
18. Stock Purchases by Management Persons After the Offering............. 19
19. Resales of Stock by Management Persons............................... 20
20. Stock Certificates................................................... 20
21. Restriction on Financing Stock Purchases............................. 20
22. Stock Benefit Plans.................................................. 20
23. Post-Reorganization Filing and Market Making......................... 21
24. Payment of Dividends and Repurchase of Stock......................... 21
25. Reorganization and Stock Offering Expenses........................... 21
26. Employment and Other Severance Agreements............................ 21
27. Interpretation....................................................... 22
28. Amendment or Termination of the Plan................................. 22
Exhibits
- --------
Exhibit A Charter and Bylaws of the Bank
Exhibit B Charter and Bylaws of the Holding Company
Exhibit C Charter and Bylaws of the Mutual Holding Company
</TABLE>
<PAGE>
1. INTRODUCTION
The Board of Directors of Provident Bank (the "Bank") has adopted this Plan
of Reorganization from Mutual Savings Association to Mutual Holding Company and
Stock Issuance Plan (the "Plan") pursuant to which the Bank proposes to
reorganize from a federally-chartered mutual savings association into the mutual
holding company structure (the "Reorganization") under the laws of the United
States of America and the regulations of the Office of Thrift Supervision
("OTS"). The mutual holding company (the "MHC") will be a mutually-owned
federal corporation, and all of the current ownership and voting rights of the
Members of the Bank will be transferred to the MHC. As part of the
Reorganization and the Plan, the Bank will convert to a federal stock savings
bank (the "Stock Bank") and will establish a stock holding company (the "Holding
Company") which will be a majority-owned subsidiary of the MHC at all times so
long as the MHC remains in existence. Concurrently with the Reorganization, the
Holding Company intends to offer for sale up to 49.9% of its Common Stock in the
Stock Offering. The Common Stock will be offered on a priority basis to
depositors and certain borrower members and Tax-Qualified Employee Plans of the
Bank, with any remaining shares offered to the public in a Community Offering.
The primary purpose of the Reorganization is to establish a holding company
and to convert the Bank to the stock form of ownership, which will enable the
Bank to compete and expand more effectively in the financial services
marketplace. The Reorganization will permit the Holding Company to issue
Capital Stock, which is a source of capital not available to mutual savings
associations. Since the Holding Company will not be offering all of its Common
Stock for sale to depositors and certain borrower members and the public in the
Stock Offering, the Reorganization will result in less capital raised in
comparison to a standard mutual-to-stock conversion. The Reorganization,
however, will also offer the Bank the opportunity to raise additional capital
since a majority of the Holding Company's Common Stock will be available for
sale in the future. It will also provide the Bank with greater flexibility to
structure and finance the expansion of its operations, including the potential
acquisition of other financial institutions. Lastly, the Reorganization will
enable the Bank to better manage its capital by (i) providing broader
acquisition and investment opportunities through the holding company structure,
and (ii) enabling the Bank to distribute capital to stockholders of the Holding
Company in the form of dividends and (iii) by enabling the Holding Company to
repurchase its common stock as market conditions warrant. Although the
Reorganization and Stock Offering will create a stock savings bank and stock
holding company, only a minority of the Common Stock will be offered for sale in
the Stock Offering. As a result, the Bank's mutual form of ownership and its
ability to remain an independent savings bank and to provide community-oriented
financial services will be preserved through the mutual holding company
structure. The Reorganization is subject to the approval of the OTS, and must
be adopted by the affirmative vote of a majority of the total votes eligible to
be cast by Voting Members.
2. DEFINITIONS
As used in this Plan, the terms set forth below have the following
meanings:
ACTING IN CONCERT: The term "acting in concert" shall have the
definition given in 12 C.F.R. (S)574.2(c). The determination of whether a group
is acting in concert shall be made solely by the Board of Directors of the Bank
or officers delegated by such Board and may be based on any evidence upon which
the Board or such delegatee chooses to rely.
AFFILIATE: Any Person that controls, is controlled by, or is under
common control with another person.
<PAGE>
ASSOCIATE: The term "Associate," when used to indicate a relationship
with any Person, means: (i) any corporation or organization (other than the
Bank, the Holding Company, the MHC or a majority-owned subsidiary of any
thereof) of which such Person is a director, officer or partner or is, directly
or indirectly, the beneficial owner of 10% or more of any class of equity
securities; (ii) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar fiduciary capacity; (iii) any relative or spouse of such Person or
any relative of such spouse, who has the same home as such Person or who is a
director or officer of the Bank, the MHC, the Holding Company or any subsidiary
of the MHC or the Holding Company or any affiliate thereof; and (iv) any person
acting in concert with any of the persons or entities specified in clauses (i)
through (iii) above; provided, however, that any Tax-Qualified or Non-Tax-
Qualified Employee Plan shall not be deemed to be an associate of any director
or officer of the MHC, the Holding Company or the Bank, to the extent provided
in Sections 11-13 hereof. When used to refer to a Person other than an officer
or director of the Bank, the Bank in its sole discretion may determine the
Persons that are Associates of other Persons.
BANK: Provident Bank in its pre-Reorganization mutual form or post-
Reorganization stock form as indicated by the context.
CAPITAL STOCK: Any and all authorized stock of the Bank or the
Holding Company.
COMMON STOCK: Common stock issuable by the Holding Company in
connection with the Reorganization, including securities convertible into Common
Stock, pursuant to its stock charter.
COMMUNITY: Rockland County.
COMMUNITY OFFERING: The offering to certain members of the general
public of any unsubscribed shares in the Subscription Offering which may be
effected pursuant to Section 11 of this Plan. The Community Offering may include
a Syndicated Community Offering or public offering.
DEPOSIT ACCOUNT(S): Any withdrawable deposit(s) offered by the Bank,
including NOW account deposits, certificates of deposit, savings accounts,
demand deposits and IRA accounts and Keogh plans for which the Bank acts as
custodian or trustee.
EFFECTIVE DATE: The date upon which all necessary approvals have been
obtained to complete the Reorganization, and the Reorganization and Stock
Offering have been completed.
ELIGIBLE ACCOUNT HOLDER: Any person holding a Qualifying Deposit on
the Eligibility Record Date.
ELIGIBILITY RECORD DATE: December 31, 1996, the date for determining
who qualifies as an Eligible Account Holder.
EMPLOYEE PLANS: The Tax-Qualified and Non-Tax Qualified Employee
Plans of the Bank.
ESOP: The Bank's employee stock ownership plan.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
2
<PAGE>
FDIC: The Federal Deposit Insurance Corporation.
HOLA: The Home Owners' Loan Act, as amended.
HOLDING COMPANY: Provident Bancorp, Inc. the federal corporation
which will be majority-owned by the MHC and which will own 100% of the common
stock of the Bank.
HOLDING COMPANY APPLICATION: The Holding Company Application on Form
H(e)-1 to be submitted by the Bank to the OTS to have the Holding Company
acquire the common stock of the Bank.
INDEPENDENT APPRAISER: The appraiser retained by the Bank to prepare
an appraisal of the pro forma market value of the Bank and the Holding Company.
MANAGEMENT PERSON: Any Officer or director of the Bank or any
Affiliate of the Bank, and any person acting in concert with any such Officer or
director.
MARKET MAKER: A dealer (i.e., any person who engages directly or
indirectly as agent, broker, or principal in the business of offering, buying,
selling or otherwise dealing or trading in securities issued by another person)
who, with respect to a particular security, (1) regularly publishes bona fide
competitive bid and offer quotations on request, and (2) is ready, willing and
able to effect transactions in reasonable quantities at the dealer's quoted
prices with other brokers or dealers.
MEMBERS: Any person or entity who qualifies as a member of the Bank
pursuant to its charter and bylaws.
MHC: Provident Bancorp, MHC, the mutual holding company resulting
from the Reorganization.
MINORITY OWNERSHIP INTEREST: The shares of the Holding Company's
Common Stock owned by persons other than the MHC, expressed as a percentage of
the total shares of Holding Company Common Stock issued and outstanding.
MINORITY STOCK OFFERING: One or more offerings of less than 50% in
the aggregate of the outstanding Common Stock of the Holding Company to persons
other than the MHC.
MINORITY STOCKHOLDER: Any owner of the Holding Company's Common
Stock, other than the MHC.
NON-VOTING STOCK: Any Capital Stock other than Voting Stock.
NOTICE: The Notice of Mutual Holding Company Reorganization to be
submitted by the Bank to the OTS to notify the OTS of the Reorganization and the
Stock Offering.
OFFICER: An executive officer of the Holding Company or the Bank,
including the Chief Executive Officer, President, Senior Vice Presidents in
charge of principal business functions, Secretary, Treasurer and any other
person performing similar functions.
3
<PAGE>
OTHER MEMBER: Any person who is a Member of the Bank at the close of
business on the Voting Record Date who is not an Eligible Account Holder or
Supplemental Eligible Account Holder, or Tax-Qualified Employee Plan.
OTS: The Office of Thrift Supervision, and any successor thereto.
PARENT: A company that controls another company, either directly or
indirectly through one or more subsidiaries.
PERSON: An individual, corporation, partnership, association, joint-
stock company, trust (including Individual Retirement Accounts and KEOGH
Accounts), unincorporated organization, government entity or political
subdivision thereof or any other entity.
PLAN: This Plan of Reorganization from Mutual Savings Bank to Mutual
Holding Company and Stock Issuance Plan.
PURCHASE PRICE: The price per share, determined as provided in this
Plan, at which the Common Stock will be sold in the Stock Offering.
QUALIFYING DEPOSIT: The aggregate balance of all Deposit Accounts of
an Eligible Account Holder as of the close of business on the Eligibility Record
Date or of a Supplemental Eligible Account Holder as of the close of business on
the Supplemental Eligibility Record Date, as the case may be, provided such
aggregate balance is not less than $50.
REGULATIONS: The regulations of the OTS regarding mutual holding
companies.
REORGANIZATION: The reorganization of the Bank into the mutual
holding company structure including the organization of the MHC, the Holding
Company and the Bank in stock form pursuant to this Plan.
RESIDENCE: The terms "residence," "reside," "resided" or "residing"
as used herein with respect to any person shall mean any Person who occupied a
dwelling within the Bank's Community, has an intent to remain with the Community
for a period of time, and manifests the genuineness of that intent by
establishing an ongoing physical presence within the Community together with an
indication that such presence within the Community is something other than
merely transitory in nature. To the extent the Person is a corporation or other
business entity, the principal place of business or headquarters shall be in the
Community. To the extent a Person is a personal benefit plan, the circumstances
of the beneficiary shall apply with respect to this definition. In the case of
all other benefit plans, the circumstances of the trustee shall be examined for
purposes of this definition. The Bank may utilize deposit or loan records or
such other evidence provided to it to make a determination as to whether a
Person is a resident. In all cases, however, such a determination shall be in
the sole discretion of the Bank.
SEC: The Securities and Exchange Commission.
SPECIAL MEETING: The Special Meeting of Members called for the
purpose of voting on the Plan.
4
<PAGE>
STOCK BANK: The federally chartered stock savings bank that will
succeed to the Bank upon completion of the Reorganization.
STOCK OFFERING: The offering of Common Stock of the Holding Company
to persons other than the MHC, in a Subscription Offering and, to the extent
shares remain available, in a Community Offering.
SUBSCRIPTION OFFERING: The offering of Common Stock of the Holding
Company for subscription and purchase pursuant to Section 11 of this Plan.
SUBSIDIARY: A company that is controlled by another company, either
directly or indirectly through one or more subsidiaries.
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER: Any Person holding a Qualifying
Deposit on the Supplemental Eligibility Record Date, who is not an Officer or
director of the Bank, or an Associate of an Officer or director of the Bank.
SUPPLEMENTAL ELIGIBILITY RECORD DATE: The last day of the calendar
quarter preceding approval of the Plan by the OTS.
SYNDICATED COMMUNITY OFFERING: The offering of Common Stock following
or contemporaneously with the Community Offering through a syndicate of broker-
dealers.
TAX-QUALIFIED EMPLOYEE PLAN: Any defined benefit plan or defined
contribution plan (including any employee stock ownership plan, stock bonus
plan, profit-sharing plan, or other plan) of the Bank, the Holding Company, the
MHC or any of their affiliates, which, with its related trusts, meets the
requirements to be qualified under Section 401 of the Internal Revenue Code.
The term Non-Tax-Qualified Employee Plan means any defined benefit plan or
defined contribution plan which is not so qualified.
VOTING MEMBERS: Those Members of the Bank as of the Voting Record
Date.
VOTING RECORD DATE: The date established by the Bank for determining
which Members are entitled to vote on the Plan.
VOTING STOCK:
(1) Voting Stock means common stock or preferred stock, or similar
interests if the shares by statute, charter or in any manner, entitle the
holder:
(i) To vote for or to select directors of the Bank or the Holding
Company; and
(ii) To vote on or to direct the conduct of the operations or
other significant policies of the Bank or the Holding Company.
(2) Notwithstanding anything in paragraph (1) above, preferred stock
is not "Voting Stock" if:
5
<PAGE>
(i) Voting rights associated with the preferred stock are limited
solely to the type customarily provided by statute with regard to matters
that would significantly and adversely affect the rights or preferences of
the preferred stock, such as the issuance of additional amounts or classes
of senior securities, the modification of the terms of the preferred stock,
the dissolution of the Bank, or the payment of dividends by the Bank 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 Bank or the Holding Company.
(3) Notwithstanding anything in paragraphs (1) and (2) above, "Voting
Stock" shall be deemed to include preferred stock and other securities that,
upon transfer or otherwise, are convertible into Voting Stock or exercisable to
acquire Voting Stock where the holder of the stock, convertible security or
right to acquire Voting Stock has the preponderant economic risk in the
underlying Voting Stock. Securities immediately convertible into Voting Stock at
the option of the holder without payment of additional consideration shall be
deemed to constitute the Voting Stock into which they are convertible; other
convertible securities and rights to acquire Voting Stock shall not be deemed to
vest the holder with the preponderant economic risk in the underlying Voting
Stock if the holder has paid less than 50% of the consideration required to
directly acquire the Voting Stock and has no other economic interest in the
underlying Voting Stock.
3. THE REORGANIZATION
A. ORGANIZATION OF THE HOLDING COMPANIES AND THE BANK
As part of the Reorganization the Bank will convert to a federal stock
savings bank, and will establish the Holding Company and the MHC as federal
corporations. The Reorganization will be effected as follows, or in any manner
approved by the OTS that is consistent with the purposes of this Plan and
applicable laws and regulations.
As part of the Reorganization: (i) the Bank will organize an interim stock
savings bank as a wholly-owned subsidiary ("Interim One"); (ii) Interim One will
organize an interim stock savings bank as a wholly-owned subsidiary ("Interim
Two"); (iii) Interim One will organize the Holding Company as a wholly-owned
subsidiary; (iv) the Bank will exchange its charter for a federal stock savings
bank charter to become the Stock Bank and Interim One will exchange its charter
for a federal mutual holding company charter to become the MHC; (v)
simultaneously with step (iv), Interim Two will merge with and into the Stock
Bank with the Stock Bank as the resulting institution; (vi) all of the initially
issued stock of the Stock Bank will be transferred to the MHC in exchange for
membership interests in the MHC; and (vii) the MHC will contribute the capital
stock of the Stock Bank to the Holding Company, and the Stock Bank will become a
wholly-owned subsidiary of the Holding Company. Contemporaneously with the
Reorganization, the Holding Company will offer for sale in the Stock Offering
shares of Common Stock representing the pro forma market value of the Holding
Company and the Bank. Upon consummation of the Reorganization,
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the legal existence of the Bank will not terminate, but the Stock Bank will be a
continuation of the Bank, and all property of the Bank, including its right,
title, and interest in and to all property of whatsoever kind and nature,
interest and asset of every conceivable value or benefit then existing or
pertaining to the Bank, or which would inure to the Bank immediately by
operation of law and without the necessity of any conveyance or transfer and
without any further act or deed, will vest in the Stock Bank. The Stock Bank
will have, hold, and enjoy the same in its right and fully and to the same
extent as the same was possessed, held, and enjoyed by the Bank. The Stock Bank
will continue to have, succeed to, and be responsible for all the rights,
liabilities and obligations of the Bank and will maintain its headquarters and
operations at the Bank's present locations.
Upon consummation of the Reorganization, substantially all of the assets
and liabilities (including the savings accounts, demand accounts, tax and loan
accounts, United States Treasury general accounts, or United States Treasury
Time Deposit Accounts, as defined in the OTS regulations) of the Bank shall be
become the assets and liabilities of the Stock Bank, which will thereupon become
an operating savings bank subsidiary of the Holding Company and of the MHC. The
Bank will apply to the OTS to have the Holding Company receive or retain (as the
case may be) up to 50% of the net proceeds of the Stock Offering, or such other
amount as may be determined by the Board of Directors. The Stock Bank may
distribute additional capital to the Holding Company following the
Reorganization, subject to the OTS regulations governing capital distributions.
B. EFFECT ON DEPOSIT ACCOUNTS AND BORROWINGS
Each deposit account in the Bank on the Effective Date will remain a
deposit account in the Stock Bank in the same amount and upon the same terms and
conditions, and will continue to be federally insured up to the legal maximum by
the FDIC in the same manner as the deposit account existed in the Bank
immediately prior to the Reorganization. Upon consummation of the
Reorganization, all loans and other borrowings from the Bank shall retain the
same status with the Stock Bank after the Reorganization as they had with the
Bank immediately prior to the Reorganization.
C. THE BANK
Upon completion of the Reorganization the Stock Bank will be authorized to
exercise any and all powers, rights and privileges of, and will be subject to
all limitations applicable to, capital stock savings banks under federal law. A
copy of the proposed Charter and Bylaws of the Stock Bank is attached hereto as
Exhibit A and made a part of this Plan. 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 Holding Company or the MHC), 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 MHC, the Holding Company and the Stock Bank on a
consolidated basis in accordance with generally accepted accounting principles.
The initial members of the Board of Directors of the Stock Bank will be the
members of the existing Board of Directors of the Bank. The Stock Bank will be
wholly-owned by the Holding Company. The Holding Company will be wholly-owned by
its stockholders who will consist of the MHC and the persons who purchase Common
Stock in the Stock Offering and any subsequent Minority Stock Offering. Upon the
Effective Date of the Reorganization, the voting and membership rights of
Members will be transferred to the MHC, subject to the conditions specified
below.
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D. THE HOLDING COMPANY
The Holding Company will be authorized to exercise any and all powers,
rights and privileges, and will be subject to all limitations applicable to
savings and loan holding companies and mutual holding companies under federal
law and regulations. The initial members of the Board of Directors of the
Holding Company will be the existing Board of Directors of the Bank.
Thereafter, the voting stockholders of the Holding Company will elect
approximately one-third of the Holding Company's directors annually. A copy of
the proposed Charter and Bylaws of the Holding Company is attached as Exhibit B
and are made part of this Plan.
The Holding Company will have the power to issue shares of Capital Stock to
persons other than the MHC. However, so long as the MHC is in existence, the
MHC will be required to own at least a majority of the Voting Stock of the
Holding Company. The Holding Company may issue any amount of Non-Voting Stock
to persons other than the MHC. The Holding Company will be authorized to
undertake one or more Minority Stock Offerings of less than 50% in the aggregate
of the total outstanding Common Stock of the Holding Company, and the Holding
Company intends to offer for sale up to 49.9% of its Common Stock in the Stock
Offering.
E. THE MUTUAL HOLDING COMPANY
As a mutual corporation, the MHC will have no stockholders. The members of
the MHC will have exclusive voting authority as to all matters requiring a vote
of members under the Charter of the MHC. Persons who have membership rights with
respect to the Bank under its existing Charter immediately prior to the
Reorganization shall continue to have such rights solely with respect to the MHC
after the Reorganization so long as such persons remain depositors or borrowers,
as the case may be, of the Bank after the Reorganization. In addition, all
persons who become depositors of the Stock Bank following the Reorganization
will have membership rights with respect to the MHC. The rights and powers of
the MHC will be defined by the MHC's Charter and Bylaws (a copy of which is
attached to this Plan as Exhibit C and made a part hereof) and by the statutory
and regulatory provisions applicable to savings and loan holding companies and
mutual holding companies. In particular, the MHC shall be subject to the
limitations and restrictions imposed on savings and loan holding companies by
Section 10(o)(5) of the HOLA.
The initial members of the Board of Directors of the MHC will be the
existing Board of Directors of the Bank. Thereafter, approximately one-third of
the directors of the MHC will be elected annually by the members of the MHC who
will consist of the former Members of the Bank and all persons who become
depositors of the Bank after the Reorganization.
4. CONDITIONS TO IMPLEMENTATION OF THE REORGANIZATION
Consummation of the Reorganization is expressly conditioned upon the
following:
A. Approval of the Plan by a majority of the Board of Directors of the
Bank.
B. The filing of a Reorganization Notice, including the Plan, with the OTS
and either:
(i) The OTS has given written notice of its intent not to disapprove
the Reorganization; or
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(ii) Sixty days have passed since the OTS received the Reorganization
Notice and deemed it sufficient under (S) 516.2(c) of the OTS regulations,
and the OTS has not given written notice that the Reorganization is
disapproved or extended for an additional 30 days the period during which
disapproval may be issued.
C. The filing of a holding company application with and approval by the OTS
pursuant to the HOLA for the Holding Company and MHC to become savings and
loan holding companies by owning or acquiring 100% of the common stock of
the Stock Bank and the Holding Company, respectively, to be issued in
connection with the Reorganization.
D. Submission of the Plan to the Voting Members for approval pursuant to a
Proxy Statement and form of proxy cleared in advance by the OTS, and such
Plan is approved by a majority of the total votes of the Voting Members
eligible to be cast at a meeting held at the call of the directors in
accordance with the procedures prescribed by the Bank's Charter and Bylaws.
E. All necessary approvals have been obtained from the OTS in connection
with the adoption of the charter and bylaws of the MHC, the Holding Company
and the Stock Bank, the conversion of the Bank to a stock charter, and any
transfer of assets and liabilities of the Bank to the Stock Bank pursuant
to the Plan; and all conditions specified or otherwise imposed by the OTS
in connection with the issuance of a notice of intent not to disapprove the
Notice have been satisfied.
5. SPECIAL MEETING OF MEMBERS
Subsequent to the approval of the Plan by the OTS, the Special Meeting
shall be scheduled in accordance with the Bank's Bylaws. Promptly after receipt
of approval and at least 20 days but not more than 45 days prior to the Special
Meeting, the Bank shall distribute proxy solicitation materials to all Voting
Members. The proxy solicitation materials shall include a proxy statement, and
other documents authorized for use by the regulatory authorities. A copy of the
Plan will be made available to Voting Members upon request. Pursuant to the
Regulations, an affirmative vote of not less than a majority of the total
outstanding votes of the Voting Members is required for approval of the Plan.
Voting may be in person or by proxy. The OTS shall be notified promptly of the
actions of the Voting Members.
6. RIGHTS OF MEMBERS OF THE MHC
Following the Reorganization, all persons who had membership 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. All existing proxies granted by
members of the Bank to the Board of Directors of the Bank shall automatically
become proxies granted to the Board of Directors of the MHC. In addition, all
persons who become depositors of the Stock Bank subsequent to the Reorganization
also will have membership rights with respect to the MHC. In each case, no
person who ceases to be the holder of a deposit account with the Stock Bank
after the Reorganization shall have any membership or rights with respect to the
MHC. Borrowers of the Stock Bank who were borrower members of the Bank at the
time of Reorganization will have the same membership rights in the MHC as they
had in the Bank immediately prior to the Reorganization for so long as their
pre-Reorganization borrowings remain outstanding. Borrowers will not receive
membership rights in connection with any new borrowings made after the
Reorganization.
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7. CONVERSION OF MHC TO STOCK FORM
Following the completion of the Reorganization, the MHC may elect to
convert to stock form in accordance with applicable law (a "Conversion
Transaction"). There can be no assurance when, if ever, a Conversion
Transaction will occur.
In a Conversion Transaction, the MHC would merge with and into the Stock
Bank or the Holding Company, with the Stock Bank or the Holding Company as the
resulting entity, and the members of the MHC would receive the right to
subscribe for a number of shares of common stock of the Holding Company, as
determined by the formula set forth in the following paragraphs. The additional
shares of Common stock of the Holding Company issued in the Conversion
Transaction would be sold at their aggregate pro forma market value as
determined by an Independent Appraisal.
Any Conversion Transaction shall be fair and equitable to Minority
Stockholders. In any Conversion Transaction, Minority Stockholders, if any,
will be entitled without additional consideration to maintain the same
percentage ownership interest in the Holding Company after the Conversion
Transaction as their percentage ownership interest in the Holding Company
immediately prior to the Conversion Transaction (i.e., the "Minority Ownership
Interest"), subject only to the following adjustments (if required by federal or
state law, regulation, or regulatory policy) to reflect: (i) the cumulative
effect of the aggregate amount of dividends waived by the MHC; and (ii) the
market value of assets of the MHC (other than common stock of the Holding
Company).
The adjustment referred to in clause (i) of the preceding paragraph above
would require that the Minority Ownership Interest (expressed as a percentage)
be adjusted by multiplying the Minority Ownership Interest by the following
fraction:
(Holding Company stockholders' equity immediately prior to Conversion
---------------------------------------------------------------------
Transaction) - (aggregate amount of dividends waived by MHC)
------------------------------------------------------------
Holding Company stockholders' equity immediately prior to Conversion Transaction
The Minority Ownership Interest (expressed as a percentage) shall also be
adjusted to reflect any assets of the MHC (other than Common Stock of the
Holding Company) by multiplying it by the following fraction:
(pro forma market value of Holding Company) - (market value of assets of MHC
----------------------------------------------------------------------------
other than Holding Company common stock)
----------------------------------------
pro forma market value of Holding Company
At the sole discretion of the Board of Directors of the MHC and the Holding
Company, a Conversion Transaction may be effected in any other manner necessary
to qualify the Conversion Transaction as a tax-free reorganization under
applicable federal and state tax laws, provided such Conversion Transaction does
not diminish the rights and ownership interest of Minority Stockholders as set
forth in the preceding paragraphs. If a Conversion Transaction does not occur,
the MHC will always own a majority of the Voting Stock of the Holding Company.
Management of the Bank has no current intention to conduct a Conversion
Transaction.
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A Conversion Transaction would require the approval of applicable federal
regulators, and would be presented to a vote of the members of the MHC. Federal
regulatory policy requires that in any Conversion Transaction the members of the
MHC will be accorded the same stock purchase priorities as if the MHC were a
mutual savings bank converting to stock form.
8. TIMING OF THE REORGANIZATION AND SALE OF CAPITAL STOCK
The Bank intends to consummate the Reorganization as soon as feasible
following the receipt of all approvals referred to in Section 4 of the Plan.
Subject to the approval of the OTS, the Holding Company intends to commence the
Stock Offering concurrently with the proxy solicitation of Members. The Holding
Company may close the Stock Offering before the Special Meeting, provided that
the offer and sale of the Common Stock shall be conditioned upon approval of the
Plan by the Members at the Special Meeting. The Bank's proxy solicitation
materials may permit certain Members to return to the Bank by a reasonable date
certain a postage paid card or other written communication requesting receipt of
the prospectus if the prospectus is not mailed concurrently with the proxy
solicitation materials. The Stock Offering shall be conducted in compliance
with the securities offering regulations of the SEC. The Bank will not finance
or loan funds to any person to purchase Common Stock.
9. NUMBER OF SHARES TO BE OFFERED
The total number of shares (or range thereof) of Common Stock to be issued
and offered for sale pursuant to the Plan shall be determined initially by the
Board of Directors of the Bank and the Holding Company in conjunction with the
determination of the Independent Appraiser. The number of shares to be offered
may be adjusted prior to completion of the Stock Offering. The total number of
shares of Common Stock that may be issued to persons other than the MHC at the
close of the Stock Offering must be less than 50% of the issued and outstanding
shares of Common Stock of the Holding Company.
10. INDEPENDENT VALUATION AND PURCHASE PRICE OF SHARES
All shares of Common Stock sold in the Stock Offering shall be sold at a
uniform price per share, which shall be the Purchase Price. The Purchase Price
and number of shares to be outstanding shall be determined by the Board of
Directors of the Holding Company on the basis of the estimated pro forma market
value of the Holding Company and the Bank. The aggregate purchase price for the
Common Stock will not be inconsistent with such market value of the Holding
Company and the Bank. The pro forma market value of the Holding Company and the
Bank will be determined for such purposes by the Independent Appraiser.
Prior to the commencement of the Stock Offering, an estimated valuation
range will be established, which range may vary within 15% above to 15% below
the midpoint of such range, and up to 15% greater than the maximum of such
range, as determined by the Board of Directors at the time of the Stock Offering
and consistent with OTS regulations. The Holding Company intends to sell up to
49.9% of its common in the Stock Offering. The number of shares of Common Stock
to be issued and the ownership interest of the MHC may be increased or decreased
by the Holding Company, taking into consideration any change in the independent
valuation and other factors, at the discretion of the Board of Directors of the
Bank and the Holding Company.
Based upon the independent valuation as updated prior to the commencement
of the Stock Offering, the Board of Directors may establish the minimum and
maximum percentage of shares of the Holding
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Company Common Stock that will be offered for sale in the Stock Offering, or it
may fix the percentage of shares of Common Stock that will be offered for sale
in the Stock Offering. In the event the percentage of shares offered for sale is
not fixed in the Stock Offering, the Minority Ownership Interest resulting from
the Stock Offering will be determined as follows: (a) the product of (x) the
total number of shares of Common Stock sold by the Holding Company and (y) the
Purchase Price, divided by (b) the aggregate pro forma market value of the Bank
and the Holding Company upon the closing of the Stock Offering as determined by
the Independent Appraiser.
Notwithstanding the foregoing, no sale of Common Stock may be consummated
unless, prior to such consummation, the Independent Appraiser confirms to the
Holding Company, the Bank and to the OTS that, to the best knowledge of the
Independent Appraiser, nothing of a material nature has occurred which, taking
into account all relevant factors, would cause the Independent Appraiser to
conclude that the aggregate value of the Common Stock at the Purchase Price is
incompatible with its estimate of the aggregate consolidated pro forma market
value of the Holding Company and the Bank. If such confirmation is not
received, the Holding Company may cancel the Stock Offering, extend the Stock
Offering and establish a new price range and/or estimated price range, extend,
reopen or hold a new Stock Offering or take such other action as the OTS may
permit.
The estimated market value of the Holding Company and the Bank shall be
determined for such purpose by an Independent Appraiser on the basis of such
appropriate factors as are not inconsistent with OTS regulations. The Common
Stock to be issued in the Stock Offering shall be fully paid and nonassessable.
The aggregate amount of outstanding Common Stock that may be owned or
controlled by persons other than the MHC parent at the close of the Stock
Offering shall be less than 50% of the Holding Company's total outstanding
Common Stock.
If there is a Community Offering and/or Syndicated Community Offering of
shares of Common Stock not subscribed for in the Subscription Offering, the
price per share at which the Common Stock is sold in such Community Offering or
Syndicated Community Offering shall be equal to the Purchase Price at which the
Common Stock is sold to persons in the Subscription Offering. Shares sold in
the Community Offering or Syndicated Community Offering will be subject to the
same limitations as shares sold in the Subscription Offering.
11. METHOD OF OFFERING SHARES AND RIGHTS TO PURCHASE STOCK
In descending order of priority, the opportunity to purchase Common Stock
shall be given in the Subscription Offering to: (1) Eligible Account Holders;
(2) Tax-Qualified Employee Plans; (3) Supplemental Eligible Account Holders; (4)
Other Members; and (5) directors, officers and employees of the Bank. Any shares
of Common Stock that are not subscribed for in the Subscription Offering may at
the discretion of the Bank and the Holding Company be offered for sale in a
Community Offering or a Syndicated Community Offering. The minimum purchase by
any Person shall be 25 shares. The Holding Company may use its discretion in
determining whether prospective purchasers are "residents," "associates," or
"acting in concert" as defined in the Plan, and in interpreting any and all
other provisions of the Plan. All such determinations are in the sole
discretion of the Holding Company, and may be based on whatever evidence the
Holding Company chooses to use in making any such determination.
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In addition to the priorities set forth below, the Board of Directors may
establish other priorities for the purchase of Common Stock, subject to the
approval of the OTS. The priorities for the purchase of shares in the Stock
Offering are as follows:
A. SUBSCRIPTION OFFERING
PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder shall
be given the opportunity to purchase up to $200,000 of Common Stock offered in
the Stock Offering or 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares to be issued in the
Stock Offering by a fraction of which the numerator is the amount of the
Eligible Account Holder's Qualifying Deposit and the denominator is the total
amount of Qualifying Deposits of all Eligible Account Holders, in each case on
the Supplemental Eligibility Record Date; provided that the Holding Company may,
in its sole discretion and without further notice to or solicitation of
subscribers or other prospective purchasers, increase such maximum purchase
limitation to 5% of the maximum number of shares offered in the Stock Offering
or decrease such maximum purchase limitation to .1% of the maximum number of
shares offered in the Stock Offering, subject to the overall purchase limitation
set forth in Section 12. If there are insufficient shares available to satisfy
all subscriptions of Eligible Account Holders, shares will be allocated to
Eligible Account Holders so as to permit each such subscribing Eligible Account
Holder to purchase a number of shares sufficient to make his total allocation
equal to the lesser of 100 shares or the number of shares subscribed for.
Thereafter, unallocated shares will be allocated pro rata to remaining
subscribing Eligible Account Holders whose subscriptions remain unfilled in the
same proportion that each such subscriber's Qualifying Deposit bears to the
total amount of Qualifying Deposits of all subscribing Eligible Account Holders
whose subscriptions remain unfilled. To ensure proper allocation of stock, each
Eligible Account Holder must list on his subscription order form all accounts in
which he had an ownership interest as of the Eligibility Record Date.
PRIORITY 2: TAX-QUALIFIED EMPLOYEE PLANS. The Tax-Qualified Employee
Plans shall be given the opportunity to purchase in the aggregate up to 10% of
the Common Stock issued in the Stock Offering. In the event of an
oversubscription in the Stock Offering, subscriptions for shares by the Tax-
Qualified Employee Plans may be satisfied, in whole or in part, out of
authorized but unissued shares of the Holding Company subject to the maximum
purchase limitations applicable to such plans and set forth in Section 12, or
may be satisfied, in whole or in part, through open market purchases by the Tax-
Qualified Employee Plans subsequent to the closing of the Stock Offering. In
the event that the number of shares offered is increased as a result of an
increase in the Independent Valuation, the ESOP will have a priority right to
fill its subscription in whole or in part prior to all other subscriptions.
PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent there
are sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders, and the Tax-Qualified Employee Plans, each Supplemental
Eligible Account Holder shall have the opportunity to purchase up to $200,000 of
Common Stock offered in the Stock Offering or 15 times the product (rounded
down to the next whole number) obtained by multiplying the total number of
shares to be issued in the Stock Offering by a fraction of which the numerator
is the amount of the Supplemental Eligible Account Holder's Qualifying Deposit
and the denominator is the total amount of Qualifying Deposits of all
Supplemental Eligible Account Holders, in each case on the Supplemental
Eligibility Record Date, provided that the Bank may, in its sole discretion and
without further notice to or solicitation of subscribers or other prospective
purchasers, increase such maximum purchase limitation to 5% of the maximum
number of shares offered in the Stock Offering or decrease such maximum purchase
limitation to 0.1% of the maximum number of shares offered in the Stock Offering
subject to the overall purchase limitations set forth in Section 12. In the
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<PAGE>
event Supplemental Eligible Account Holders subscribe for a number of shares
which, when added to the shares subscribed for by Eligible Account Holders, and
the Tax-Qualified Employee Plans, the shares of Common Stock will be allocated
among subscribing Supplemental Eligible Account Holders so as to permit each
subscribing Supplemental Eligible Account Holder to purchase a number of shares
sufficient to make his total allocation equal to the lesser of 100 shares or the
number of shares subscribed for. Thereafter, unallocated shares will be
allocated to each subscribing Supplemental Eligible Account Holder whose
subscription remains unfilled in the same proportion that such subscriber's
Qualifying Deposits on the Supplemental Eligibility Record Date bear to the
total amount of Qualifying Deposits of all subscribing Supplemental Eligible
Account Holders whose subscriptions remain unfilled.
PRIORITY 4: OTHER MEMBERS. To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by Eligible Account Holders, the
Tax-Qualified Employee Plans and Supplemental Eligible Account Holders, each
Other Member shall have the opportunity to purchase up to $200,000 of Common
Stock offered in the Stock Offering, provided that the Bank may, in its sole
discretion and without further notice to or solicitation of subscribers or other
prospective purchasers, increase such maximum purchase limitation to 5% of the
maximum number of shares offered in the Stock Offering or decrease such maximum
purchase limitation to .1% of the maximum number of shares offered in the Stock
Offering, subject to the overall purchase limitations set forth in Section 12.
In the event Other Members subscribe for a number of shares which, when added to
the shares subscribed for by the Eligible Account Holders, Tax-Qualified
Employee Plans and Supplemental Eligible Account Holders is in excess of the
total number of shares offered in the Stock Offering, the subscriptions of such
Other Members will be allocated among subscribing Other Members on a pro rata
basis based on the size of such Other Members' orders.
PRIORITY 5: DIRECTORS, OFFICERS AND EMPLOYEES. To the extent that shares
remain available for purchase after satisfaction of all subscriptions of the
Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible
Account Holders, and Other Members, employees, officers and directors of the
Bank shall have the opportunity to purchase up to $200,000 of the Common Stock
offered in the Stock Offering; provided that the Bank may, in its sole
discretion, and without further notice to or solicitation of subscribers or
other prospective purchasers, increase such maximum purchase limitation to 5% of
the maximum number of shares offered in the Stock Offering or decrease such
maximum purchase limitation to .1% of the maximum number of shares offered in
the Stock Offering, subject to the overall purchase limitations set forth in
Section 12. In the event that directors, officers and employees subscribe for a
number of shares, which, when added to the shares subscribed for by Eligible
Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account
Holders, and Other Members is in excess of the total shares offered in the Stock
Offering, the subscriptions of such Persons will be allocated among directors,
officers and employees on a pro rata basis based on the size of each Person's
orders.
B. COMMUNITY OFFERING
Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered for sale in a Community Offering. This will involve an offering
of all unsubscribed shares directly to the general public with a preference to
those natural persons residing in the counties in which the Bank maintains its
offices. The Community Offering, if any, shall be for a period of not more than
45 days unless extended by the Holding Company and the Bank, and shall commence
concurrently with, during or promptly after the Subscription Offering. The
Holding Company and the Bank may use an investment banking firm or firms on a
best efforts basis to sell the unsubscribed shares in the Subscription and
Community Offering. The Holding Company and the Bank may pay a commission or
other fee to such
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investment banking firm or firms as to the shares sold by such firm or firms in
the Subscription and Community Offering and may also reimburse such firm or
firms for expenses incurred in connection with the sale. The Community Offering
may include a syndicated community offering managed by such investment banking
firm or firms. The Common Stock will be offered and sold in the Community
Offering, in accordance with OTS regulations, so as to achieve the widest
distribution of the Common Stock. No person, by himself or herself, or with an
Associate or group of Persons acting in concert, may subscribe for or purchase
more than $200,000 of Common Stock offered in the Community Offering. Further,
the Bank may limit total subscriptions under this Section 11(B) so as to assure
that the number of shares available for the public offering may be up to a
specified percentage of the number of shares of Common Stock. Finally, the Bank
may reserve shares offered in the Community Offering for sales to institutional
investors.
In the event of an oversubscription for shares in the Community Offering,
shares may be allocated (to the extent shares remain available) first to cover
any reservation of shares for a public offering or institutional orders, next to
cover orders of natural persons residing in the counties in which the Bank
maintains its offices, then to cover the orders of any other person subscribing
for shares in the Community Offering so that each such person may receive 1,000
shares, and thereafter, on a pro rata basis to such persons based on the amount
of their respective subscriptions.
The Bank and the Holding Company, in their sole discretion, may reject
subscriptions, in whole or in part, received from any Person under this Section
11(B).
C. SYNDICATED COMMUNITY OFFERING
Any shares of Common Stock not sold in the Subscription Offering or in the
Community Offering, if any, may be offered for sale to the general public by a
selling group of broker-dealers in a Syndicated Community Offering, subject to
terms, conditions and procedures, including the timing of the offering, as may
be determined by the Bank and the Holding Company in a manner that is intended
to achieve the widest distribution of the Common Stock subject to the rights of
the Holding Company to accept or reject in whole or in part all order in the
Syndicated Community Offering. It is expected that the Syndicated Community
Offering would commence as soon as practicable after termination of the
Subscription Offering and the Community Offering, if any. The Syndicated
Community Offering shall be completed within 45 days after the termination of
the Subscription Offering, unless such period is extended as provided herein.
The Syndicated Community Offering price and the underwriting discount in the
Syndicated Community Offering shall be determined by an underwriting agreement
between the Holding Company, the Bank and the underwriters. Such underwriting
agreement shall be filed with the OTS and the SEC.
If for any reason a Syndicated Community Offering of unsubscribed shares of
Common Stock cannot be effected and any shares remain unsold after the
Subscription Offering and the Community Offering, if any, the Boards of
Directors of the Holding Company and the Bank will seek to make other
arrangements for the sale of the remaining shares. Such other arrangements will
be subject to the approval of the OTS and to compliance with applicable
securities laws.
12. ADDITIONAL LIMITATIONS ON PURCHASES OF COMMON STOCK
Purchases of Common Stock in the Stock Offering will be subject to the
following purchase limitations:
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A. The aggregate amount of outstanding Common Stock of the Holding Company
owned or controlled by persons other than MHC at the close of the Stock
Offering shall be less than 50% of the Holding Company's total outstanding
Common Stock.
B. No Person, Associate thereof, or group of persons acting in concert, may
purchase more than $400,000 of Common Stock offered in the Stock Offering
to persons other than the MHC, except that: (i) the Holding Company may,
in its sole discretion and without further notice to or solicitation of
subscribers or other prospective purchasers, increase such maximum purchase
limitation to 5% of the number of shares sold in the Stock Offering; (ii)
Tax-Qualified Employee Plans may purchase up to 10% of the shares sold in
the Stock Offering; and (iii) for purposes of this subsection 12(B) shares
to be held by any Tax-Qualified Employee Plan and attributable to a person
shall not be aggregated with other shares purchased directly by or
otherwise attributable to such person.
C. The aggregate amount of Common Stock acquired in the Stock Offering by
all Management Persons and their Associates, exclusive of any stock
acquired by such persons in the secondary market, shall not exceed 25% of
the outstanding shares of Common Stock of the Holding Company held by
persons other than the MHC at the close of the Stock Offering. In
calculating the number of shares held by Management Persons and their
Associates under this paragraph or under the provisions of paragraph D of
this section, shares held by any Tax-Qualified Employee Plans of the Bank
that are attributable to such persons shall not be counted.
D. The aggregate amount of Common Stock acquired in the Stock Offering by
all Management Persons and their Associates, exclusive of any Common Stock
acquired by such plans or persons in the secondary market, shall not exceed
25% of the stockholders' equity of the Holding Company other than the MHC
at the close of the Stock Offering.
E. The Boards of Directors of the Bank and the Holding Company may, in
their sole discretion, increase the maximum purchase limitation set forth
in paragraph 12(B) hereof to up to 9.9%, provided that orders for Common
Stock in excess of 5% of the number of shares of Common Stock sold in the
Stock Offering shall not in the aggregate exceed 10% of the total shares of
Common Stock offered in the Stock Offering (except that this limitation
shall not apply to purchases by Tax-Qualified Employee Plans). If such 5%
limitation is increased, subscribers for the maximum amount will be, and
certain other large subscribers in the sole discretion of the Holding
Company and the Bank may be, given the opportunity to increase their
subscriptions up to the then applicable limit. Requests to purchase
additional shares of Common Stock under this provision will be determined
by the Board of Directors of the Holding Company, in its sole discretion.
F. Notwithstanding any other provision of this Plan, no person shall be
entitled to purchase any Common Stock to the extent such purchase would be
illegal under any federal law or state law or regulation or would violate
regulations or policies of the National Association of Securities Dealers,
Inc., particularly those regarding free riding and withholding. The
Holding Company and/or its agents may ask for an acceptable legal opinion
from any purchaser as to the legality of such purchase and may refuse to
honor any purchase order if such opinion is not timely furnished.
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G. The Board of Directors of the Holding Company has the right in its sole
discretion to reject any order submitted by a person whose representations
the Board of Directors believes to be false or who it otherwise believes,
either alone or acting in concert with others, is violating, circumventing,
or intends to violate, evade or circumvent the terms and conditions of this
Plan.
Prior to the consummation of the Stock Offering, no person shall offer to
transfer, or enter into any agreement or understanding to transfer the legal or
beneficial ownership of any subscription rights or shares of Common Stock. Each
person purchasing Common Stock shall be deemed to confirm that such purchase
does not conflict with the above purchase limitations contained in this Plan.
EACH PERSON PURCHASING COMMON STOCK IN THE STOCK OFFERING WILL BE DEEMED TO
CONFIRM THAT SUCH PURCHASE DOES NOT CONFLICT WITH THE PURCHASE LIMITATIONS IN
THIS PLAN. ALL QUESTIONS CONCERNING WHETHER ANY PERSONS ARE ASSOCIATES OR A
GROUP ACTING IN CONCERT OR WHETHER ANY PURCHASE CONFLICTS WITH THE PURCHASE
LIMITATIONS IN THIS PLAN OR OTHERWISE VIOLATES ANY PROVISION OF THIS PLAN SHALL
BE DETERMINED BY THE BANK IN ITS SOLE DISCRETION. SUCH DETERMINATION SHALL BE
CONCLUSIVE, FINAL AND BINDING ON ALL PERSONS AND THE BANK MAY TAKE ANY REMEDIAL
ACTION, INCLUDING WITHOUT LIMITATION REJECTING THE PURCHASE OR REFERRING THE
MATTER TO THE OTS FOR ACTION, AS IN ITS SOLE DISCRETION THE BANK MAY DEEM
APPROPRIATE.
13. PAYMENT FOR STOCK
All payments for Common Stock subscribed for or ordered in the Stock
Offering must be delivered in full to the Bank, together with a properly
completed and executed order form, or purchase order in the case of the
Syndicated Community Offering, on or prior to the expiration date specified on
the order form or purchase order, as the case may be, unless such date is
extended by the Bank; provided, that if the Tax Qualified Employee Plans
subscribe for shares during the Subscription Offering, such plans will not be
required to pay for the shares at the time they subscribe but rather may pay for
such shares of Common Stock subscribed for by such plans upon consummation of
the Stock Offering. The Holding Company or the Bank may make scheduled
discretionary contributions to Employee Plans provided such contributions from
the Bank, if any, do not cause the Bank to fail to meet its regulatory capital
requirement.
Payment for Common Stock shall be made either by check or money order, or
if a purchaser has a Deposit Account in the Bank, such purchaser may pay for the
shares subscribed for by authorizing the Bank to make a withdrawal from the
purchaser's passbook or certificate account at the Bank in an amount equal to
the aggregate Purchase Price of such shares. Such authorized withdrawal,
whether from a savings or certificate account, shall be without penalty as to
premature withdrawal. If the authorized withdrawal is from a certificate
account, and the remaining balance does not meet the applicable minimum balance
requirements, the certificate shall be canceled at the time of withdrawal,
without penalty, and the remaining balance will earn interest at the passbook
rate. Funds for which a withdrawal is authorized will remain in the purchaser's
Deposit Account but may not be used by the purchaser unless the 45-day period
(or such longer period as may be approved by the Commissioner) following the
Stock Offering has expired, whichever occurs first. Thereafter, the withdrawal
will be given effect only to the extent necessary to satisfy the subscription
(to the extent it can be filled) at the Purchase Price. Interest will continue
to be earned on any amounts authorized for withdrawal until such withdrawal is
given effect. Interest will be paid by the Bank at a rate established by the
Bank on payment for Common Stock received by check or
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money order. Such interest will be paid from the date payment is received by the
Bank until consummation or termination of the Stock Offering. If for any reason
the Stock Offering is not consummated, all payments made by subscribers in the
Stock Offering will be refunded to them with interest. In case of amounts
authorized for withdrawal from Deposit Accounts, refunds will be made by
canceling the authorization for withdrawal.
14. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the prospectus prepared by the Holding Company
and the Bank has been declared effective by the OTS and the SEC, copies of the
prospectus and order forms will be distributed to all Eligible Account Holders,
Supplemental Eligible Account Holders, the Employee Plans and employees,
officers and directors at their last known addresses appearing on the records of
the Bank for the purpose of subscribing for shares of Common Stock in the
Subscription Offering and will be made available for use by those persons
entitled to purchase in the Community Offering.
Each order form will be preceded or accompanied by the prospectus
describing the Holding Company, the Bank, the Common Stock and the Subscription
and Community Offerings. Each order form will contain, among other things, the
following:
A. A specified date by which all order forms must be received by the
Bank, which date shall be not less than 20, nor more than 45 days,
following the date on which the order forms are mailed by the Bank, and
which date will constitute the termination of the Subscription Offering;
B. The Purchase Price for shares of Common Stock to be sold in the
Subscription and Community Offerings;
C. A description of the minimum and maximum number of shares of Common
Stock that may be subscribed for pursuant to the exercise of subscription
rights or otherwise purchased in the Community Offering;
D. Instructions as to how the recipient of the order form is to indicate
thereon the number of shares of Common Stock for which such Person elects
to subscribe and the available alternative methods of payment therefor;
E. An acknowledgment that the recipient of the order form has received a
final copy of the prospectus prior to execution of the order form;
F. A statement indicating the consequences of failing to properly
complete and return the order form, including a statement to the effect
that all subscription rights are nontransferable, will be void at the end
of the Subscription Offering, and can only be exercised by delivering to
the Bank within the subscription period such properly completed and
executed order form, together with 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 Deposit Account at the Bank);
and
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G. A statement to the effect that the executed order form, once received
by the Bank, may not be modified or amended by the subscriber without the
consent of the Bank.
Notwithstanding the above, the Bank and the Holding Company reserve the
right in their sole discretion to accept or reject orders received on
photocopied or facsimilied order forms.
15. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM; INSUFFICIENT PAYMENT
In the event order forms (a) are not delivered and are returned to the Bank
by the United States Postal Service or the Bank is unable to locate the
addressee, (b) are not received back by the Bank or are received by the Bank
after the expiration date specified thereon, (c) are defectively filled out or
executed, (d) are not accompanied by the full required payment for the shares of
Common Stock subscribed for (including cases in which Deposit Accounts from
which withdrawals are authorized are insufficient to cover the amount of the
required payment), or (e) are not mailed pursuant to a "no mail" order placed
in effect by the account holder, the subscription rights of the Person to whom
such rights have been granted will lapse as though such Person failed to return
the contemplated order form within the time period specified thereon; provided,
that the Bank may, but will not be required to, waive any immaterial
irregularity on any order form or require the submission of corrected order
forms or the remittance of full payment for subscribed shares by such date as
the Bank may specify. The interpretation by the Bank of terms and conditions of
this Plan and of the order forms will be final, subject to the authority of the
OTS.
16. COMPLETION OF THE STOCK OFFERING
The Stock Offering will be terminated if not completed within 90 days from
the date of approval by the OTS, unless an extension is approved by the OTS.
17. MARKET FOR COMMON STOCK
If at the close of the Stock Offering the Holding Company has more than 100
shareholders of any class of stock, the Holding Company shall use its best
efforts to:
(i) encourage and assist a market maker to establish and maintain a market
for that class of stock; and
(ii) list that class of stock on a national or regional securities
exchange, or on the Nasdaq system.
18. STOCK PURCHASES BY MANAGEMENT PERSONS AFTER THE OFFERING
For a period of three years after the proposed Stock Offering, no
Management Person or his or her Associates may purchase, without the prior
written approval of the OTS, any Common Stock of the Holding Company, except
from a broker-dealer registered with the SEC, except that the foregoing shall
not apply to:
A. Negotiated transactions involving more than 1% of the outstanding
stock in the class of stock; or
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B. Purchases of stock made by and held by any Tax-Qualified or Non-Tax
Qualified Employee Plan of the Stock Bank or the Holding Company even if
such stock is attributable to Management Persons or their Associates.
19. RESALES OF STOCK BY MANAGEMENT PERSONS
Common Stock purchased by Management Persons and their Associates in the
Stock Offering may not be resold for a period of at least one year following the
date of purchase, except in the case of death of the Management Person or
Associate.
20. STOCK CERTIFICATES
Each stock certificate shall bear a legend giving appropriate notice of the
restrictions set forth in Section 19 above. Appropriate instructions shall be
issued to the Holding Company's transfer agent with respect to applicable
restrictions on transfers of such stock. Any shares of stock issued as a stock
dividend, stock split or otherwise with respect to such restricted stock, shall
be subject to the same restrictions as apply to the restricted stock.
21. RESTRICTION ON FINANCING STOCK PURCHASES
The Holding Company will not offer or sell any of the Common Stock proposed
to be issued to any person whose purchase would be financed by funds loaned to
the person by the Holding Company, the Bank or any of their Affiliates.
22. STOCK BENEFIT PLANS
The Board of Directors of the Bank and/or the Holding Company intend to
adopt one or more stock benefit plans for its employees, officers and directors,
including an ESOP, stock award plans and stock option plans, which will be
authorized to purchase Common Stock and grant options for Common Stock. However,
only the Tax-Qualified Employee Plans will be permitted to purchase Common Stock
in the Stock Offering on a priority basis as set forth in this Plan. The Board
of Directors of the Bank intends to establish the ESOP and authorize the ESOP
and any other Tax-Qualified Employee Plans to purchase in the aggregate up to
10% of the Common Stock issued in the Stock Offering. The Stock Bank or the
Holding Company may make scheduled discretionary contributions to one or more
Tax-Qualified Employee Plans to purchase Common Stock issued in the Stock
Offering or to purchase issued and outstanding shares of Common Stock or
authorized but unissued shares of Common Stock subsequent to the completion of
the Stock Offering, provided such contributions do not cause the Stock Bank to
fail to meet any of its regulatory capital requirements. This Plan specifically
authorizes the grant and issuance by the Holding Company of (i) awards of Common
Stock after the Stock Offering pursuant to one or more stock recognition and
award plans (the "Recognition Plans") in an amount equal to up to 4% of the
number of shares of Common Stock issued in the Stock Offering (and in an amount
equal to up to 5% of the Common Stock issued in the Stock Offering if the
Recognition Plans are adopted more than one year after the completion of the
Stock Offering), (ii) options to purchase a number of shares of the Holding
Company's Common Stock in an amount equal to up to 10% of the number of shares
of Common Stock issued in the Stock Offering and shares of Common Stock issuable
upon exercise of such options, and (iii) Common Stock to one or more Tax
Qualified Employee Plans, including the ESOP, at the closing of the Stock
Offering or at any time thereafter, in an amount equal to up to 8% of the number
of shares of Common Stock issued in the Stock Offering if the Recognition Plans
award Common Stock sooner than one year
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after the completion of the Stock Offering, and up to 10% of the number of
shares of Common Stock issued in the Stock Offering if the Recognition Plans are
adopted more than one year after the completion of the Stock Offering. Shares
awarded to the Tax Qualified Employee Plans or pursuant to the Recognition
Plans, and shares issued upon exercise of options may be authorized but unissued
shares of the Holding Company's Common Stock, or shares of Common Stock
purchased by the Holding Company or such plans on the open market. Any awards of
Common Stock under the Recognition Plans and the stock option plans will be
subject to prior stockholder approval.
23. POST-REORGANIZATION FILING AND MARKET MAKING
It is likely that there will be a limited market for the Common Stock sold
in the Stock Offering, and purchasers must be prepared to hold the Common Stock
for an indefinite period of time. If the Holding Company has more than 35
stockholders of any class of stock, the Holding Company shall register its
Common Stock with the SEC pursuant to the Exchange Act, and shall undertake not
to deregister such Common Stock for a period of three years thereafter.
24. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The Holding Company may not declare or pay a cash dividend on its Common
Stock if the effect thereof would cause the regulatory capital of the Bank to be
reduced below the amount required under (S) 567.2 of the OTS rules and
regulations. Otherwise, the Holding Company may declare dividends or make other
capital distributions in accordance with applicable laws and regulations.
Following completion of the Stock Offering, the Holding Company may repurchase
its Common Stock subject to (S) 563b.3(g) of the OTS rules and regulations, as
long as such repurchases do not cause the regulatory capital of the Bank to be
reduced below the amount required under 12 C.F.R. (S) 567.2. The MHC may from
time to time purchase Common Stock of the Holding Company. Subject to the
approval of the OTS, the MHC may waive its right to receive dividends declared
by the Holding Company.
25. REORGANIZATION AND STOCK OFFERING EXPENSES
The Regulations require that the expenses of any Stock Offering must be
reasonable. The Bank will use its best efforts to assure that the expenses
incurred by the Bank and the Holding Company in effecting the Reorganization and
the Stock Offering will be reasonable.
26. EMPLOYMENT AND OTHER SEVERANCE AGREEMENTS
Following or contemporaneously with the Reorganization, the Bank and/or the
Holding Company may enter into employment and/or severance arrangements with one
or more executive officers of the Bank and/or the Holding Company. It is
anticipated that any employment contracts entered into by the Bank and/or the
Holding Company will be for terms not exceeding three years and that such
contracts will provide for annual renewals of the term of the contracts, subject
to approval by the Board of Directors. The Bank and/or the Holding Company also
may enter into severance arrangements with one or more executive officers which
provide for the payment of severance compensation in the event of a change in
control of the Bank and/or the Holding Company. The terms of such employment
and severance arrangements have not been determined as of this time, but will be
described in any prospectus circulated in connection with the Stock Offering and
will be subject to and comply with all regulations of the OTS.
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27. 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 OTS.
28. AMENDMENT OR TERMINATION OF THE PLAN
If necessary or desirable, the terms of the Plan may be substantially
amended by a majority vote of the Bank's Board of Directors as a result of
comments from regulatory authorities or otherwise, at any time prior to
submission of the Plan and proxy materials to the Members. At any time AFTER
submission of the Plan and proxy materials to the Members, the terms of the Plan
that relate to the Reorganization may be amended by a majority vote of the Board
of Directors only with the concurrence of the OTS. Terms of the Plan relating
to the Stock Offering including, without limitation, Sections 8 through 20, may
be amended by a majority vote of the Bank's Board of Directors as a result of
comments from regulatory authorities or otherwise at any time prior to the
approval of the Plan by the OTS and at any time thereafter with the concurrence
of the OTS. The Plan may be terminated by a majority vote of the Board of
Directors at any time prior to the earlier of approval of the Plan by the OTS
and the date of the Special Meeting, and may be terminated by a majority vote of
the Board of Directors at any time thereafter with the concurrence of the OTS.
In its discretion, the Board of Directors may modify or terminate the Plan upon
the order of the regulatory authorities without a resolicitation of proxies or
another meeting of the Members; however, any material amendment of the terms of
the Plan that relate to the Reorganization which occur after the Special Meeting
shall require a resolicitation of Members.
The Plan shall be terminated if the Reorganization is not completed within
24 months from the date upon which the Members of the Bank approve the Plan, and
may not be extended by the Bank or the OTS.
Dated: April 23, 1998.
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PROVIDENT BANK
FEDERAL STOCK CHARTER
SECTION 1. CORPORATE TITLE. The full corporate title of the savings
association is Provident Bank (the "Association").
SECTION 2. OFFICE. The home office shall be located in the Village of
Montebello, County of Rockland, State of New York.
SECTION 3. DURATION. The duration of the Association is perpetual.
SECTION 4. PURPOSE AND POWERS. The purpose of the Association is to
pursue any or all of the lawful objectives of a Federal savings association
chartered under Section 5 of the Home Owners' Loan Act and to exercise all of
the express, implied, and incidental powers conferred thereby and by all acts
amendatory thereof and supplemental thereto, subject to the Constitution and
laws of the United States as they are now in effect, or as they may hereafter be
amended, and subject to all lawful and applicable rules, regulations, and orders
of the Office of Thrift Supervision (the "Office").
SECTION 5. CAPITAL STOCK. The total number of shares of all classes of
the capital stock which the Association has authority to issue is 30,000,000 of
which 20,000,000 shares shall be common stock, par value $.10 per share, and of
which 10,000,000 shares shall be serial preferred stock. The shares may be
issued from time to time as authorized by the board of directors without the
approval of its shareholders except as otherwise provided in this Section 5 or
to the extent that such approval is required by governing law, rule, or
regulation. The consideration for the issuance of the shares shall be paid in
full before their issuance and shall not be less than the par or stated value.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the Association. The consideration for
the shares shall be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted to the Association), labor or
services actually performed for the Association, or any combination of the
foregoing. In the absence of actual fraud in the transaction, the value of such
property, labor, or services, as determined by the board of directors of the
Association, 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, that part of the retained earnings of the Association that is
transferred to common stock or paid-in capital accounts upon the issuance of
shares as a stock dividend shall be deemed to be the consideration for their
issuance.
Except for shares issued in the initial organization of the Association or
in connection with the conversion of the Association from the mutual to the
stock form of capitalization, no shares of capital stock (including shares
issuable upon conversion, exchange, or exercise of other securities) shall be
issued, directly or indirectly, to officers, directors, or controlling persons
of the Association other than as part of a general public offering or as
qualifying shares to a director, unless their issuance or the plan under which
they would be issued has been approved by a majority of the total votes eligible
to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, and their
shall be no cumulation of votes for the election of directors. Provided, that
this restriction on voting separately by class or series shall not apply:
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(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the board of
directors, less than a majority thereof, in the event of default in the
payment of dividends on any class or series of preferred stock;
(ii) To any provision which would require the holders of preferred
stock, voting as a class or series, to approve the merger or consolidation
of the Association with another corporation or the sale, lease, or
conveyance (other than by mortgage or pledge) of properties or business in
exchange for securities of a corporation other than the Association if the
preferred stock is exchanged for securities of such other corporation:
Provided, that no provision may require such approval for transactions
undertaken with the assistance or pursuant to the direction of the Office
or the Federal Deposit Insurance Corporation;
(iii) To any amendment which would adversely change the specific
terms of any class or series of capital stock as set forth in this Section
5 (or in any supplementary sections hereto), including any amendment which
would create or enlarge any class or series ranking prior thereto in rights
and preferences. An amendment which increases the number of authorized
shares of any class or series of capital stock, or substitutes the
surviving Association in a merger or consolidation for the Association,
shall not be considered to be such an adverse change.
A description of the different classes and series of the Association's
capital stock and a statement of the designations, and the relative rights,
preferences and limitations of the shares of each class of and series of capital
stock are as follows:
A. COMMON STOCK. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of 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, except as to the
cumulation of votes for the election of directors, unless the charter otherwise
provides that there shall be no such cumulative voting.
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 payment of dividends, the full amount of dividends
and of sinking fund, retirement fund or other retirement payments, if any, to
which such holders are respectively entitled in preference to the common stock,
then dividends may be paid on the common stock and on any class or series of
stock entitled to participate therewith as to dividends out of any assets
legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
Association, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in kind, the
assets of the Association available for distribution remaining after: (i)
payment or provision for payment of the Association's debts and liabilities;
(ii) distributions or provision for distributions in settlement of its
liquidation account; and (iii) distributions or provisions for distributions to
holders of any class or series of stock having preference over the common stock
in the liquidation, dissolution, or winding up of the Association. Each share
of common stock shall have the same relative rights as and be identical in all
respects with all the other shares of common stock.
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B. PREFERRED STOCK. The Association may provide in supplementary
sections to its charter for one or more classes of preferred stock, which shall
be separately identified. The shares of any class may be divided into and
issued in series, with each series separately designated so as to distinguish
the shares thereof from the shares of all other series and classes. The terms
of each series shall be set forth in a supplementary section to the charter.
All shares of the same class shall be identical, except as to the following
relative rights and preferences, as to which there may be variations between
different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate 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(s), the payment date(s) for dividends, and the participating or
other special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of such series;
(d) Whether the shares of such series shall be redeemable and, if so, the
price(s) at which, and the terms and conditions on which, such shares may
be redeemed;
(e) The amount(s) payable upon the shares of such series in the event of
voluntary or involuntary liquidation, dissolution, or winding up of the
Association;
(f) Whether the shares of such series shall be entitled to the benefit of a
sinking or retirement fund to be applied to the purchase or redemption of
such shares, and if so entitled, the amount of such fund and the manner of
its application, including the price(s) at which such shares may be
redeemed or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of the
Association and, if so, the conversion price(s) or the rate(s) 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;
(h) The price or other consideration for which the shares of such series
shall be issued; and
(i) 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.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock into
series and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
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Prior to the issuance of any preferred shares of a series established by a
supplementary charter section adopted by the board of directors, the Association
shall file with the Secretary to the Office a dated copy of that supplementary
section of this charter establishing and designating the series and fixing and
determining the relative rights and preferences thereof.
SECTION 6. PREEMPTIVE RIGHTS. Holders of the capital stock of the
Association shall not be entitled to preemptive rights with respect to any
shares of the Association which may be issued.
SECTION 7. DIRECTORS. The Association shall be under the direction of a
board of directors. The authorized number of directors, as stated in the
Association's bylaws, shall not be fewer than five nor more than fifteen except
when a greater number is approved by the Director of the Office, or his or her
delegate.
SECTION 8. CERTAIN PROVISIONS APPLICABLE FOR FIVE YEARS. Notwithstanding
anything contained in the Association's charter or bylaws to the contrary, for a
period of five years from the effective date of this Charter, the following
provisions shall apply:
A. BENEFICIAL OWNERSHIP LIMITATION. No person, other than Provident
Bancorp, Inc. and Provident Bancorp, MHC, the mutual holding company of the
Association, shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10 percent of the any class of an equity
security of the Association. This limitation shall not apply to a transaction
in which the Association forms a holding company without change in the
respective beneficial ownership interests of its stockholders other than
pursuant to the exercise of any dissenter and appraisal rights, the purchase of
shares by underwriters in connection with a public offering, or the purchase of
shares by a tax-qualified employee stock benefit plan which is exempt from the
approval requirements under 574.3(c)(l)(vi) of the Office's regulations.
In the event shares are acquired in violation of this Section 8, all shares
beneficially owned by any person in excess of 10% shall be considered "excess
shares" and shall not be counted as shares entitled to vote and shall not be
voted by any person or counted as voting shares in connection with any matters
submitted to the stockholders for a vote.
For purposes of this Section 8, the following definitions apply:
(1) The term "person" includes an individual, a group acting in concert, a
corporation, a partnership, an association, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate or any other group
formed for the purpose of acquiring, holding or disposing of the equity
securities of the Association.
(2) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value.
(3) The term "acquire" includes every type of acquisition, whether effected
by purchase, exchange, operation of law or otherwise.
(4) The term "acting in concert" means (a) knowing participation in a joint
activity or conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) 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 arrangements,
whether written or otherwise.
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B. CALL FOR SPECIAL MEETINGS. Special meetings of stockholders relating
to changes in control of the Association or amendments to its charter shall be
called only upon direction of the board of directors.
SECTION 9. AMENDMENT OF CHARTER. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is first proposed by the board of directors of the
Association, approved by the shareholders of a majority of the votes eligible to
be cast at a legal meeting, unless a higher vote is otherwise required, and
approved or preapproved by the Office.
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PROVIDENT BANK
ATTEST: _________________________________________________________
Carol Benoist
Corporate Secretary
Provident Bank
BY: _________________________________________________________
George Strayton
President and Chief Executive Officer
Provident Bank
OFFICE OF THRIFT SUPERVISION
ATTEST: _________________________________________________________
Secretary of Office of Thrift Supervision
BY: _________________________________________________________
Director of Office of Thrift Supervision
Effective Date: _________________________________________________
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PROVIDENT BANK
BYLAWS
ARTICLE I - HOME OFFICE
The home office of Provident Bank (the "Association") shall be at 400 Rella
Boulevard in the Village of Montebello, in the County of Rockland in the State
of New York.
ARTICLE II - SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
shareholders shall be held at the home office of the Association or at such
other convenient place as the board of directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the
Association for the election of directors and for the transaction of any other
business of the Association shall be held annually within 150 days after the end
of the Association's fiscal year, on the _____ __________ in _____, if not a
legal holiday, and if a legal holiday, then on the next day following which is
not a legal holiday, at _:__ p.m., or at such other date and time within such
150-day period as the board of directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders for any
purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision (the "Office"), may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the Association entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the Association addressed to the
chairman of the board, the president, or the secretary.
SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by the Office or these bylaws or the board of
directors adopts another written procedure for the conduct of meetings. The
board of directors shall designate, when present, either the chairman of the
board or president to preside at such meetings.
SECTION 5. NOTICE OF MEETINGS. Written notice stating the place, date,
and hour of the meeting and the purpose(s) for which the meeting is called shall
be delivered not fewer than 10 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, 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 Association 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.
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SECTION 6. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or 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, such determination shall apply to any adjournment.
SECTION 7. VOTING LIST. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Association shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the Association and
shall be subject to inspection by any shareholder at any time during usual
business hours for a period of 20 days prior to such meeting. Such list also
shall be produced and kept open at the time and place of the meeting and shall
be subject to inspection by any shareholder of record or the shareholder's agent
during the entire time of the meeting. The original stock transfer book shall
constitute prima facie evidence of the shareholders entitled to examine such
list or transfer books or to vote at any meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures described in (S) 552.6(d) of the Office's
regulations as now or hereafter in effect.
SECTION 8. QUORUM. A majority of the outstanding shares of the
Association 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 without further notice.
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. If a quorum is present at a meeting of shareholders and
the withdrawal of shareholders results in the presence of less than a quorum,
the shareholders present may continue to transact business until adjournment.
If a quorum is present the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on the subject matter shall be
the act of the shareholders, unless the vote of a greater number of shareholders
voting together or voting by classes is required by law or the charter.
Directors, however, are elected by a plurality of the votes cast at an election
of directors.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Proxies may be given telephonically or electronically as long
as the holder uses a procedure for verifying the identity of the shareholder.
Proxies solicited on behalf of the management shall be voted as directed by the
shareholder or, in the absence of such direction, as determined by a majority of
the board of directors. No proxy shall be valid more than eleven months from
the date of its execution except for a proxy coupled with an interest.
SECTION 10. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Association to the contrary, at any meeting of shareholders of
the Association 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
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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.
SECTION 11. 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 such shares into his or her name.
Shares held in trust or an IRA or Keogh account, however may be voted by the
Association if no other instructions are received. 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 Association 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 Association,
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 12. CUMULATIVE VOTING. Stockholders may not cumulate their votes
for election of directors.
SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the board of directors may appoint any person 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 regulations of the Office, 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 nominees for election as directors.
Except in the case of a nominee substituted as a result
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of the death or other incapacity of a management nominee, the nominating
committee shall deliver written nominations to the secretary at least 20 days
prior to the date of the annual meeting. Upon delivery, such nominations shall
be posted in a conspicuous place in each office of the Association. No
nominations for directors except those made by the nominating committee shall be
voted upon at the annual meeting unless other nominations by shareholders are
made in writing and delivered to the secretary of the Association at least five
days prior to the date of the annual meeting. Upon delivery, such nominations
shall be posted in a conspicuous place in each office of the Association.
Ballots bearing the names of all persons nominated by the nominating committee
and by shareholders shall be provided for use at the annual meeting. However, if
the nominating committee shall fail or refuse to act at least 20 days prior to
the annual meeting, nominations for directors may be made at the annual meeting
by any shareholder entitled to vote and shall be voted upon.
SECTION 15. NEW BUSINESS. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the
Association at least five days prior to the date of the annual meeting, and all
business so stated, proposed, and filed shall be considered at the annual
meeting; but no other proposal shall be acted upon at the annual meeting. Any
shareholder may make any other proposal at the annual meeting and the same may
be discussed and considered, but unless stated in writing and filed with the
secretary at least five days before the meeting, such proposal shall be laid
over for action at an adjourned, special or annual meeting of the shareholders
taking place 30 days or more thereafter. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors, and committees; but in connection with such reports, no new
business shall be acted upon at such annual meeting unless stated and filed as
herein provided.
SECTION 16. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Association
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
SECTION 2. NUMBER AND TERM. The board of directors shall 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 and qualified. One class shall be
elected by ballot annually.
SECTION 3. REGULAR MEETINGS. A regular meeting of the board of directors
shall be held without notice other than this bylaw immediately following the
annual meeting of shareholders. The board of directors may provide, by
resolution, the time and place for the holding of additional regular meetings
without notice other than such resolution. Directors may participate in a
meeting by means of a conference telephone or similar communications device
through which all persons participating can hear each other at the same time.
Participation by such means shall constitute presence in person for all
purposes.
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SECTION 4. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, 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 the Association's normal
lending territory, 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 for all purposes.
SECTION 5. NOTICE. Written notice of any special meeting shall be given
to each director at least 24 hours prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall
be deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed, or when delivered to the telegraph company if sent by
telegram or when the Association receives notice of delivery if electronically
transmitted. Any director may waive notice of any meeting by a writing filed
with the secretary. The attendance of a 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 of the board of directors need be
specified in the notice of waiver of notice of such meeting.
SECTION 6. 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 5 of this Article III.
SECTION 7. 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 regulation of the Office
or by these bylaws.
SECTION 8. 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 9. RESIGNATION. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Association
addressed to the chairman of the board or the president. Unless otherwise
specified, such resignation shall take effect upon receipt by the chairman of
the board or the president. More than three consecutive absences from regular
meetings of the board of directors, unless excused by resolution of the board of
directors, shall automatically constitute a resignation, effective when such
resignation is accepted by the board of directors.
SECTION 10. 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 directors may be
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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 11. 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
attendance at each regular or special meeting of the board of directors.
Members of either standing or special committees may be allowed such
compensation for attendance at committee meetings as the board of directors may
determine.
SECTION 12. PRESUMPTION OF ASSENT. A director of the Association who is
present at a meeting of the board of directors at which action on any
Association matter is taken shall be presumed to have assented to the action
taken unless his dissent or abstention shall be entered in the minutes of the
meeting or unless he shall file a written dissent to such action with the person
acting as the secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the secretary of the Association
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 13. REMOVAL OF DIRECTORS. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. Whenever the holders of the shares of any class are entitled to
elect one or more directors by the provisions of the charter or supplemental
sections thereto, the provisions of this section shall apply, in respect to the
removal of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
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 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
charter or bylaws of the Association; 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 Association otherwise
than in the usual and regular course of its business; a voluntary dissolution of
the Association; 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.
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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, which notice may be written or oral.
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 Association. 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.
SECTION 10. OTHER COMMITTEES. The board of directors may by resolution
establish an audit, loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Association and may prescribe the duties, constitution, and procedures thereof.
ARTICLE V - OFFICERS
SECTION 1. POSITIONS. The officers of the Association shall be a
president, one or more vice presidents, a secretary, and a treasurer or
comptroller, each of whom shall be elected by the board of directors. The board
of directors also may designate the chairman of the board as an officer. The
offices of the secretary and treasurer or comptroller may be held by the same
person and a vice president also may be either the secretary or the treasurer or
comptroller. The board of directors may designate one or more vice presidents
as executive vice president or senior vice president. The board of directors
also may elect or authorize the appointment of such other officers as the
business of the Association 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.
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SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Association
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 Association to enter into an employment contract with any
officer in accordance with regulations of the Office; 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 Association will be served
thereby, but such removal, other than for cause, shall be without prejudice to
any contractual rights, if any, 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.
ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS
SECTION 1. CONTRACTS. To the extent permitted by regulations of the
Office, and 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 Association to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Association. Such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
Association 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 Association shall be signed by one or more officers, employees, or
agents of the Association in such manner as shall from time to time be
determined by the board of directors.
SECTION 4. DEPOSITS. All funds of the Association not otherwise employed
shall be deposited from time to time to the credit of the Association 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 Association shall be in such form as shall be determined by
the board of directors and approved by the Office. Such certificates shall be
signed by the chief executive officer or by any other officer of the Association
authorized by the board of directors, attested by the secretary or an assistant
secretary, and
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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 Association
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 Association. All
certificates surrendered to the Association for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares has been surrendered and cancelled, except that in the case of
a lost or destroyed certificate, a new certificate may be issued upon such terms
and indemnity to the Association as the board of directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of the
Association 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 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 Association. 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 Association shall be deemed by the Association
to be the owner for all purposes.
ARTICLE VIII - FISCAL YEAR
The fiscal year of the Association shall end on the last day of September
of each year. The Association 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. The appointment of such accountants
shall be subject to annual ratification by the shareholders.
ARTICLE IX - DIVIDENDS
Subject to the terms of the Association's charter and the regulations and
orders of the Office, the board of directors may, from time to time, declare,
and the Association may pay, dividends on its outstanding shares of capital
stock.
ARTICLE X - CORPORATE SEAL
The board of directors shall provide an Association seal which shall be two
concentric circles between which shall be the name of the Association. The year
of incorporation or an emblem may appear in the center.
ARTICLE XI - AGE LIMITATIONS
No person seventy-five (75) years of age or above shall be eligible for
election, reelection, appointment or reappointment to the board of directors of
the Association. No director shall serve as a director of the Association
beyond the annual meeting of the Association which immediately follows the
director becoming age seventy-five (75).
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ARTICLE XII - AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
Office and shall be effective after: (i) approval of the amendment by a majority
vote of the authorized board of directors, or by a majority vote of the votes
cast by the shareholders of the Association at any legal meeting, and (ii)
receipt of any applicable regulatory approval. When an association fails to
meet its quorum requirements, solely due to vacancies on the board, then the
affirmative vote of a majority of the sitting board will be required to amend
the bylaws.
ARTICLE XIII - INDEMNIFICATION
The Bank shall indemnify its personnel, including directors, officers and
employees, to the fullest extent authorized by applicable law or regulations, as
the same exists or may hereafter be amended.
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PROVIDENT BANCORP, INC.
STOCK HOLDING COMPANY CHARTER
SECTION 1. CORPORATE TITLE. The full corporate title of the MHC
subsidiary holding company is Provident Bancorp, Inc. (the "Company").
SECTION 2. DOMICILE. The domicile of the Company shall be located in the
Village of Montebello in the State of New York.
SECTION 3. DURATION. The duration of the Company is perpetual.
SECTION 4. PURPOSE AND POWERS. The purpose of the Company is to pursue
any or all of the lawful objectives of a federal mutual holding company
chartered under Section 10(o) of the Home Owners' Loan Act, 12 U.S.C. 1467a(o),
and to exercise all of the express, implied, and incidental powers conferred
thereby and by all acts amendatory thereof and supplemental thereto, subject to
the Constitution and laws of the United States as they are now in effect, or as
they may hereafter be amended, and subject to all lawful and applicable rules,
regulations, and orders of the Office of Thrift Supervision (the "Office").
SECTION 5. CAPITAL STOCK. The total number of shares of all classes of
the capital stock which the Company has authority to issue is 30,000,000 of
which 20,000,000 shares shall be common stock, par value $0.10 per share, and of
which 10,000,000 shares shall be serial preferred stock. The shares may be
issued from time to time as authorized by the board of directors without the
approval of its shareholders, except as otherwise provided in this Section 5 or
to the extent that such approval is required by governing law, rule, or
regulation. The consideration for the issuance of the shares shall be paid in
full before their issuance and shall not be less than the par value. Neither
promissory notes nor future services shall constitute payment or part payment
for the issuance of shares of the Company. The consideration for the shares
shall be cash, tangible or intangible property (to the extent direct investment
in such property would be permitted to the Company), labor, or services actually
performed for the Company, or any combination of the foregoing. In the absence
of actual fraud in the transaction, the value of such property, labor, or
services, as determined by the board of directors of the Company, 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, that part of
the retained earnings of the Company that is transferred to common stock or paid
in capital accounts upon the issuance of shares as a stock dividend shall be
deemed to be the consideration for their issuance.
Except for shares issued in the initial organization of the Company, no
shares of capital stock (including shares issuable upon conversion, exchange, or
exercise of other securities) shall be issued, directly or indirectly, to
officers, directors, or controlling persons (except for shares issued to the
parent mutual holding company) of the Company other than as part of a general
public offering or as qualifying shares to a director, unless their issuance or
the plan under which they would be issued has been approved by a majority of the
total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote
<PAGE>
per share, and there shall be no cumulation of votes for the election of
directors. Provided, that this restriction on voting separately by class or
series shall not apply:
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of
the board of directors, less than a majority thereof, in the
event of default in the payment of dividends on any class or
series of preferred stock;
(ii) To any provision which would require the holders of preferred
stock, voting as a class or series, to approve the merger or
consolidation of the Company with another corporation or the
sale, lease, or conveyance (other than by mortgage or pledge)
of properties or business in exchange for securities of a
corporation other than the Company if the preferred stock is
exchanged for securities of such other corporation: Provided,
that no provision may require such approval for transactions
undertaken with the assistance or pursuant to the direction of
the Office or the Federal Deposit Insurance Corporation;
(iii) To any amendment which would adversely change the specific
terms of any class or series of capital stock as set forth in
this Section 5 (or in any supplementary sections hereto),
including any amendment which would create or enlarge any class
or series ranking prior thereto in rights and preferences. An
amendment which increases the number of authorized shares of
any class or series of capital stock, or substitutes the
surviving Company in a merger or consolidation for the Company,
shall not be considered to be such an adverse change.
A description of the different classes and series of the Company's capital
stock and a statement of the designations, and the relative rights, preferences
and limitations of the shares of each class of and series of capital stock are
as follows:
A. COMMON STOCK. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of 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, except as to the
cumulation of votes for the election of directors, unless the charter otherwise
provides there shall be no such cumulative voting.
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 payment of dividends, the full amount of dividends
and of sinking fund, retirement fund or other retirement payments, if any, to
which such holders are respectively entitled in preference to the common stock,
then dividends may be paid on the common stock and on any class or series of
stock entitled to participate therewith as to dividends out of any assets
legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the Company,
the holders of the common stock (and the holders of any class or series of stock
entitled to participate with the common stock in the distribution of assets)
shall be entitled to receive, in cash or in kind, the assets of the Company
available for distribution remaining after: (i) payment or provision for
payment of the Company's debts and liabilities; (ii) distributions or provision
for distributions in settlement of its liquidation account; and
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(iii) distributions or provisions for distributions to holders of any class or
series of stock having preference over the common stock in the liquidation,
dissolution, or winding up of the Company. Each share of common stock shall have
the same relative rights as and be identical in all respects with all the other
shares of common stock.
B. PREFERRED STOCK. The Company may provide in supplementary sections to
its charter for one or more classes of preferred stock, which shall be
separately identified. The shares of any class may be divided into and issued
in series, with each series separately designated so as to distinguish the
shares thereof from the shares of all other series and classes. The terms of
each series shall be set forth in a supplementary section to the charter. All
shares of the same class shall be identical, except as to the following relative
rights and preferences, as to which there may be variations between different
series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate 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(s), the payment date(s) for dividends, and the
participating or other special rights, if any, with respect to
dividends;
(c) The voting powers, full or limited, if any, of shares of such series;
(d) Whether the shares of such series shall be redeemable and, if so, the
price(s) at which, and the terms and conditions on which, such shares
may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event of
voluntary or involuntary liquidation, dissolution, or winding up of
the Company;
(f) Whether the shares of such series shall be entitled to the benefit of
a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund
and the manner of its application, including the price(s) at which
such shares may be redeemed or purchased through the application of
such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of the
Company and, if so, the conversion price(s) or the rate(s) 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;
(h) The price or other consideration for which the shares of such series
shall be issued; and
(i) 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.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
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The board of directors shall have authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock into
series and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established by a
supplementary charter section adopted by the board of directors, the Company
shall file with the Secretary to the Office a dated copy of that supplementary
section of this charter establishing and designating the series and fixing and
determining the relative rights and preferences thereof.
SECTION 6. PREEMPTIVE RIGHTS. Holders of the capital stock of the Company
shall not be entitled to preemptive rights with respect to any shares of the
Company which may be issued.
SECTION 7. DIRECTORS. The Company shall be under the direction of a board
of directors. The authorized number of directors, as stated in the Company's
bylaws, shall not be fewer than five nor more than fifteen except when a greater
or lesser number is approved by the Director of the Office, or his or her
delegate.
SECTION 8. CERTAIN PROVISIONS APPLICABLE FOR FIVE YEARS. Notwithstanding
anything contained in the Company's charter or bylaws to the contrary, for a
period of five years from the date of the organization of the Bank in capital
stock form, the following provisions shall apply:
A. BENEFICIAL OWNERSHIP LIMITATION. No person other than the parent
mutual holding company shall directly or indirectly offer to acquire or acquire
the beneficial ownership of more than 10% of any class of any equity security of
the Company. This limitation shall not apply to the purchase of shares by
underwriters in connection with a public offering, or the purchase of shares by
a tax-qualified employee stock benefit plan which is exempt from the approval
requirements under 574.3(c)(l)(vi) of the Office's regulations.
In the event shares are acquired in violation of this Section 8, all shares
beneficially owned by any person in excess of 10% shall be considered "excess
shares" and shall not be counted as shares entitled to vote and shall not be
voted by any person or counted as voting shares in connection with any matters
submitted to the shareholders for a vote.
For purposes of this Section 8, the following definitions apply:
(1) The term "person" includes an individual, a group acting in concert; a
corporation, a partnership, a savings bank, a savings and loan association, a
joint stock company, a trust, an unincorporated organization or similar company,
a syndicate or any other group formed for the purpose of acquiring, holding or
disposing of the equity securities of the Company.
(2) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value.
(3) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
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(4) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) 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 arrangements,
whether written or otherwise.
B. CALL FOR SPECIAL MEETINGS. Special meetings of stockholders relating
to changes in control of the Company or amendments to its charter shall be
called only upon direction of the Board of Directors.
SECTION 9. AMENDMENT OF CHARTER. Except as provided in Section 5, no
amendment, addition, alteration, change or repeal of this charter shall be made,
unless such is proposed by the board of directors of the Company, approved by
the shareholders by a majority of the votes eligible to be cast at a legal
meeting, unless a higher vote is otherwise required, and approved or preapproved
by the Office.
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PROVIDENT BANCORP, INC.
ATTEST: _______________________________________________
Carol Benoist
Corporate Secretary
BY: _______________________________________________
George Strayton
President and Chief Executive Officer
OFFICE OF THRIFT SUPERVISION
ATTEST: _______________________________________________
Secretary of Office of Thrift Supervision
BY: _______________________________________________
Director of Office of Thrift Supervision
Effective Date: _______________________________________________
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PROVIDENT BANCORP, INC.
BYLAWS
ARTICLE I - HOME OFFICE
The home office of Provident Bancorp, Inc. (the "Company") shall be at 400
Rella Boulevard in the Village of Montebello, in the County of Rockland in the
State of New York.
ARTICLE II - SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
shareholders shall be held at the home office of the Company or at such other
convenient place as the board of directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the Company
for the election of directors and for the transaction of any other business of
the Company shall be held annually within 150 days after the end of the
Company's fiscal year on the _____ ________ in ___ if not a legal holiday, and
if a legal holiday, then on the next day following which is not a legal holiday,
at __________, or at such other date and time within such 150-day period as the
board of directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders for any
purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision (the "Office"), may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the Company entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the Company addressed to the
chairman of the board, the president, or the secretary.
SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Office or these bylaws or the
board of directors adopts another written procedure for the conduct of meetings.
The board of directors shall designate, when present, either the chairman of the
board or president to preside at such meetings.
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 called shall be
delivered not fewer than 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, 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 Company 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
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or 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, such determination shall apply to any adjournment.
SECTION 7. VOTING LIST. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Company shall make a complete list of the shareholders of record
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the Company and shall
be subject to inspection by any shareholder of record or the shareholder's agent
at any time during usual business hours for a period of 20 days prior to such
meeting. Such list also shall be produced and kept open at the time and place
of the meeting and shall be subject to inspection by any shareholder of record
or the shareholder's agent during the entire time of the meeting. The original
stock transfer book shall constitute prima facie evidence of the shareholders
entitled to examine such list or transfer books or to vote at any meeting of
shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures described in (S) 552.6(d) of the Office's
regulations as now or hereafter in effect.
SECTION 8. QUORUM. A majority of the outstanding shares of the Company
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 without further notice. 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. If a quorum is present at a meeting of shareholders and the
withdrawal of shareholders results in the presence of less than a quorum, the
shareholders present may continue to transact business until adjournment. If a
quorum is present the affirmative vote of the majority of the shares represented
at the meeting and entitled to vote on the subject matter shall be the act of
the shareholders, unless the vote of a greater number of shareholders voting
together or voting by classes is required by law or the charter. Directors,
however, are elected by a plurality of the votes cast at an election of
directors.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies may be given telephonically or
electronically as long as the holder uses a procedure for verifying the identity
of the shareholder. Proxies solicited on behalf of the management shall be
voted as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
more than eleven months from the date of its execution except for a proxy
coupled with an interest.
SECTION 10. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Company to the contrary,
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at any meeting of the shareholders of the Company 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.
SECTION 11. 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 such shares into his name. Shares held
in trust in an IRA or Keogh Account, however, may be voted by the Company if no
other instructions are received. 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 Company 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 Company,
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 12. CUMULATIVE VOTING. Stockholders may not cumulate their votes
for election of directors.
SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the board of directors may appoint any person 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 regulations of the Office, 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
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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 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 20 days prior to the date of the
annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Company. No nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by shareholders are made in writing and
delivered to the secretary of the Company at least five days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Company. Ballots bearing the names of
all persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 20 days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
SECTION 15. NEW BUSINESS. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the Company
at least five days prior to the date of the annual meeting, and all business so
stated, proposed, and filed shall be considered at the annual meeting; but no
other proposal shall be acted upon at the annual meeting. Any shareholder may
make any other proposal at the annual meeting and the same may be discussed and
considered, but unless stated in writing and filed with the secretary at least
five days before the meeting, such proposal shall be laid over for action at an
adjourned, special or annual meeting of the shareholders taking place 30 days or
more thereafter. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors,
and committees; but in connection with such reports, no new business shall be
acted upon at such annual meeting unless stated and filed as herein provided.
SECTION 16. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Company shall
be under the direction of its board of directors. The board of directors shall
annually elect a chairman of the board and a president from among its members
and shall designate, when present, either the chairman of the board or the
president to preside at its meetings.
SECTION 2. NUMBER AND TERM. The board of directors shall 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 and qualified. One class shall be
elected by ballot annually.
SECTION 3. REGULAR MEETINGS. A regular meeting of the board of directors
shall be held without notice other than this bylaw following the annual meeting
of shareholders. The board of directors may
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provide, by resolution, the time and place for the holding of additional regular
meetings without other notice than such resolution. Directors may participate in
a meeting by means of a conference telephone or similar communications device
through which all persons participating can hear each other at the same time.
Participation by such means shall constitute presence in person for all
purposes.
SECTION 4. QUALIFICATION. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the Company
unless the company is a wholly-owned subsidiary of a holding company.
SECTION 5. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, 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 the Company's normal lending
territory, 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 for all purposes.
SECTION 6. NOTICE. Written notice of any special meeting shall be given
to each director at least 24 hours prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall
be deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if sent by mail, when delivered to the telegraph company if sent by
telegram or when the Company receives notice of delivery if electronically
transmitted. Any director may waive notice of any meeting by a writing filed
with the secretary. The attendance of a 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 of the board of directors 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 5 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 regulation of the Office
or by these bylaws.
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 Company addressed
to the chairman of the board or the president.
5
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Unless otherwise specified, such resignation shall take effect upon receipt by
the chairman of the board or the president. More than three consecutive absences
from regular meetings of the board of directors, unless excused by resolution of
the board of directors, shall automatically constitute a resignation, effective
when such resignation is accepted by the board of directors.
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 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
attendance at each regular or special meeting of the board of directors. Members
of either standing or special committees may be allowed such compensation for
attendance at committee meetings as the board of directors may determine.
SECTION 13. PRESUMPTION OF ASSENT. A director of the Company who is
present at a meeting of the board of directors at which action on any Company
matter is taken shall be presumed to have assented to the action taken unless
his or her 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 Company 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. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. Whenever the holders of the shares of any class are entitled to
elect one or more directors by the provisions of the charter or supplemental
sections thereto, the provisions of this section shall apply, in respect to the
removal of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
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 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
charter or bylaws of the Company or recommending to the shareholders a plan of
merger, consolidation, or conversion; the sale, lease, or other disposition of
all or
6
<PAGE>
substantially all of the property and assets of the Company otherwise than in
the usual and regular course of its business; a voluntary dissolution of the
Company; 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, which notice may be written or oral.
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 Company. 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.
SECTION 10. OTHER COMMITTEES. The board of directors may by resolution
establish an audit, loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Company and may prescribe the duties, constitution, and procedures thereof.
7
<PAGE>
ARTICLE V - OFFICERS
SECTION 1. POSITIONS. The officers of the Company shall be a president,
one or more vice presidents, a secretary, and a treasurer, each of whom shall be
elected by the board of directors. The board of directors also may designate
the chairman of the board as an officer. The offices of the secretary and
treasurer may be held by the same person and a vice president also may 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 also may elect or authorize the appointment of such other
officers as the business of the Company 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 Company 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 officers 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 Company to enter into an employment contract with any officer in
accordance with regulations of the Office; 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 Company 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.
ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS
SECTION 1. CONTRACTS. To the extent permitted by regulations of the
Office, and 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 Company to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Company. Such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the Company
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 Company shall be signed by one or
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<PAGE>
more officers, employees, or agents of the Company in such manner as shall from
time to time be determined by the board of directors.
SECTION 4. DEPOSITS. All funds of the Company not otherwise employed
shall be deposited from time to time to the credit of the association in any
duly authorized depositors 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 Company shall be in such form as shall be determined by the
board of directors and approved by the Office. Such certificates shall be
signed by the chief executive officer or by any other officer of the Company
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
signature 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 Company 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 Company. All certificates surrendered to the Company for transfer shall
be cancelled and no new certificate shall be issued until the former certificate
for a like number of shares has been surrendered and cancelled, except that in
the case of a lost or destroyed certificate, a new certificate may be issued
upon such terms and indemnity to the Company as the board of directors may
prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of
the Company 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 Company. 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 Company shall be deemed by the Company to be the
owner for all purposes.
ARTICLE VIII - FISCAL YEAR
The fiscal year of the Company shall end on the last day of September of
each year. The Company 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. The appointment of such accountants shall be subject to
annual ratification by the shareholders.
ARTICLE IX - DIVIDENDS
Subject only to the terms of the Company's charter and the regulations and
orders of the Office, the board of directors may, from time to time, declare,
and the Company may pay, dividends on its outstanding shares of capital stock.
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<PAGE>
ARTICLE X - CORPORATE SEAL
The board of directors shall provide a Company seal which shall be two
concentric circles between which shall be the name of the Company. The year of
incorporation or an emblem may appear in the center.
ARTICLE XI - AGE LIMITATIONS
No person seventy-five (75) years of age or above shall be eligible for
election, reelection, appointment or reappointment to the board of directors of
the Company. No director shall serve as a director of the Company beyond the
annual meeting of the Company which immediately follows the director becoming
age seventy-five (75).
ARTICLE XI - AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
Office and shall be effective after: (i) approval of the amendment by a majority
vote of the authorized board of directors, or by a majority vote of the votes
cast by the shareholders of the Company at any legal meeting; and (ii) receipt
of any applicable regulatory approval. When the Company fails to meet its
quorum requirements, solely due to vacancies on the board, then the affirmative
vote of a majority of the sitting board will be required to amend the bylaws.
ARTICLE XII - INDEMNIFICATION
The Company shall indemnify its personnel, including directors, officers
and employees, to the fullest extent authorized by applicable law or
regulations, as the same exists or may hereafter be amended.
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<PAGE>
PROVIDENT BANCORP, MHC
MUTUAL HOLDING COMPANY CHARTER
SECTION 1. CORPORATE TITLE. The name of the mutual holding company is
Provident Bancorp, MHC (the "Mutual Company").
SECTION 2. DURATION. The duration of the Mutual Company is perpetual.
SECTION 3. PURPOSE AND POWERS. The purpose of the Mutual Company is to
pursue any or all of the lawful objectives of a federal mutual savings and loan
holding company chartered under section 10(o) of the Home Owners' Loan Act, 12
U.S.C. 1467a(o), and to exercise all of the express, implied, and incidental
powers conferred thereby and all acts amendatory thereof and supplemental
thereto, subject to the Constitution and the laws of the United States as they
are now in effect, or as they may hereafter be amended, and subject to all
lawful and applicable rules, regulations, and orders of the Office of Thrift
Supervision ("OTS").
SECTION 4. CAPITAL. The Mutual Company shall have no capital stock.
SECTION 5. MEMBERS. All holders of savings, demand, or other authorized
accounts of Provident Bank (the "Association") are members of the Mutual
Company. With respect to all questions requiring action by the members of the
Mutual Company, each holder of an account in the Association shall be permitted
to cast one vote for each $100, or fraction thereof, of the withdrawal value of
the member's account. In addition, borrowers from the Association as of the
date of this charter shall be entitled to one vote for the period of time during
which such borrowings are in existence. No member, however, shall cast more
than 1,000 votes. All accounts shall be nonassessable.
SECTION 6. DIRECTORS. The Mutual Company shall be under the direction of
a board of directors. The authorized number of directors shall not be fewer than
five nor more than fifteen, as fixed in the Mutual Company's bylaws, except that
the number of directors may be increased to a number less than five or increased
to a number greater than fifteen with the prior approval of the Director of the
OTS or his or her delegate.
SECTION 7. CAPITAL, SURPLUS, AND DISTRIBUTION OF EARNINGS. The Mutual
Company shall distribute net earnings to account holders of the Association on
such basis and in accordance with such terms and conditions as may from time to
time be authorized by the Director of the OTS, provided that the Mutual Company
may establish minimum account balance requirements for account holders to be
eligible for distributions of earnings.
All holders of accounts of the Association shall be entitled to equal
distribution of the assets of the Mutual Company, pro rata to the value of their
accounts in the Association, in the event of a voluntary or involuntary
liquidation, dissolution, or winding up of the Mutual Company.
SECTION 8. AMENDMENT. Adoption of any pre-approved charter amendment
shall be effective after such pre-approved amendment has been approved by the
members at a legal meeting. Any other amendment, addition, alteration, change
or repeal of this charter must be approved by the OTS prior to approval by the
members at a legal meeting and shall be effective upon filing with the OTS in
accordance with regulatory procedures.
<PAGE>
PROVIDENT BANCORP, MHC
ATTEST: __________________________________________
Carol Benoist
Corporate Secretary
BY: __________________________________________
George Strayton
President and Chief Executive Officer
OFFICE OF THRIFT SUPERVISION
ATTEST: __________________________________________
Secretary of Office of Thrift Supervision
BY: __________________________________________
Director of Office of Thrift Supervision
Effective Date: ___________________________________
2
<PAGE>
PROVIDENT BANCORP, MHC
BYLAWS
SECTION 1. ANNUAL MEETING OF MEMBERS. The annual meeting of the members
of Provident Bancorp, MHC (the "Mutual Company") for the election of directors
and for the transaction of any other business of the Mutual Company shall be
held, as designated by the board of directors, at a location within the state of
New York that constitutes the principal place of business of the Mutual Company
at ____ __.m. on the _____________ of __________ of each calendar year, if not a
legal holiday, or if a legal holiday, then on the next succeeding day not a
legal holiday. The annual meeting may be held at such other times on such day
or at such other place in the state as the board of directors may determine. At
each annual meeting, the officers shall make a full report of the financial
condition of the Mutual Company and of its progress for the preceding year and
shall outline a program for the succeeding year.
SECTION 2. SPECIAL MEETINGS OF MEMBERS. Special meetings of the members
of the Mutual Company may be called at any time by the president or the board of
directors and shall be called by the president, a vice president, or the
secretary upon the written request of members of record, holding in the
aggregate at least one-tenth of the capital of the Mutual Company. Such written
request shall state the purpose of the meeting and shall be delivered at the
principal place of business of the Mutual Company addressed to the president.
Annual and special meetings shall be conducted in accordance with rules
established by the Board of Directors and made available for inspection by
members at the annual or special meeting.
SECTION 3. NOTICE OF MEETING OF MEMBERS. For the purpose of determining
members entitled to notice of or to vote at any meeting of members or any
adjournment thereof, or in order to make a determination of members for any
other proper purpose, the board of directors shall fix in advance a record date
for any such determination of members. Such date shall be not more than 60 days
nor fewer than 10 days prior to the date on which the action, requiring such
determination of members, is to be taken. The member entitled to participate in
any such action shall be the member of record on the books of the Mutual Company
on such record date. The number of votes which each member shall be entitled to
cast at any meeting of the members shall be determined from the books of the
Mutual Company as of such record date. Any member of such record date who
ceases to be a member prior to such meeting shall not be entitled to vote at
that meeting.
SECTION 4. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or 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, such determination shall apply to any adjournment.
SECTION 5. MEMBER QUORUM. Any number of members present and voting,
represented in person or by proxy, at a regular or special meeting of the
members shall constitute a quorum. A majority of all votes cast at any meeting
of the members shall determine any question, unless otherwise required by
regulation. At any adjourned meeting, any business may be transacted that might
have been transacted at
<PAGE>
the meeting as originally called. Members present at a duly constituted meeting
may continue to transact business until adjournment.
SECTION 6. VOTING BY PROXY. Voting at any annual or special meeting of
the members may be by proxy pursuant to the rules and regulations of the Office,
provided, that no proxies shall be voted at any meeting unless such proxies
shall have been placed on file with the secretary of the Mutual Company, for
verification, prior to the convening of such meeting. All proxies with a term
greater than eleven months or solicited at the expense of the Mutual Company
must run to the board of directors as a whole, or to a committee appointed by a
majority of such board.
SECTION 7. COMMUNICATION BETWEEN MEMBERS. Communication between members
shall be subject to any applicable rules or regulations of the Office.
SECTION 8. NUMBER OF DIRECTORS. The number of directors of the Mutual
Company shall be nine.
SECTION 9. MEETINGS OF THE BOARD. The board of directors shall meet
regularly without notice at the principal place of business of the Mutual
Company at least once each month at an hour and date fixed by resolution of the
board, provided that the place of meeting may be changed by the directors.
Special meetings of the board may be held at any place specified in a notice of
such meeting and shall be called by the secretary upon the written request of
the chairman or of three directors. All special meetings shall be held upon at
least three days' written notice to each director unless notice is waived in
writing before or after such meeting. Such notice shall state the place, date,
time and purposes of such meeting. A majority of the authorized directors shall
constitute a quorum for the transaction of business. The act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the board. Action may be taken without a meeting if unanimous written consent
is obtained for such action. The meetings shall be under the direction of a
chairman, appointed annually by the board, or in the absence of the chairman,
the meetings shall be under the direction of the president.
SECTION 10. OFFICERS, EMPLOYEES AND AGENTS. At the meeting of the board
of directors of the Mutual Company next following the annual meeting of the
members of the Mutual Company, the board shall annually elect a president, one
or more vice presidents, a secretary, and a treasurer; provided, that the
offices of president and secretary may not be held by the same person and a vice
president may also be the treasurer. The board may appoint such additional
officers, employees, and agents as it may from time to time deem necessary. The
term of office of all officers shall be one year or until their respective
successors are elected and qualified; but any officer may be removed at any time
by the board. In the absence of any such provision, the officers shall have
such powers and duties as generally pertain to their respective offices.
The Mutual Company shall indemnify its personnel, including directors,
officers and employees, to the fullest extent authorized by applicable law or
regulations, as the same exists or may hereafter be amended.
SECTION 11. VACANCIES, RESIGNATION OR REMOVAL OF DIRECTORS. Members of
the Mutual Holding Company shall elect directors by ballot: Provided, that in
the event of a vacancy on the board, the board of directors may, by their
affirmative vote, fill such vacancy, even if the remaining directors constitute
less than a quorum. A director elected to fill a vacancy shall be elected to
serve only until the next election of directors by the members. Any director
may resign at any time by sending a written notice of such
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<PAGE>
resignation to the office of the Mutual Company delivered to the secretary.
Unless otherwise specified therein such resignation shall take effect upon
receipt by the secretary. More than three consecutive absences from regular
meetings of the board, unless excused by resolution of the board, shall
automatically constitute a resignation, effective when such resignation is
accepted by the board.
At a meeting of members called expressly for that purpose, directors or the
entire board may be removed, only with cause, by a vote of the holders of a
majority of the shares then entitled to vote at an election of directors.
SECTION 12. POWERS OF THE BOARD. The board of directors shall have the
power:
(a) By resolution, to appoint from among its members and remove an
executive committee and one or more other committees, which committee shall have
and may exercise all the powers of the board between the meetings of the board,
but no such committee shall have the authority of the board to amend the charter
or bylaws, adopt a plan of merger, consolidation, dissolution, or provide for
the disposition of all or substantially all the property and assets of the
Mutual Company. Such committee shall not operate to relieve the board, or any
member thereof, of any responsibility imposed by law;
(b) To fix the compensation of directors, officers, and employees, and
to remove any officer or employee at any time with or without cause; and
(c) To exercise any and all of the powers of the Mutual Company not
expressly reserved by the charter to the members.
SECTION 13. NOMINATIONS FOR DIRECTORS. The chairman, at least 30 days
prior to the date of each annual meeting, shall appoint a nominating committee
of three persons who are members of the Mutual Company. Such committee shall
make nominations for directors in writing and deliver to the secretary such
written nominations at least 15 days prior to the date of the annual meeting,
which nominations shall then be posted in a prominent place in the principal
place of business for the 15-day period prior to the date of the annual meeting.
Provided such committee is appointed and 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 members are made in writing
and delivered to the secretary of the Mutual Company at least 10 days prior to
the date of the annual meeting, which nominations shall then be posted in a
prominent place in the principal place of business at least 10 days prior to the
date of the annual meeting. Ballots bearing the names of all persons nominated
by the nominating committee and by other members prior to the annual meeting
shall be provided for use by the members at the annual meeting. If at any time
the chairman shall fail to appoint such nominating committee, or the nominating
committee shall fail or refuse to act at least 15 days prior to the annual
meeting, nominations for directors may be made at the annual meeting by any
member and shall be voted upon.
SECTION 14. NEW BUSINESS. Any new business to be taken up at the annual
meeting, including any proposal to increase or decrease the number of directors
of the Mutual Company, shall be stated in writing and filed with the secretary
of the Mutual Company at least 30 days before the date of the annual meeting,
and all business so stated, proposed, and filed shall be considered at the
annual meeting; but no other proposal shall be acted upon at the annual meeting.
Any member may make any other proposal at the annual meeting and the same may be
discussed and considered; but unless stated in writing and filed with the
secretary 30 days before the meeting, such proposal shall be laid over for
action at an adjourned,
3
<PAGE>
special, or regular meeting of the members taking place at least 30 days
thereafter. This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of the reports of officers and committees, but
in connection with such reports no new business shall be acted upon at such
annual meeting unless stated and filed as herein provided.
SECTION 15. SEAL. The seal shall be two concentric circles between which
shall be the name of the Mutual Company. The year of incorporation, the word
"incorporated," or an emblem may appear in the center.
SECTION 16. AGE LIMITATIONS. No person seventy-five (75) years of age or
above shall be eligible for election, reelection, appointment or reappointment
to the board of directors of the Mutual Company. No director shall serve as a
director of the Mutual Company beyond the annual meeting of the Mutual Company
which immediately follows the director becoming age seventy-five (75).
SECTION 17. AMENDMENT. Adoption of any bylaw amendment, as long as
consistent with applicable law, rules and regulations, and which adequately
addresses the subject and purpose of the stated bylaw section, shall be
effective upon filing with the Office in accordance with the regulatory
procedures after such amendment has been approved by a majority vote of the
authorized board, or by a vote of the members of the Mutual Company.
4
<PAGE>
EXHIBIT 4
CHARTERED UNDER THE LAWS OF THE UNITED STATES OF AMERICA
====== ======
No. Shares
====== PROVIDENT BANCORP, INC. ======
FULLY PAID AND NON-ASSESSABLE
PAR VALUE $0.10 EACH
THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO
RESTRICTIONS, SEE REVERSE SIDE
THIS CERTIFIES that is the owner of
SHARES OF COMMON STOCK OF
PROVIDENT BANCORP, INC.
a Federal corporation
The shares evidenced by this certificate are transferable only on the books
of Provident Bancorp, Inc. by the holder hereof, in person or by attorney, upon
surrender of this certificate properly endorsed. The capital stock evidenced
hereby is not an account of an insurable type and is not insured by the Federal
Deposit Insurance Corporation or any other Federal or state governmental agency.
IN WITNESS WHEREOF, Provident Bancorp, Inc. has caused this certificate to
be executed, by the facsimile signatures of its duly authorized officers and has
caused a facsimile of its seal to be hereunto affixed.
By___________________________ [SEAL] By_________________________
CAROL BENOIST, GEORGE STRAYTON,
CORPORATE SECRETARY PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE>
The Board of Directors of Provident Bancorp, Inc. (the "Company") is
authorized by resolution or resolutions, from time to time adopted, to provide
for the issuance of more than one class of stock, including preferred stock in
series, and to fix and state the voting powers, designations, preferences,
limitations and restrictions thereof. The Company will furnish to any
shareholder upon request and without charge a full description of each class of
stock and any series thereof.
The shares represented by this Certificate may not be cumulatively voted on
any matter.
The shares of common stock evidenced by this certificate are subject to a
limitation contained in the Stock Holding Company Charter of the Company to the
effect that, for a period of five years from the date of the reorganization from
mutual to stock form of Provident Bank, no person other than Provident Bancorp,
MHC, the parent mutual holding company of the Company, shall directly or
indirectly offer to acquire or acquire the beneficial ownership of more than 10%
of any class of any equity security of the Company unless such offer to acquire
or acquisition is approved by a majority of the Board of Directors. This
limitation shall not apply to the purchase of shares by underwriters in
connection with a public offering or certain purchases of shares by a tax-
qualified employee stock benefit plan or a subsidiary of the Company and any
trustee of such a plan or arrangement. In the event shares are acquired in
violation of this provision, all shares beneficially owned by any person in
excess of 10% shall be considered "excess shares" and shall not be counted as
shares entitled to vote and shall not be voted by any person or counted as
voting shares in connection with any matters submitted to stockholders for a
vote.
Special meetings of the Company's stockholders relating to a change in
control of the Company or to an amendment of the Charter of the Company may be
called only by the Company's Board of Directors. Special meetings of the
stockholders for any other purpose or purposes shall be called upon the written
request of the holders of not less than 10% of all the outstanding capital stock
of the Company entitled to vote at the meeting.
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - _______ Custodian ________
(Cust) (Minor)
TEN ENT - as tenants by the entireties
Under Uniform Gifts to Minors Act
JT TEN - as joint tenants with right
of survivorship and not as
_________________________________
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list
For value received, _____________________________ hereby sell, assign and
transfer unto
_______________________________________________
_______________________________________________
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER
________________________________________________________________________________
(please print or typewrite name and address including postal zip code of
assignee)
________________________________________________________________________________
______________________________________________________________________ Shares of
the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
Attorney to transfer the said shares on the books of the within named
corporation with full power of substitution in the premises.
Dated, _____________________
In the presence of Signature:
____________________________ ____________________________________________
NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE
STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.
<PAGE>
EXHIBIT 5.
[Letterhead of Lusel Lehman Gorman Pomerenk & Schick, P.C.]
(202) 274-2000
September 15, 1998
The Board of Directors
Provident Bank
400 Rella Boulevard
Montebello, New York 10901
RE: PROVIDENT BANCORP, INC.
COMMON STOCK PAR VALUE $0.10 PER SHARE
--------------------------------------
Gentlemen:
You have requested the opinion of this firm as to certain matters in
connection with the offer and sale (the "Offering") of Provdent Bancorp, Inc.
(the "Company") Common Stock, par value $0.10 per share ("Common Stock"). We
have reviewed the Company's proposed Stock Holding Company Charter, Registration
Statement on Form S-1 ("Form S-1"), as well as applicable statutes and
regulations governing the Company and the offer and sale of the Common Stock.
We are of the opinion that upon the declaration of effectiveness of the
Form S-1 and the incorporation of the Company as a federal corporation, the
Common Stock, when sold, will be legally issued, fully paid and non-assessable.
This Opinion has been prepared for the use of the Company in connection
with its registration statement on Form S-1, and we hereby consent to the filing
of this Opinion as an exhibit to such registration statement and to our firm
being referenced under the caption "Legal Matters."
Very truly yours,
/s/ Luse Lehman Gorman Pomerenk & Schick
------------------------------------------
Luse Lehman Gorman Pomerenk & Schick
A Professional Corporation
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK APPEARS HERE]
September 14, 1998
Board of Directors
Provident Bank
400 Rella Boulevard
Montebello, NY 10901
RE: MHC FORMATION AND STOCK ISSUANCE
---------------------------------
Gentlemen:
We have been requested as special counsel to Provident Bank ("Bank ") to
express our opinion concerning the Federal income tax consequences relating to
the proposed conversion of the Bank from a federally chartered mutual savings
association to a federally chartered stock savings association ("Stock Bank")
and the formation of Provident Bancorp, MHC, a federal MHC ("MHC ") which will
acquire the outstanding stock of Stock Bank and subsequently contribute Stock
Bank's stock to Provident Bancorp, Inc. ("Holding Company").
In connection therewith, we have examined the Plan of Reorganization from a
Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan, which
was adopted by the Board of Directors of the Bank on April 23, 1998 (the "Plan
of Reorganization"), and certain other documents of or relating to the
Reorganization (as defined below), some of which are described or referred to in
the Plan of Reorganization and which we deemed necessary to examine in order to
issue the opinions set forth below. Unless otherwise defined, all terms used
herein have the meanings given to such terms in the Plan of Reorganization.
In our examination, we have assumed the authenticity of original documents,
the accuracy of copies and the genuineness of signatures. We have further
assumed the absence of adverse facts not apparent from the face of the
instruments and documents we examined.
In issuing our opinions, we have assumed that the Plan of Reorganization
has been duly and validly authorized and has been approved and adopted by the
Board of Directors of the Bank at a meeting duly called and held; that the Bank
will comply with the terms and conditions of the Plan of Reorganization, and
that the various representations and warranties which are provided to us are
accurate, complete, true and correct. Accordingly, we express no opinion
concerning the effect, if any, of variations from the foregoing. We
specifically express no opinion concerning tax matters relating to the Plan of
Reorganization under state and local tax laws and under Federal income tax laws
except on the basis of the documents and assumptions described above.
<PAGE>
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK APPEARS HERE]
Board of Directors
Provident Bank
September 14, 1998
Page 2
For purposes of this opinion, we are relying on the representations
provided to us by the Bank , which are incorporated herein by reference.
In issuing the opinions set forth below, we have referred solely to
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury Regulations thereunder, current
administrative rulings, notices and procedures and court decisions. Such laws,
regulations, administrative rulings, notices and procedures and court decisions
are subject to change at any time. Any such change could affect the continuing
validity of the opinions set forth below. This opinion is as of the date
hereof, and we disclaim any obligation to advise you of any change in any matter
considered herein after the date hereof.
We emphasize that the outcome of litigation cannot be predicted with
certainty and, although we have attempted in good faith to opine as to the
probable outcome of the merits of each tax issue with respect to which an
opinion was requested, there can be no assurance that our conclusions are
correct or that they would be adopted by the IRS or a court.
SUMMARY OF OPINIONS
-------------------
Based on the facts, representations and assumptions set forth herein, we
are of the opinion that:
WITH RESPECT TO THE EXCHANGE OF THE BANK'S CHARTER FOR A STOCK CHARTER
("BANK CONVERSION"):
1. Bank's exchange of its charter for a federal stock savings association
charter is a mere change in identity and form and therefore qualifies as a
reorganization within the meaning of Section 368(a)(1)(F) of the Internal
Revenue Code ("Code").
2. No gain or loss will be recognized by Bank upon the transfer of its
assets to Stock Bank solely in exchange for shares of Stock Bank stock and the
assumption by Stock Bank of the liabilities of Bank. (Code Sections 361(a) and
357(a)).
3 No gain or loss will be recognized by Stock Bank upon the receipt of
the assets of Bank in exchange for shares of Stock Bank common stock. (Code
Section 1032(a)).
4. Stock Bank's holding period in the assets received from Bank will
include the period during which such assets were held by the Bank. (Code
Section 1223(2)).
<PAGE>
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK APPEARS HERE]
Board of Directors
Provident Bank
September 14, 1998
Page 3
5. Stock Bank's basis in the assets of Bank will be the same as the basis
of such assets in the hands of Bank immediately prior to the Bank Conversion.
(Code Section 362(b)).
6. Bank members will recognize no gain or loss upon the constructive
receipt of Stock Bank common stock solely in exchange for their membership
interests in Bank. (Code Section 354(a)(1)).
7. The basis of the Stock Bank common stock to be constructively received
by the Bank's members (which basis is -0-) will be the same as their basis in
their membership interests in the Bank surrendered in exchange therefor. (Code
Section 358(a)(1)).
8. The holding period of the Stock Bank common stock constructively
received by the members of the Bank will include the period during which the
Bank members held their membership interests, provided that the membership
interests were held as capital assets on the date of the exchange. (Code
Section 1223(1)).
9. The Stock Bank will succeed to and take into account the Bank 's
earnings and profits or deficit in earnings and profits, as of the date of the
proposed transaction. (Code Section 381).
WITH RESPECT TO THE TRANSFER OF STOCK BANK STOCK TO MHC FOR MEMBERSHIP
INTERESTS (THE "351 TRANSACTION"):
10. The exchange of Stock Bank stock by the Stock Bank depositors in
exchange for membership interests in the MHC will constitute a tax-free exchange
of property solely for voting "stock" pursuant to Section 351 of the Internal
Revenue Code.
11. Stock Bank's depositors will recognize no gain or loss upon the
transfer of the Stock Bank stock they constructively received in the Bank
conversion to the MHC solely in exchange for membership interests in the MHC.
(Code Section 351).
12. Stock Bank depositor's basis in the MHC membership interests received
in the transaction (which basis is -0-) will be the same as the basis of the
property transferred in exchange therefor. (Code Section 358(a)(1)).
13. Stock Bank depositor's holding period for the membership interests in
MHC received in the 351 Transaction will include the period during which the
property exchanged was held by
<PAGE>
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK APPEARS HERE]
Board of Directors
Provident Bank
September 14, 1998
Page 4
Stock Bank depositors, provided that such property was a capital asset on the
date of the exchange. (Code Section 1223(1)).
14. MHC will recognize no gain or loss upon the receipt of property from
Stock Bank depositors in exchange for membership interests in the MHC. (Code
Section 1032(a)).
15. MHC's basis in the property received from Stock Bank depositors (which
basis is -0-) will be the same as the basis of such property in the hands of
Stock Bank depositors immediately prior to the transaction. (Code Section
362(a)).
16. MHC 's holding period for the property received from Stock Bank 's
depositors will include the period during which such property was held by Stock
Bank depositors. (Code Section 1223(2)).
WITH RESPECT TO THE TRANSFERS TO THE HOLDING COMPANY IN EXCHANGE FOR
COMMON STOCK IN THE HOLDING COMPANY (THE "SECONDARY 351 TRANSACTION"):
17. The MHC and the persons who purchased Common Stock of the Holding
Company in the Subscription and Community Offering ("Minority Stockholders")
will recognize no gain or loss upon the transfer of Stock Bank stock and cash,
respectively, to the Holding Company in exchange for stock in the Holding
Company. Code Sections 351(a).
18. Holding Company will recognize no gain or loss on its receipt of Stock
Bank stock and cash in exchange for Holding Company Stock. (Code Section
1032(a)).
19. The basis of the Holding Company Common Stock to the Minority
Stockholders will be the actual purchase price thereof, and a shareholders
holding period for Common Stock acquired through the exercise of subscription
rights will begin on the date the rights are exercised.
PROPOSED TRANSACTION
--------------------
On April 23, 1998, the Board of Directors of the Bank adopted the Plan of
Reorganization. For what are represented to be valid business purposes, the
Bank's Board of Directors has decided to convert to a mutual holding company
structure pursuant to statutes. The following steps are proposed:
<PAGE>
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK APPEARS HERE]
Board of Directors
Provident Bank
September 14, 1998
Page 5
(i) The Bank will organize a interim stock savings Bank (Interim One)
as its wholly-owned subsidiary;
(ii) Interim One will organize a federal mid-tier holding company as
its wholly-owned subsidiary (Holding Company); and
(iii) Interim One will also organize another interim stock savings Bank
as its wholly-owned subsidiary (Interim Two).
The following transactions will occur simultaneously:
(iv) The Bank will exchange its charter for a federal stock savings
Bank charter and become a stock savings Bank that will
constructively issue its common stock to members of the Bank;
(v) Interim One will cancel its outstanding stock and exchange its
charter for a federal MHC charter and thereby become the MHC;
(vi) Interim Two will merge with and into the Bank with the Bank as
the surviving entity, the former members of the Bank who
constructively hold stock in the Bank will exchange their stock
in the Bank for membership interests in the MHC; and
(vii) The MHC will contribute the Bank's stock to the Holding Company,
a wholly-owned subsidiary of the MHC for additional shares of
Bank stock.
(viii) Contemporaneously, with the contribution set forth in "(vii)" the
Stock Holding Company will offer to sell up to 49% of its Common
Stock in the Subscription Offering and, if applicable, the
Community Offering.
These transactions are referred to herein collectively as the
"Reorganization."
Those persons who, as of the date of the Bank Conversion (the "Effective
Date"), hold depository rights with respect to the Bank will thereafter have
such rights solely with respect to the Stock Bank. Each deposit account with
the Bank at the time of the exchange will become a deposit account in the Stock
Bank in the same amount and upon the same terms and conditions. Following the
completion of the Reorganization, all depositors and borrowers who had
membership rights with respect to the Bank immediately prior to the
Reorganization will continue to have such rights solely
<PAGE>
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK APPEARS HERE]
Board of Directors
Provident Bank
September 14, 1998
Page 6
with respect to the MHC so long as they continue to hold deposit accounts or
borrowings with the Stock Bank. All new depositors of the Stock Bank after the
completion of the Reorganization will have ownership rights solely with respect
to the MHC so long as they continue to hold deposit accounts with the Stock
Bank.
The shares of Interim Two common stock owned by the MHC prior to the
Reorganization shall be converted into and become shares of common stock of the
Stock Bank on the Effective Date. The shares of Stock Bank common stock
constructively received by the Stock Bank stockholders (formerly the members
holding liquidation rights of the Bank ) will be transferred to the MHC by such
persons in exchange for liquidation rights in the MHC.
The Holding Company will have the power to issue shares of capital stock
(including common and preferred stock) to persons other than the MHC. So long
as the MHC is in existence, however, it must own a majority of the voting stock
of Holding Company. Holding Company may issue any amount of non-voting stock
to persons other than MHC. No such non-voting stock will be issued as of the
date of the Reorganization.
The opinions set forth above represent our conclusions as to the
application of existing Federal income tax law to the facts of the instant
transaction, and we can give no assurance that changes in such law, or in the
interpretation thereof, will not affect the opinions expressed by us. Moreover,
there can be no assurance that contrary positions may not be taken by the IRS,
or that a court considering the issues would not hold contrary to such opinions.
All of the opinions set forth above are qualified to the extent that the
validity of any provision of any agreement may be subject to or affected by
applicable Bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally. We do not express any opinion as
to the availability of any equitable or specific remedy upon any breach of any
of the covenants, warranties or other provisions contained in any agreement. We
have not examined, and we express no opinion with respect to the applicability
of, or liability under, any Federal, state or local law, ordinance, or
regulation governing or pertaining to environmental matters, hazardous wastes,
toxic substances, asbestos, or the like.
It is expressly understood that the opinions set forth above represent our
conclusions based upon the documents reviewed by us and the facts presented to
us. Any material amendments to such documents or changes in any significant
fact would affect the opinions expressed herein.
<PAGE>
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK APPEARS HERE]
Board of Directors
Provident Bank
September 14, 1998
Page 7
We have not been asked to, and we do not, render any opinion with respect
to any matters other than those expressly set forth above.
We hereby consent to the filing of the opinion as an exhibit to the Bank's
combined Form MHC-1/MHC-2 Notice of MHC Reorganization and Application for
Approval of a Minority Stock Issuance by a Subsidiary of MHC as filed with the
OTS and to the Holding Company's Registration Statement on Form SB-1 as filed
with the SEC. We also consent to the references to our firm in the Prospectus
contained in the Forms MHC-1/MHC-2 and SB-1 under the captions "The
Reorganization and Offering - Tax Effects of the Reorganization" and "Legal and
Tax Matters," and to the summarization of our opinion in such Prospectus.
Very truly yours,
/s/ LUSE LEHMAN GORMAN POMERENK & SCHICK
------------------------------------------
LUSE LEHMAN GORMAN POMERENK & SCHICK
A Professional Corporation
<PAGE>
EXHIBIT 8.2
[LETTERHEAD OF RP FINANCIAL APPEARS HERE]
September 4, 1998
Board of Directors
Provident Bank
400 Rella Boulevard
Montebello, New York 10901
Re: Plan of Conversion: Subscription Rights
Gentlemen:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the Plan of Reorganization and Plan of Stock
Issuance adopted by the Board of Directors of Provident Bank ("Provident" or the
"Bank"). Pursuant to the Plan of Reorganization and Plan of Stock Issuance,
Provident will become a wholly-owned subsidiary of Provident Bancorp, Inc. (the
"Holding Company"), and Provident Bancorp, Inc. will issue a majority of its
common stock to Provident Bancorp, MHC (the "MHC"), and will sell a minority of
its common stock to the public.
We understand that, in accordance with the Plan of Reorganization and Plan
of Stock Issuance, Subscription Rights to purchase shares of Common Stock in the
Holding Company are to be issued to: (1) Eligible Account Holders; (2) the
ESOP; (3) Supplemental Eligible Account Holders; (4) Other Members; and (5)
employees, officers and directors. Based solely upon our observation that the
Subscription Rights will be available to such parties without cost, will be
legally non-transferable and of short duration, and will afford such parties 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 Offering, 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 belief that, as a factual matter:
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 estimated 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 Holding Company's value alone. Accordingly, no
assurance can be given that persons who subscribe to shares of Common Stock in
the Subscription Offering will thereafter be able to buy or sell such shares at
the same price paid in the Subscription Offering.
Respectfully submitted,
RP FINANCIAL, LC.
/s/ RP FINANCIAL, LC.
<PAGE>
EXHIBIT 10.1
PROVIDENT BANK
EMPLOYEE STOCK OWNERSHIP PLAN
(adopted effective January 1, 1998)
<PAGE>
C 0 N T E N T S
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
SECTION 1. PLAN IDENTITY......................................................... -1-
-------------
1.1 NAME............................................................... -1-
----
1.2 PURPOSE............................................................ -1-
-------
1.3 EFFECTIVE DATE..................................................... -1-
--------------
1.4 FISCAL PERIOD...................................................... -1-
-------------
1.5 SINGLE PLAN FOR ALL EMPLOYERS...................................... -1-
-----------------------------
1.6 INTERPRETATION OF PROVISIONS....................................... -1-
----------------------------
SECTION 2. DEFINITIONS........................................................... -1-
-----------
SECTION 3. ELIGIBILITY FOR PARTICIPATION...................................... -8-
-----------------------------
3.1 INITIAL ELIGIBILITY................................................ -8-
-------------------
3.2 DEFINITION OF ELIGIBILITY YEAR..................................... -8-
------------------------------
3.3 TERMINATED EMPLOYEES............................................... -8-
--------------------
3.4 CERTAIN EMPLOYEES INELIGIBLE....................................... -8-
----------------------------
3.5 PARTICIPATION AND REPARTICIPATION.................................. -8-
---------------------------------
3.6 OMISSION OF ELIGIBLE EMPLOYEE...................................... -8-
-----------------------------
3.7 INCLUSION OF INELIGIBLE EMPLOYEE................................... -9-
--------------------------------
SECTION 4. CONTRIBUTIONS AND CREDITS.......................................... -9-
-------------------------
4.1 DISCRETIONARY CONTRIBUTIONS........................................ -9-
---------------------------
4.2 CONTRIBUTIONS FOR STOCK OBLIGATIONS................................ -9-
-----------------------------------
4.3 DEFINITIONS RELATED TO CONTRIBUTIONS............................... -9-
------------------------------------
4.4 CONDITIONS AS TO CONTRIBUTIONS..................................... -10-
------------------------------
SECTION 5. LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS....................... -10-
--------------------------------------------
5.1 LIMITATION ON ANNUAL ADDITIONS..................................... -10-
------------------------------
5.2 COORDINATED LIMITATION WITH OTHER PLANS............................ -12-
---------------------------------------
5.3 EFFECT OF LIMITATIONS.............................................. -13-
---------------------
5.4 LIMITATIONS AS TO CERTAIN PARTICIPANTS............................. -13-
--------------------------------------
SECTION 6. TRUST FUND AND ITS INVESTMENT...................................... -13-
------------------------------
6.1 CREATION OF TRUST FUND............................................. -13-
----------------------
6.2 STOCK FUND AND INVESTMENT FUND..................................... -13-
------------------------------
6.3 ACQUISITION OF STOCK............................................... -14-
--------------------
6.4 PARTICIPANTS' OPTION TO DIVERSIFY.................................. -15-
---------------------------------
SECTION 7. VOTING RIGHTS AND DIVIDENDS ON STOCK............................... -15-
------------------------------------
7.1 VOTING AND TENDERING OF STOCK...................................... -15-
-----------------------------
7.2 DIVIDENDS ON STOCK................................................. -16-
------------------
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
SECTION 8. ADJUSTMENTS TO ACCOUNTS.............................................. -16-
-----------------------
8.1 ADJUSTMENTS FOR TRANSACTIONS......................................... -16-
----------------------------
8.2 VALUATION OF INVESTMENT FUND......................................... -17-
----------------------------
8.3 ADJUSTMENTS FOR INVESTMENT EXPERIENCE................................ -17-
-------------------------------------
SECTION 9. VESTING OF PARTICIPANTS' INTERESTS................................... -17-
----------------------------------
9.1 DEFERRED VESTING IN ACCOUNTS......................................... -17-
----------------------------
9.2 COMPUTATION OF VESTING YEARS......................................... -17-
----------------------------
9.3 FULL VESTING UPON CERTAIN EVENTS..................................... -18-
--------------------------------
9.4 FULL VESTING UPON PLAN TERMINATION................................... -19-
----------------------------------
9.5 FORFEITURE, REPAYMENT, AND RESTORAL.................................. -19-
-----------------------------------
9.6 ACCOUNTING FOR FORFEITURES........................................... -19-
--------------------------
9.7 VESTING AND NONFORFEITABILITY........................................ -20-
-----------------------------
SECTION 10. PAYMENT OF BENEFITS.................................................. -20-
-------------------
10.1 BENEFITS FOR PARTICIPANTS............................................ -20-
-------------------------
10.2 TIME FOR DISTRIBUTION................................................ -20-
---------------------
10.3 MARITAL STATUS....................................................... -22-
--------------
10.4 DELAY IN BENEFIT DETERMINATION....................................... -22-
------------------------------
10.5 ACCOUNTING FOR BENEFIT PAYMENTS...................................... -22-
-------------------------------
10.6 OPTIONS TO RECEIVE AND SELL STOCK.................................... -22-
---------------------------------
10.7 RESTRICTIONS ON DISPOSITION OF STOCK................................. -23-
------------------------------------
10.8 CONTINUING LOAN PROVISIONS; CREATIONS OF PROTECTIONS AND RIGHTS...... -23-
---------------------------------------------------------------
10.9 DIRECT ROLLOVER OF ELIGIBLE DISTRIBUTION............................. -23-
----------------------------------------
10.10 WAIVER OF 30 DAY PERIOD AFTER NOTICE OF DISTRIBUTION................. -24-
----------------------------------------------------
SECTION 11. RULES GOVERNING BENEFIT CLAIMS AND REVIEW OF APPEALS................. -24-
----------------------------------------------------
11.1 CLAIM FOR BENEFITS................................................... -24-
------------------
11.2 NOTIFICATION BY COMMITTEE............................................ -24-
-------------------------
11.3 CLAIMS REVIEW PROCEDURE.............................................. -25-
-----------------------
SECTION 12. THE COMMITTEE AND ITS FUNCTIONS...................................... -25-
-------------------------------
12.1 AUTHORITY OF COMMITTEE............................................... -25-
----------------------
12.2 IDENTITY OF COMMITTEE................................................ -25-
---------------------
12.3 DUTIES OF COMMITTEE.................................................. -26-
-------------------
12.4 VALUATION OF STOCK................................................... -26-
------------------
12.5 COMPLIANCE WITH ERISA................................................ -26-
---------------------
12.6 ACTION BY COMMITTEE.................................................. -26-
-------------------
12.7 EXECUTION OF DOCUMENTS............................................... -26-
----------------------
12.8 ADOPTION OF RULES.................................................... -26-
-----------------
12.9 RESPONSIBILITIES TO PARTICIPANTS..................................... -26-
--------------------------------
12.10 ALTERNATIVE PAYEES IN EVENT OF INCAPACITY............................ -26-
-----------------------------------------
12.11 INDEMNIFICATION BY EMPLOYERS......................................... -26-
----------------------------
12.12 NONPARTICIPATION BY INTERESTED MEMBER................................ -27-
-------------------------------------
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
SECTION 13. ADOPTION, AMENDMENT, OR TERMINATION OF THE PLAN......................... -27-
-----------------------------------------------
13.1 ADOPTION OF PLAN BY OTHER EMPLOYERS..................................... -27-
-----------------------------------
13.2 ADOPTION OF PLAN BY SUCCESSOR........................................... -27-
-----------------------------
13.3 PLAN ADOPTION SUBJECT TO QUALIFICATION.................................. -28-
--------------------------------------
13.4 RIGHT TO AMEND OR TERMINATE............................................. -28-
---------------------------
SECTION 14. MISCELLANEOUS PROVISIONS................................................ -28-
------------------------
14.1 PLAN CREATES NO EMPLOYMENT RIGHTS....................................... -28-
---------------------------------
14.2 NONASSIGNABILITY OF BENEFITS............................................ -28-
----------------------------
14.3 LIMIT OF EMPLOYER LIABILITY............................................. -29-
---------------------------
14.4 TREATMENT OF EXPENSES................................................... -29-
---------------------
14.5 NUMBER AND GENDER....................................................... -29-
-----------------
14.6 NONDIVERSION OF ASSETS.................................................. -29-
----------------------
14.7 SEPARABILITY OF PROVISIONS.............................................. -29-
--------------------------
14.8 SERVICE OF PROCESS...................................................... -29-
------------------
14.9 GOVERNING STATE LAW..................................................... -29-
-------------------
14.10 EMPLOYER CONTRIBUTIONS CONDITIONED ON DEDUCTIBILITY..................... -29-
---------------------------------------------------
14.11 UNCLAIMED ACCOUNTS...................................................... -29-
------------------
14.12 QUALIFIED DOMESTIC RELATIONS ORDER...................................... -30-
----------------------------------
SECTION 15. TOP-HEAVY PROVISIONS.................................................... -31-
--------------------
15.1 TOP-HEAVY PLAN.......................................................... -31-
--------------
15.2 SUPER TOP-HEAVY PLAN.................................................... -31-
--------------------
15.3 DEFINITIONS............................................................. -31-
-----------
15.4 TOP-HEAVY RULES OF APPLICATION.......................................... -32-
------------------------------
15.5 TOP-HEAVY RATIO......................................................... -33-
---------------
15.6 MINIMUM CONTRIBUTIONS................................................... -34-
---------------------
15.7 MINIMUM VESTING......................................................... -34-
---------------
15.8 TOP-HEAVY PROVISIONS CONTROL IN TOP-HEAVY PLAN.......................... -34-
----------------------------------------------
</TABLE>
(iii)
<PAGE>
PROVIDENT BANK
EMPLOYEE STOCK OWNERSHIP PLAN
SECTION 1. PLAN IDENTITY.
-------------
1.1 NAME. The name of this Plan is "Provident Bank Employee Stock
----
Ownership Plan."
1.2 PURPOSE. The purpose of this Plan is to describe the terms and
-------
conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.
1.3 EFFECTIVE DATE. The Effective Date of this Plan is January 1,
--------------
1998.
1.4 FISCAL PERIOD. This Plan shall be operated on the basis of a
-------------
January 1 to December 31 fiscal year for the purpose of keeping the Plan's books
and records and distributing or filing any reports or returns required by law.
1.5 SINGLE PLAN FOR ALL EMPLOYERS. This Plan shall be treated as a
-----------------------------
single plan with respect to all participating Employers for the purpose of
crediting contributions and forfeitures and distributing benefits, determining
whether there has been any termination of Service, and applying the limitations
set forth in Section 5.
1.6 INTERPRETATION OF PROVISIONS. The Employers intend this Plan and
----------------------------
the Trust to be a qualified stock bonus plan under Section 401(a) of the Code
and an employee stock ownership plan within the meaning of Section 407(d)(6) of
ERISA and Section 4975(e)(7) of the Code. The Plan is intended to have its
assets invested primarily in qualifying employer securities of one or more
Employers within the meaning of Section 407(d)(3) of ERISA, and to satisfy any
requirement under ERISA or the Code applicable to such a plan.
Accordingly, the Plan and Trust Agreement shall be interpreted and
applied in a manner consistent with this intent and shall be administered at all
times and in all respects in a nondiscriminatory manner.
SECTION 2. DEFINITIONS.
-----------
The following capitalized words and phrases shall have the meanings
specified when used in this Plan and in the Trust Agreement, unless the context
clearly indicates otherwise:
"ACCOUNT" means a Participant's interest in the assets accumulated under
this Plan as expressed in terms of a separate account balance which is
periodically adjusted to reflect his Employer's contributions, the Plan's
investment experience, and distributions and forfeitures.
"ACTIVE PARTICIPANT" means any Employee who has satisfied the
eligibility requirements of Section 3 and who qualifies as an Active Participant
for a particular Plan Year under Section 4.3.
"BANK" means Provident Bank and any entity which succeeds to the
business of Provident Bank and adopts this Plan as its own pursuant to Section
13.2.
<PAGE>
"BENEFICIARY" means the person or persons who are designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation or if all the designated Beneficiaries
shall die before the Participant dies or shall die before all benefits have been
paid, the Participant's Beneficiary shall be his surviving Spouse, if any, or
his estate if he is not survived by a Spouse. The Committee may rely upon the
advice of the Participant's executor or administrator as to the identity of the
Participant's Spouse.
"BREAK IN SERVICE" means any Plan Year, or, for the initial eligibility
computation period under Section 3.2, the 12-consecutive month period beginning
on the first day on which an Employee has 500 or fewer Hours of Service, in
which an Employee has 500 or fewer Hours of Service. Solely for this purpose,
an Employee shall be considered employed for his normal hours of paid employment
during a Recognized Absence (said Employee shall not be credited with more than
501 Hours of Service to avoid a Break in Service), unless he does not resume his
Service at the end of the Recognized Absence. Further, if an Employee is absent
for any period beginning on or after January 1, 1985, (i) by reason of the
Employee's pregnancy, (ii) by reason of the birth of the Employee's child, (iii)
by reason of the placement of a child with the Employee in connection with the
Employee's adoption of the child, or (iv) for purposes of caring for such child
for a period beginning immediately after such birth or placement, the Employee
shall be credited with the Hours of Service which would normally have been
credited but for such absence, up to a maximum of 501 Hours of Service.
"CASH COMPENSATION" has the meaning given such term in Section 4.3
hereof.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee responsible for the administration of
this Plan in accordance with Section 12.
"COMPANY" means Provident Bancorp, Inc., the stock holding company of
Bank.
"COMPENSATION"
(a) shall mean wages, as defined in Code Section 3401(a) for
purposes of income tax withholding at the source.
(b) Any elective deferral as defined in Code Section 402(g)(3)
(any Employer contributions made on behalf of a Participant to the
extent not includible in gross income and any Employer contributions to
purchase an annuity contract under Code Section 403(b) under a salary
reduction agreement) and any amount which is contributed or deferred by
the Employer at the election of the Participant and which is not
includible in gross income of the Participant by reason of Code Section
125 (Cafeteria Plan) shall also be included in the definition of
Compensation.
(c) Compensation in excess of $160,000 (as indexed) shall be
disregarded for all Participants. For purposes of this sub-section, the
$160,000 limit shall be referred to as the "applicable limit" for the
Plan Year in question. The $160,000 limit shall be adjusted for
increases in the cost of living in accordance with Section 401(a)(17)(B)
of the Code, effective for the Plan
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<PAGE>
Year which begins within the applicable calendar year. For purposes of
the applicable limit, Compensation shall be prorated over short Plan
Years.
"DISABILITY" means only a disability which renders the Participant
totally unable, as a result of bodily or mental disease or injury, to perform
any duties for an Employer for which he is reasonably fitted, which disability
is expected to be permanent or of long and indefinite duration. However, this
term shall not include any disability directly or indirectly resulting from or
related to habitual drunkenness or addiction to narcotics, a criminal act or
attempt, service in the armed forces of any country, an act of war, declared or
undeclared, any injury or disease occurring while compensation to the
Participant is suspended, or any injury which is intentionally self-inflicted.
Further, this term shall apply only if (i) the Participant is sufficiently
disabled to qualify for the payment of disability benefits under the federal
Social Security Act or Veterans Disability Act, or (ii) the Participant's
disability is certified by a physician selected by the Committee. Unless the
Participant is sufficiently disabled to qualify for disability benefits under
the federal Social Security Act or Veterans Disability Act, the Committee may
require the Participant to be appropriately examined from time to time by one or
more physicians chosen by the Committee, and no Participant who refuses to be
examined shall be treated as having a Disability. In any event, the Committee's
good faith decision as to whether a Participant's Service has been terminated by
Disability shall be final and conclusive.
"EARLY RETIREMENT" means retirement on or after a Participant's
attainment of age 55 and the completion of fifteen years of employment with an
Employer. If the Participant terminates employment before satisfying the age
requirement, but has satisfied the employment requirement, the Participant will
be entitled to elect early retirement upon satisfaction of the age requirement.
"EFFECTIVE DATE" means January 1, 1998.
"EMPLOYEE" means any individual who is or has been employed or self-
employed by an Employer. "Employee" also means an individual employed by a
leasing organization who, pursuant to an agreement between an Employer and the
leasing organization, has performed services for the Employer and any related
persons (within the meaning of Section 414(n)(6) of the Code) on a substantially
full-time basis for more than one year, if such services are performed under the
primary direction or control of the Employer. However, such a "leased employee"
shall not be considered an Employee if (i) he participates in a money purchase
pension plan sponsored by the leasing organization which provides for immediate
participation, immediate full vesting, and an annual contribution of at least 10
percent of the Employee's 415 Compensation, and (ii) leased employees do not
constitute more than 20 percent of the Employer's total work force (including
leased employees, but excluding Highly Paid Employees and any other Employees
who have not performed services for the Employer on a substantially full-time
basis for at least one year).
"EMPLOYER" means the Bank or any affiliate within the purview of section
414(b), (c) or (m) and 415(h) of the Code, any other corporation, partnership,
or proprietorship which adopts this Plan with the Bank's consent pursuant to
Section 13.1, and any entity which succeeds to the business of any Employer and
adopts the Plan pursuant to Section 13.2.
"ENTRY DATE" means the Effective Date of the Plan and each January 1 and
July 1 of each Plan Year after the Effective Date.
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<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974 (P.L.
93-406, as amended).
"415 COMPENSATION"
(a) shall include the Participant's wages, salaries, fees for
professional services and other amounts received (without regard to
whether or not an amount is paid in cash) for personal services actually
rendered in the course of employment with an Employer maintaining the
Plan to the extent that the amounts are includable in gross income
(including, but not limited to, commissions paid salesmen, compensation
for services on the basis of a percentage of profits, commissions on
insurance premiums, tips, bonuses, fringe benefits, reimbursements, and
expense allowances, and in the case of a Participant who is an Employee
within the meaning of Code Section 401(c)(1) and the regulations
thereunder, the Participant's earned income (as described in Code
Section 401(c)(2) and the regulations thereunder)) paid during the Plan
Year.
(b) Any elective deferral as defined in Code Section 402(g)(3)
(any Employer contributions made on behalf of a Participant to the
extent not includible in gross income and any Employer contributions to
purchase an annuity contract under Code Section 403(b) under a salary
reduction agreement) and any amount which is contributed or deferred by
the Employer at the election of the Participant and which is not
includible in gross income of the Participant by reason of Code Section
125 (Cafeteria Plan) or 457 shall also be included in the definition of
415 Compensation.
(c) 415 Compensation shall exclude:
(i) Employer contributions to a plan of deferred
compensation which are not includible in the employee's gross
income for the taxable year in which contributed, or employer
contributions under a simplified employee pension plan, or any
distributions from a plan of deferred compensation;
(ii) amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property) held by the
employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture;
(iii) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and
(iv) other amounts which received special tax benefits,
such as premiums for group term life insurance (but only to the
extent that the premiums are not includable in the gross income
of the Employee) or contributions made by the Employer (whether
or not under a salary reduction agreement) towards the purchase
of an annuity contract described in section 403(b) of the Code
(whether or not the contributions are actually excludable from
the gross income of the Employee).
"HIGHLY PAID EMPLOYEE" for any Plan Year means an Employee who, during
either of that or the immediately preceding Plan Year was at any time a five
percent owner of the Employer (as defined in Code
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<PAGE>
Section 416(i)(1)) or, during the immediately preceding Plan Year, had 415
Compensation exceeding $80,000 and was among the most highly compensated one-
fifth of all Employees. For this purpose:
(a) "415 Compensation" shall include any amount which is
excludable from the Employee's gross income for tax purposes pursuant to
Sections 125, 402(a)(8), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated one-
fifth of all Employees" shall be determined by taking into account all
individuals working for all related Employer entities described in the
definition of "Service", but excluding any individual who has not
completed six months of Service, who normally works fewer than 17-1/2
hours per week or in fewer than six months per year, who has not reached
age 21, whose employment is covered by a collective bargaining
agreement, or who is a nonresident alien who receives no earned income
from United States sources.
"HOURS OF SERVICE" means hours to be credited to an Employee under the
following rules:
(a) Each hour for which an Employee is paid or is entitled to be
paid for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly
paid or is entitled to be paid for a period of vacation, holidays,
illness, disability, lay-off, jury duty, temporary military duty, or
leave of absence is an Hour of Service. However, except as otherwise
specifically provided, no more than 501 Hours of Service shall be
credited for any single continuous period which an Employee performs no
duties. No more than 501 Hours of Service will be credited under this
paragraph for any single continuous period (whether or not such period
occurs in a single computation period). Further, no Hours of Service
shall be credited on account of payments made solely under a plan
maintained to comply with worker's compensation, unemployment
compensation, or disability insurance laws, or to reimburse an Employee
for medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of
damages) is either awarded or agreed to by an Employer is an Hour of
Service. However, no more than 501 Hours of Service shall be credited
for any single continuous period during which an Employee would not have
performed any duties. The same Hours of Service will not be credited
both under paragraph (a) or (b) as the case may be, and under this
paragraph (c). These hours will be credited to the employee for the
computation period or periods to which the award or agreement pertains
rather than the computation period in which the award agreement or
payment is made.
(d) Hours of Service shall be credited in any one period only
under one of the foregoing paragraphs (a), (b) and (c); an Employee may
not get double credit for the same period.
(e) If an Employer finds it impractical to count the actual
Hours of Service for any class or group of non-hourly Employees, each
Employee in that class or group shall be credited with 45 Hours of
Service for each weekly pay period in which he has at least one Hour of
Service. However, an Employee shall be credited only for his normal
working hours during a paid absence.
-5-
<PAGE>
(f) Hours of Service to be credited on account of a payment to
an Employee (including back pay) shall be recorded in the period of
Service for which the payment was made. If the period overlaps two or
more Plan Years, the Hours of Service credit shall be allocated in
proportion to the respective portions of the period included in the
several Plan Years. However, in the case of periods of 31 days or less,
the Administrator may apply a uniform policy of crediting the Hours of
Service to either the first Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be
counted as required by Section 2530.200b-2(b) and (c) of the Department
of Labor's regulations under Title I of ERISA.
"INVESTMENT FUND" means that portion of the Trust Fund consisting of
assets other than Stock. Notwithstanding the above, assets from the Investment
Fund may be used to purchase Stock in the open market or otherwise, or used to
pay on the Stock Obligation, and shares so purchased will be allocated to a
Participant's Stock Fund.
"NORMAL RETIREMENT" means retirement on or after the later of a
Participant's 65th birthday or fifth year of Service.
"NORMAL RETIREMENT DATE" means the date on which a Participant attains
age 65 and completes five years of Service.
"PARTICIPANT" means any Employee who is participating in the Plan, or
who has previously participated in the Plan and still has a balance credited to
his Account.
"PLAN YEAR" means the twelve month period commencing January 1 and
ending December 31, 1998 and each period of 12 consecutive months beginning on
January 1 of each succeeding year.
"RECOGNIZED ABSENCE" means a period for which --
(a) an Employer grants an Employee a leave of absence for a
limited period, but only if an Employer grants such leave on a
nondiscriminatory basis; or
(b) an Employee is temporarily laid off by an Employer because
of a change in business conditions; or
(c) an Employee is on active military duty, but only to the
extent that his employment rights are protected by the Military
Selective Service Act of 1967 (38 U.S.C. Sec. 2021).
"SERVICE" means an Employee's period(s) of employment or self-employment
with an Employer, excluding for initial eligibility purposes any period in which
the individual was a nonresident alien and did not receive from an Employer any
earned income which constituted income from sources within the United States. An
Employee's Service shall include any Service which constitutes Service with a
predecessor Employer within the meaning of Section 414(a) of the Code. An
Employee's Service shall also include any Service with an entity which is not an
Employer, but only either (i) for a period after 1975 in which the other entity
is a member of a controlled group of corporations or is under common control
with other trades and businesses within the meaning of Section 414(b) or 414(c)
of the Code, and a member of the controlled group or one of the trades and
businesses is an Employer, (ii) for a period after 1979 in which
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<PAGE>
the other entity is a member of an affiliated service group within the meaning
of Section 414(m) of the Code, and a member of the affiliated service group is
an Employer, or (iii) all Employers aggregated with the Employer under Section
414(o) of the Code (but not until the Proposed Regulations under Section 414(o)
become effective). Notwithstanding any provision of this Plan to the contrary,
contributions, benefits and service credit with respect to qualified military
service will be provided in accordance with Section 414(u) of the Code.
"SPOUSE" means the individual, if any, to whom a Participant is lawfully
married on the date benefit payments to the Participant are to begin, or on the
date of the Participant's death, if earlier. A former Spouse shall be treated
as the Spouse or surviving Spouse to the extent provided under a qualified
domestic relations order as described in section 414(p) of the Code.
"STOCK" means shares of the Company's voting common stock or preferred
stock meeting the requirements of Section 409(e)(3) of the Code issued by an
Employer which is a member of the same controlled group of corporations within
the meaning of Code Section 414(b).
"STOCK FUND" means that portion of the Trust Fund consisting of Stock.
"STOCK OBLIGATION" means an indebtedness arising from any extension of
credit to the Plan or the Trust which satisfies the requirements set forth in
Section 6.3 and which was obtained for any or all of the following purposes:
(i) to acquire qualifying Employer securities as defined in
Treasury Regulations (S) 54.4975-12
(ii) to repay such Stock Obligation; or
(iii) to repay a prior exempt loan.
"TRUST" OR "TRUST FUND" means the trust fund created under this Plan.
"TRUST AGREEMENT" means the agreement between the Bank and the Trustee
concerning the Trust Fund. If any assets of the Trust Fund are held in a co-
mingled trust fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that co-
mingled trust fund. With respect to the allocation of investment responsibility
for the assets of the Trust Fund, the provisions of Article II of the Trust
Agreement are incorporated herein by reference.
"TRUSTEE" means one or more corporate persons or individuals selected
from time to time by the Bank to serve as trustee or co-trustees of the Trust
Fund.
"UNALLOCATED STOCK FUND" means that portion of the Stock Fund consisting
of the Plan's holding of Stock which have been acquired in exchange for one or
more Stock obligations and which have not yet been allocated to the
Participant's Accounts in accordance with Section 4.2
"VALUATION DATE" means the last day of the Plan Year and each other date
as of which the Committee shall determine the investment experience of the
Investment Fund and adjust the Participants' Accounts accordingly.
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<PAGE>
"VALUATION PERIOD" means the period following a Valuation Date and
ending with the next Valuation Date.
"VESTING YEAR" means a unit of Service credited to a Participant
pursuant to Section 9.2 for purposes of determining his vested interest in his
Account.
SECTION 3. ELIGIBILITY FOR PARTICIPATION.
-----------------------------
3.1 INITIAL ELIGIBILITY. An Employee shall enter the Plan as of the
-------------------
Entry Date coincident with or next following the later of the following dates:
(a) the last day of the Employee's first Eligibility Year, and
(b) the Employee's 21st birthday. However, if an Employee is not
in active Service with an Employer on the date he would otherwise first
enter the Plan, his entry shall be deferred until the next day he is in
Service.
3.2 DEFINITION OF ELIGIBILITY YEAR. An "Eligibility Year" means an
------------------------------
applicable eligibility period (as defined below) in which the Employee has
completed 1,000 Hours of Service for the Employer. For this purpose:
(a) an Employee's first "eligibility period" is the 12-
consecutive month period beginning on the first day on which he has an Hour
of Service, and
(b) his subsequent eligibility periods will be 12-consecutive
month periods beginning on each January 1 after that first day of Service.
3.3 TERMINATED EMPLOYEES. No Employee shall have any interest or
--------------------
rights under this Plan if he is never in active Service with an Employer on or
after the Effective Date.
3.4 CERTAIN EMPLOYEES INELIGIBLE. No Employee shall participate in
----------------------------
the Plan while his Service is covered by a collective bargaining agreement
between an Employer and the Employee's collective bargaining representative if
(i) retirement benefits have been the subject of good faith bargaining between
the Employer and the representative and (ii) the collective bargaining agreement
does not provide for the Employee's participation in the Plan.
3.5 PARTICIPATION AND REPARTICIPATION. Subject to the satisfaction of
---------------------------------
the foregoing requirements, an Employee shall participate in the Plan during
each period of his Service from the date on which he first becomes eligible
until his termination. For this purpose, an Employee who returns before five (5)
consecutive Breaks in Service who previously satisfied the initial eligibility
requirements or who returns after five (5) consecutive one year Breaks in
Service with a vested Account balance in the Plan shall re-enter the Plan as of
the date of his return to Service with an Employer.
3.6 OMISSION OF ELIGIBLE EMPLOYEE. If, in any Plan Year, any Employee
-----------------------------
who should be included as a Participant in the Plan is erroneously omitted and
discovery of such omission is not made until after a contribution by his
Employer for the year has been made, the Employer shall make a subsequent
contribution with respect to the omitted Employee in the amount which the said
Employer
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<PAGE>
would have contributed shall be made regardless of whether or not it is
deductible in whole or in part in any taxable year under applicable provisions
of the Code.
3.7 INCLUSION OF INELIGIBLE EMPLOYEE. If, in any Plan Year, any
--------------------------------
person who should not have been included as a Participant in the Plan is
erroneously included and discovery of such incorrect inclusion is not made until
after a contribution for the year has been made, the Employer shall not be
entitled to recover the contribution made with respect to the ineligible person
regardless of whether or not a deduction is allowable with respect to the
ineligible person shall constitute a forfeiture for the Plan Year in which the
discovery is made.
SECTION 4. CONTRIBUTIONS AND CREDITS.
-------------------------
4.1 DISCRETIONARY CONTRIBUTIONS. The Employer shall from time to time
---------------------------
contribute, with respect to a Plan Year, such amounts as it may determine from
time to time. The Employer shall have no obligation to contribute any amount
under this Plan except as so determined in its sole discretion. The Employer's
contributions and available forfeitures for a Plan Year shall be credited as of
the last day of the year to the Accounts of the Active Participants in
proportion to their amounts of Cash Compensation.
4.2 CONTRIBUTIONS FOR STOCK OBLIGATIONS. If the Trustee, upon
-----------------------------------
instructions from the Committee, incurs any Stock Obligation upon the purchase
of Stock, the Employer may contribute for each Plan Year an amount sufficient to
cover all payments of principal and interest as they come due under the terms of
the Stock Obligation. If there is more than one Stock Obligation, the Employer
shall designate the one to which any contribution is to be applied. Investment
earnings realized on Employer contributions and any dividends paid by the
Employer on Stock held in the Unallocated Stock Account, shall be applied to the
Stock Obligation related to that Stock, subject to Section 7.2.
In each Plan Year in which Employer contributions, earnings on
contributions, or dividends on unallocated Stock are used as payments under a
Stock Obligation, a certain number of shares of the Stock acquired with that
Stock Obligation which is then held in the Unallocated Stock Fund shall be
released for allocation among the Participants. The number of shares released
shall bear the same ratio to the total number of those shares then held in the
Unallocated Stock Fund (prior to the release) as (i) the principal and interest
payments made on the Stock Obligation in the current Plan Year bears to (ii) the
sum of (i) above, and the remaining principal and interest payments required (or
projected to be required on the basis of the interest rate in effect at the end
of the Plan Year) to satisfy the Stock Obligation.
At the direction of the Committee, the current and projected payments of
interest under a Stock Obligation may be ignored in calculating the number of
shares to be released in each year if (i) the Stock Obligation provides for
annual payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for 10 years, (ii)
the interest included in any payment is ignored only to the extent that it would
be determined to be interest under standard loan amortization tables, and (iii)
the term of the Stock Obligation, by reason of renewal, extension, or
refinancing, has not exceeded 10 years from the original acquisition of the
Stock.
4.3 DEFINITIONS RELATED TO CONTRIBUTIONS. For the purposes of this Plan,
------------------------------------
the following terms have the meanings specified:
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"ACTIVE PARTICIPANT" means a Participant who has satisfied the
eligibility requirements under Section 3 and who has at least 1000 Hours of
Service during the current Plan Year. However, a Participant shall not qualify
as an Active Participant unless (i) he is in active Service with an Employer as
of the last day of the Plan Year, or (ii) he is on a Recognized Absence as of
that date, or (iii) his Service terminated during the Plan Year by reason of
Disability, death, Early or Normal Retirement.
"CASH COMPENSATION"
(a) shall mean wages, as defined in Code Section 3401(a) for
purposes of income tax withholding at the source.
(b) Any elective deferral as defined in Code Section 402(g)(3)
(any Employer contributions made on behalf of a Participant to the
extent not includible in gross income and any Employer contributions to
purchase an annuity contract under Code Section 403(b) under a salary
reduction agreement) and any amount which is contributed or deferred by
the Employer at the election of the Participant and which is not
includible in gross income of the Participant by reason of Code Section
125 (Cafeteria Plan) shall also be included in the definition of
Compensation.
(c) Compensation in excess of $160,000 (as indexed) shall be
disregarded for all Participants. For purposes of this sub-section, the
$160,000 limit shall be referred to as the "applicable limit" for the
Plan Year in question. The $160,000 limit shall be adjusted for
increases in the cost of living in accordance with Section 401(a)(17)(B)
of the Code, effective for the Plan Year which begins within the
applicable calendar year. For purposes of the applicable limit,
Compensation shall be prorated over short Plan Years.
4.4 CONDITIONS AS TO CONTRIBUTIONS. Employers' contributions shall in
------------------------------
all events be subject to the limitations set forth in Section 5. Contributions
may be made in the form of cash, or securities and other property to the extent
permissible under ERISA, including Stock, and shall be held by the Trustee in
accordance with the Trust Agreement. In addition to the provisions of Section
13.3 for the return of an Employer's contributions in connection with a failure
of the Plan to qualify initially under the Code, any amount contributed by an
Employer due to a good faith mistake of fact, or based upon a good faith but
erroneous determination of its deductibility under Section 404 of the Code,
shall be returned to the Employer within one year after the date on which the
contribution was originally made, or within one year after its nondeductibility
has been finally determined. However, the amount to be returned shall be reduced
to take account of any adverse investment experience within the Trust Fund in
order that the balance credited to each Participant's Account is not less that
it would have been if the contribution had never been made.
SECTION 5. LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS.
--------------------------------------------
5.1 LIMITATION ON ANNUAL ADDITIONS. Notwithstanding anything herein
------------------------------
to the contrary, allocation of Employer contributions for any Plan Year shall be
subject to the following:
5.1-1 If allocation of Employer contributions in accordance with
Section 4.1 will result in an allocation of more than one-third the
total contributions for a Plan Year to the Accounts of Highly Paid
Employees, then allocation of such amount shall be adjusted so that such
excess will not occur.
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5.1-2 After adjustment, if any, required by the preceding
paragraph, the annual additions during any Plan Year to any
Participant's Account under this and any other defined contribution
plans maintained by the Employer or an affiliate (within the purview of
Section 414(b), (c) and (m) and Section 415(h) of the Code, which
affiliate shall be deemed the Employer for this purpose) shall not
exceed the lesser of $30,000 (or such other dollar amount which results
from cost-of-living adjustments under Section 415(d) of the Code) or "25
percent of the Participant's 415 Compensation for such limitation year."
In the event that annual additions exceed the aforesaid limitations,
they shall be reduced in the following priority:
(i) If the Participant is covered by the Plan at the end of
the Plan Year, any excess amount at the end of the Plan Year that cannot
be allocated to the Participant's Account shall be used to reduce the
employer contribution for such Participant in the next limitation year
and any succeeding limitation years if necessary.
(ii) If the Participant is not covered by the Plan at the end
of the Plan Year, the excess amount will be held unallocated in a
suspense account. The suspense account will be applied to reduce future
Employer contributions for all remaining Participants in the next
limitation year and each succeeding limitation year if necessary.
(iii) If a suspense account is in existence at any time during a
limitation year, it will not participate in any allocation of investment
gains and losses. All amounts held in suspense accounts must be
allocated to Participant's Accounts before any contributions may be made
to the Plan for the limitation year.
(iv) If a suspense account exists at the time of Plan
termination, amounts held in the suspense account that cannot be
allocated shall revert to the Employer.
5.1-3 For purposes of this Section 5.1 and the following Section
5.2, the "annual addition" to a Participant's Accounts means the sum of
(i) Employer contributions, (ii) Employee contributions, if any, and
(iii) forfeitures. Annual additions to a defined contribution plan also
include amounts allocated, after March 31, 1984, to an individual
medical account, as defined in Section 415(l)(2) of the Internal Revenue
Code, which is part of a pension or annuity plan maintained by the
Employer, amounts derived from contributions paid or accrued after
December 31, 1985, in taxable years ending after such date, which are
attributable to post-retirement medical benefits allocated to the
separate account of a Key Employee under a welfare benefit fund, as
defined in Section 419A(d) of the Internal Revenue Code, maintained by
the Employer. For these purposes, annual additions to a defined
contribution plan shall not include the allocation of the excess amounts
remaining in the Unallocated Stock Fund subsequent to a sale of stock
from such fund in accordance with a transaction described in Section 8.1
of the Plan. The $30,000 limitations referred to shall, for each
limitation year ending after 1988, be automatically adjusted to the new
dollar limitations determined by the Commissioner of Internal Revenue
for the calendar year beginning in that limitation year.
5.1-4 Notwithstanding the foregoing, if no more than one-third
of the Employer contributions to the Plan for a year which are
deductible under Section 404(a)(9) of the Code are allocated to Highly
Paid Employees (within the meaning of Section 414(q) of the Internal
Revenue Code), the limitations imposed herein shall not apply to:
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(i) forfeitures of Employer securities (within the meaning of
Section 409 of the Code) under the Plan if such securities were acquired
with the proceeds of a loan described in Section 404(a)(9)(A) of the
Code), or
(ii) Employer contributions to the Plan which are deductible
under Section 404(a)(9)(B) and charged against a Participant's Account.
5.1-5 If the Employer contributes amounts, on behalf of
Employees covered by this Plan, to other "defined contribution plans" as
defined in Section 3(34) of ERISA, the limitation on annual additions
provided in this Section shall be applied to annual additions in the
aggregate to this Plan and to such other plans. Reduction of annual
additions, where required, shall be accomplished first by reductions
under such other plan pursuant to the directions of the named Fiduciary
for administration of such other plans or under priorities, if any,
established under the terms of such other plans and then by allocating
any remaining excess for this Plan in the manner and priority set out
above with respect to this Plan.
5.1-6 A limitation year shall mean each 12 consecutive month
period beginning each January 1.
5.2 COORDINATED LIMITATION WITH OTHER PLANS. Aside from the
---------------------------------------
limitation prescribed by Section 5.1 with respect to the annual addition to a
Participant's Accounts for any single limitation year, if a Participant has ever
participated in one or more defined benefit plans maintained by an Employer or
an affiliate, then the accrued benefit shall be limited so that the sum of his
defined plan fraction and his defined contribution plan fraction does not exceed
one. For this purpose:
5.2-1 A Participant's defined contribution plan fraction with
respect to a Plan Year shall be a fraction, (i) the numerator of which
is the sum of the annual additions to his Accounts through the current
year, and (ii) the denominator of which is the sum of the lesser of the
following amounts-A- and -B- determined for the current limitation year
and each prior limitation year of Service with an Employer: -A- is 1.25
times the dollar limit in effect for the year under Section 415(c)(1)(A)
of the Code, or 1.0 times such dollar limitation if the Plan is super
top-heavy, and -B- is 35 percent of the Participant's 415 Compensation
for such year. Further, if the Participant participated in any related
defined contribution plan in any years beginning before 1976, any excess
of the sum of the actual annual additions to the Participant's Accounts
for those years over the maximum annual additions which could have been
made in accordance with Section 5.1 shall be ignored, and voluntary
contributions by the Participant during those years shall be taken into
account as to each such year only to the extent that his average annual
voluntary contribution in those years exceeded 10 percent of his average
annual 415 Compensation in those years.
5.2-2 A Participant's defined benefit plan fraction with respect
to a limitation year shall be a fraction, (i) the numerator of which is
his projected annual benefit payable at normal retirement under the
Employers' defined benefit plans, and (ii) the denominator of which is
the lesser of (a) 1.25 times $90,000, or 1.0 times such dollar
limitation if the Plan is super top-heavy, and (b) 1.4 times the
Participant's average 415 Compensation during his highest-paid three
consecutive limitation years.
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5.3 EFFECT OF LIMITATIONS. The Committee shall take whatever action may
---------------------
be necessary from time to time to assure compliance with the limitations set
forth in Section 5.1 and 5.2. Specifically, the Committee shall see that each
Employer restrict its contributions for any Plan Year to an amount which, taking
into account the amount of available forfeitures, may be completely allocated to
the Participants consistent with those limitations. Where the limitations would
otherwise be exceeded by any Participant, further allocations to the Participant
shall be curtailed to the extent necessary to satisfy the limitations. Where an
excessive amount is contributed on account of a mistake as to one or more
Participants' compensation, or there is an amount of forfeitures which may not
be credited in the Plan Year in which it becomes available, the amount shall be
corrected in accordance with Section 5.1-2 of the Plan.
5.4 LIMITATIONS AS TO CERTAIN PARTICIPANTS. Aside from the limitations
--------------------------------------
set forth in Section 5.1 and 5.2, if the Plan acquires any Stock in a
transaction as to which a selling shareholder or the estate of a deceased
shareholder is claiming the benefit of Section 1042 of the Code, the Committee
shall see that none of such Stock, and no other assets in lieu of such Stock,
are allocated to the Accounts of certain Participants in order to comply with
Section 409(n) of the Code.
This restriction shall apply at all times to a Participant who owns (taking
into account the attribution rules under Section 318(a) of the Code, without
regard to the exception for employee plan trusts in Section 318(a)(2)(B)(i) more
than 25 percent of any class of stock of a corporation which issued the Stock
acquired by the Plan, or another corporation within the same controlled group,
as defined in Section 409(l)(4) of the Code (any such class of stock hereafter
called a "Related Class"). For this purpose, a Participant who owns more than
25 percent of any Related Class at any time within the one year preceding the
Plan's purchase of the Stock shall be subject to the restriction as to all
allocations of the Stock, but any other Participant shall be subject to the
restriction only as to allocations which occur at a time when he owns more than
25 percent of any Related Class.
Further, this restriction shall apply to the selling shareholder claiming
the benefit of Section 1042 and any other Participant who is related to such a
shareholder within the meaning of Section 267(b) of the Code, during the period
beginning on the date of sale and ending on the later of (1) the date that is
ten years after the date of sale, or (2) the date of the Plan allocation
attributable to the final payment of acquisition indebtedness incurred in
connection with the sale.
This restriction shall not apply to any Participant who is a lineal
descendant of a selling shareholder if the aggregate amounts allocated under the
Plan for the benefit of all such descendants do not exceed five percent of the
Stock acquired from the shareholder.
SECTION 6. TRUST FUND AND ITS INVESTMENT.
-----------------------------
6.1 CREATION OF TRUST FUND. All amounts received under the Plan from
----------------------
Employers and investments shall be held as the Trust Fund pursuant to the terms
of this Plan and of the Trust Agreement between the Bank and the Trustee. The
benefits described in this Plan shall be payable only from the assets of the
Trust Fund, and none of the Bank, any other Employer, its board of directors or
trustees, its stockholders, its officers, its employees, the Committee, and the
Trustee shall be liable for payment of any benefit under this Plan except from
the Trust Fund.
6.2 STOCK FUND AND INVESTMENT FUND. The Trust Fund held by the Trustee
------------------------------
shall be divided into the Stock Fund, consisting entirely of Stock, and the
Investment Fund, consisting of all assets of the
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Trust other than Stock. The Trustee shall have no investment responsibility for
the Stock Fund, but shall accept any Employer contributions made in the form of
Stock, and shall acquire, sell, exchange, distribute, and otherwise deal with
and dispose of Stock in accordance with the instructions of the Committee. The
Trustee shall have full responsibility for the investment of the Investment
Fund, except to the extent such responsibility may be delegated from time to
time to one or more investment managers pursuant to Section 2.2 of the Trust
Agreement, or to the extent the Committee directs the Trustee to purchase Stock
with the assets in the Investment Fund.
6.3 ACQUISITION OF STOCK. From time to time the Committee may, in its
--------------------
sole discretion, direct the Trustee to acquire Stock from the issuing Employer
or from shareholders, including shareholders who are or have been Employees,
Participants, or fiduciaries with respect to the Plan. The Trustee shall pay
for such Stock no more than its fair market value, which shall be determined
conclusively by the Committee pursuant to Section 12.4. The Committee may direct
the Trustee to finance the acquisition of Stock by incurring or assuming
indebtedness to the seller or another party which indebtedness shall be called a
"Stock Obligation". The term "Stock Obligation" shall refer to a loan made to
the Plan by a disqualified person within the meaning of Section 4975(e)(2) of
the Code, or a loan to the Plan which is guaranteed by a disqualified person. A
Stock Obligation includes a direct loan of cash, a purchase-money transaction,
and an assumption of an obligation of a tax-qualified employee stock ownership
plan under Section 4975(e)(7) of the Code ("ESOP"). For these purposes, the
term "guarantee" shall include an unsecured guarantee and the use of assets of a
disqualified person as collateral for a loan, even though the use of assets may
not be a guarantee under applicable state law. An amendment of a Stock
Obligation in order to qualify as an "exempt loan" is not a refinancing of the
Stock Obligation or the making of another Stock Obligation. The term "exempt
loan" refers to a loan that satisfies the provisions of this paragraph. A "non-
exempt loan" fails to satisfy this paragraph. Any Stock Obligation shall be
subject to the following conditions and limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall not be
payable on demand except in the event of default, and shall bear a
reasonable rate of interest.
6.3-2 A Stock Obligation may, but need not, be secured by a
collateral pledge of either the Stock acquired in exchange for the Stock
Obligation, or the Stock previously pledged in connection with a prior
Stock Obligation which is being repaid with the proceeds of the current
Stock Obligation. No other assets of the Plan and Trust may be used as
collateral for a Stock Obligation, and no creditor under a Stock Obligation
shall have any right or recourse to any Plan and Trust assets other than
Stock remaining subject to a collateral pledge.
6.3-3 Any pledge of Stock to secure a Stock Obligation must provide
for the release of pledged Stock in connection with payments on the Stock
obligations in the ratio prescribed in Section 4.2.
6.3-4 Repayments of principal and interest on any Stock Obligation
shall be made by the Trustee only from Employer cash contributions
designated for such payments, from earnings on such contributions, and from
cash dividends received on Stock, in the last case, however, subject to the
further requirements of Section 7.2.
6.3-5 In the event of default of a Stock Obligation, the value of
Plan assets transferred in satisfaction of the Stock Obligation must not
exceed the amount of the default. If the lender is
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<PAGE>
a disqualified person within the meaning of Section 4975 of the Code, a
Stock Obligation must provide for a transfer of Plan assets upon default
only upon and to the extent of the failure of the Plan to meet the payment
schedule of said Stock Obligation. For purposes of this paragraph, the
making of a guarantee does not make a person a lender.
6.4 PARTICIPANTS' OPTION TO DIVERSIFY. The Committee shall provide for
---------------------------------
a procedure under which each Participant may, during the qualified election
period, elect to "diversify" a portion of the Employer Stock allocated to his
Account, as provided in Section 401(a)(28)(B) of the Code. An election to
diversity must be made on the prescribed form and filed with the Committee
within the period specified herein. For each of the first five (5) Plan years in
the qualified election period, the Participant may elect to diversify an amount
which does not exceed 25% of the number of shares allocated to his Account since
the inception of the Plan, less all shares with respect to which an election
under this Section has already been made. For the last year of the qualified
election period, the Participant may elect to have up to 50 percent of the value
of his Account committed to other investments, less all shares with respect to
which an election under this Section has already been made. The term "qualified
election period" shall mean the six (6) Plan Year period beginning with the
first Plan Year in which a Participant has both attained age 55 and completed 10
years of participation in the Plan. A Participant's election to diversify his
Account may be made within each year of the qualified election period and shall
continue for the 90-day period immediately following the last day of each year
in the qualified election period. Once a Participant makes such election, the
Plan must complete diversification in accordance with such election within 90
days after the end of the period during which the election could be made for the
Plan Year. In the discretion of the Committee, the Plan may satisfy the
diversification requirement by any of the following methods:
6.4-1 The Plan may distribute all or part of the amount subject to
the diversification election.
6.4-2 The Plan may offer the Participant at least three other
distinct investment options, if available under the Plan. The other
investment options shall satisfy the requirements of Regulations under
Section 404(c) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
6.4-3 The Plan may transfer the portion of the Participant's Account
subject to the diversification election to another qualified defined
contribution plan of the Employer that offers at least three investment
options satisfying the requirements of the Regulations under Section 404(c)
of ERISA.
SECTION 7. VOTING RIGHTS AND DIVIDENDS ON STOCK.
------------------------------------
7.1 VOTING AND TENDERING OF STOCK. The Trustee generally shall vote all
-----------------------------
shares of Stock held under the Plan in accordance with the written instructions
of the Committee. However, if any Employer has registration-type class of
securities within the meaning of Section 409(e)(4) of the Code, or if a matter
submitted to the holders of the Stock involves a merger, consolidation,
recapitalization, reclassification, liquidation, dissolution, or sale of
substantially all assets of an entity, then (i) the shares of Stock which have
been allocated to Participants' Accounts shall be voted by the Trustee in
accordance with the Participants' written instructions, and (ii) the Trustee
shall vote any unallocated Stock and allocated Stock for which it has received
no voting instructions in the same proportions as it votes the allocated Stock
for which it has received instructions from Participants; provided, however,
that if an exempt loan, as defined
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<PAGE>
in Section 4975(d) of the Code, is outstanding and the Plan is in default on
such exempt loan, as default is defined in the loan documents, then to the
extent that such loan documents require the lender to exercise voting rights
with respect to the unallocated shares, the loan documents will prevail. In the
event no shares of Stock have been allocated to Participants' Accounts at the
time Stock is to be voted and any exempt loan which may be outstanding is not in
default, each Participant shall be deemed to have one share of Stock allocated
to his or her Account for the sole purpose of providing the Trustee with voting
instructions.
Notwithstanding any provision hereunder to the contrary, all unallocated
shares of Stock must be voted by the Trustee in a manner determined by the
Trustee to be for the exclusive benefit of the Participants and Beneficiaries.
Whenever such voting rights are to be exercised, the Employers shall provide the
Trustee, in a timely manner, with the same notices and other materials as are
provided to other holders of the Stock, which the Trustee shall distribute to
the Participants. The Participants shall be provided with adequate opportunity
to deliver their instructions to the Trustee regarding the voting of Stock
allocated to their Accounts. The instructions of the Participants' with respect
to the voting of allocated shares hereunder shall be confidential.
7.1-1 In the event of a tender offer, Stock shall be tendered by the
Trustee in the same manner as set forth above with respect to the voting of
Stock. Notwithstanding any provision hereunder to the contrary, Stock must
be tendered by the Trustee in a manner determined by the Trustee to be for
the exclusive benefit of the Participants and Beneficiaries.
7.2 DIVIDENDS ON STOCK. Dividends on Stock which are received by the
------------------
Trustee in the form of additional Stock shall be retained in the Stock Fund, and
shall be allocated among the Participant's Accounts and the Unallocated Stock
Fund in accordance with their holdings of the Stock on which the dividends have
been paid. Dividends on Stock credited to Participants' Accounts which are
received by the Trustee in the form of cash shall, at the direction of the
Employer paying the dividends, either (i) be credited to the Accounts in
accordance with Section 8.3 and invested as part of the Investment Fund, (ii) be
distributed immediately to the Participants in proportion with the Participants'
Stock Fund Account balance (iii) be distributed to the Participants within 90
days of the close of the Plan Year in which paid in proportion with the
Participants' Stock Fund Account balance or (iv) be used to make payments on the
Stock Obligation. If dividends on Stock allocated to a Participant's Account
are used to repay the Stock Obligation, Stock with a fair market value equal to
the dividends so used must be allocated to such Participant's Account in lieu of
the dividends. Dividends on Stock held in the Unallocated Stock Fund which are
received by the Trustee in the form of cash shall be allocated to Participants'
Investment Fund Accounts (pro rata based on the Participant's Account balance in
relation to all Participants' Account balances) and shall be applied as soon as
practicable to payments of principal and interest under the Stock Obligation
incurred with the purchase of the Stock.
SECTION 8. ADJUSTMENTS TO ACCOUNTS.
-----------------------
8.1 ADJUSTMENTS FOR TRANSACTIONS. An Employer contribution pursuant to
----------------------------
Section 4.1 shall be credited to the Participants' Accounts as of the last day
of the Plan Year for which it is contributed, in accordance with Section 4.1.
Stock released from the Unallocated Stock Fund upon the Trust's repayment of a
Stock Obligation pursuant to Section 4.2 shall be credited to the Participants'
Accounts as of the last day of the Plan Year in which the repayment occurred,
pro rata based on the cash applied from such Participant's Account relative to
the cash applied from all Participants' Accounts. Any excess amounts remaining
from the use of proceeds of a sale of Stock from the Unallocated Stock Fund to
repay a Stock
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<PAGE>
Obligation shall be allocated as earnings of the Plan as of the last day of the
Plan Year in which the repayment occurred among the Participants' Accounts in
proportion to the opening balance in each Account. Any benefit which is paid to
a Participant or Beneficiary pursuant to Section 10 shall be charged to the
Participant's Account as of the first day of the Valuation Period in which it is
paid. Any forfeiture or restoral shall be charged or credited to the
Participant's Account as of the first day of the Valuation Period in which the
forfeiture or restoral occurs pursuant to Section 9.6.
8.2 VALUATION OF INVESTMENT FUND. As of each Valuation Date, the
----------------------------
Trustee shall prepare a balance sheet of the Investment Fund, recording each
asset (including any contribution receivable from an Employer) and liability at
its fair market value. Any liability with respect to short positions or options
and any item of accrued income or expense and unrealized appreciation or
depreciation shall be included; provided, however, that such an item may be
estimated or excluded if it is not readily ascertainable unless estimating or
excluding it would result in a material distortion. The Committee shall then
determine the net gain or loss of the Investment Fund since the preceding
Valuation Date, which shall mean the entire income of the Investment Fund,
including realized and unrealized capital gains and losses, net of any expenses
to be charged to the general Investment Fund and excluding any contributions by
the Employer. The determination of gain or loss shall be consistent with the
balance sheets of the Investment Fund for the current and preceding Valuation
Dates .
8.3 ADJUSTMENTS FOR INVESTMENT EXPERIENCE. Any net gain or loss of the
-------------------------------------
Investment Fund during a Valuation Period, as determined pursuant to Section
8.2, shall be allocated as of the last day of the Valuation Period among the
Participants' Accounts in proportion to the opening balance in each Account, as
adjusted for benefit payments and forfeitures during the Valuation Period,
without regard to whatever Stock may be credited to an Account. Any cash
dividends received on Stock credited to Participant's Accounts shall be
allocated as of the last day of the Valuation Period among the Participants'
Accounts based on the opening balance in each Participant's Stock Fund Account.
SECTION 9. VESTING OF PARTICIPANTS' INTERESTS.
----------------------------------
9.1 DEFERRED VESTING IN ACCOUNTS. A Participant's vested interest in
----------------------------
his Account shall be based on his Vesting Years in accordance with the following
Table, subject to the balance of this Section 9:
Vesting Percentage of
Years Interest Vested
------- ---------------
Fewer than 5 0%
5 or more 100%
9.2 COMPUTATION OF VESTING YEARS. For purposes of this Plan, a "Vesting
----------------------------
Year" means generally a Plan Year in which an Employee has at least 1,000 Hours
of Service, beginning with the first Plan Year in which the Employee has
completed an Hour of Service with the Employer, and including Service with other
Employers as provided in the definition of "Service". Notwithstanding the
above, an Employee who was employed with Provident Bank, a federal mutual
savings association (the "Mutual Association") which is the predecessor to the
Bank, shall receive credit for vesting purposes for each calendar year of
continuous employment with the Mutual Association in which such Employee
completed 1,000 Hours of Service (such years shall also be referred to as
"Vesting Years"). However, a Participant's Vesting Years shall be computed
subject to the following conditions and qualifications:
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<PAGE>
9.2-1 A Participant's Vesting Years shall not include any Service
prior to the date on which an Employee attains age 18.
9.2-2 A Participant's vested interest in his Account accumulated
before five (5) consecutive Breaks in Service shall be determined without
regard to any Service after such five consecutive Breaks in Service.
Further, if a Participant has five (5) consecutive Breaks in Service before
his interest in his Account has become vested to some extent, pre-Break
years of Service shall not be required to be taken into account for
purposes of determining his post-Break vested percentage.
9.2-3 In the case of a Participant who has 5 or more consecutive 1-
year Breaks in Service, the Participant's pre-Break Service will count in
vesting of the Employer-derived post-break accrued benefit only if either:
(i) such Participant has any nonforfeitable interest in the accrued
benefit attributable to Employer contributions at the time of
separation from Service, or
(ii) upon returning to Service the number of consecutive 1-year
Breaks in Service is less than the number of years of Service.
9.2-4 Unless otherwise specifically excluded, a Participant's Vesting
Years shall include any period of active military duty to the extent
required by the Military Selective Service Act of 1967 (38 U.S.C. Section
2021).
9.2-5 If any amendment changes the vesting schedule, including an
automatic change to or from a top-heavy vesting schedule, any Participant
with three (3) or more Vesting Years may, by filing a written request with
the Employer, elect to have his vested percentage computed under the
vesting schedule in effect prior to the amendment. The election period
must begin not later than the later of sixty (60) days after the amendment
is adopted, the amendment becomes effective, or the Participant is issued
written notice of the amendment by the Employer or the Committee.
9.3 FULL VESTING UPON CERTAIN EVENTS.
--------------------------------
9.3-1 Notwithstanding Section 9.1, a Participant's interest in his Account
shall fully vest on the Participant's Normal Retirement Date. The Participant's
interest shall also fully vest in the event that his Service is terminated by
Early Retirement, Disability or by death.
9.3-2 The Participant's interest in his Account shall also fully vest
in the event of a "Change in Control" of the Bank, or the Company. For these
purposes, "Change in Control" shall mean an event of a nature that; (i) would be
required to be reported in response to Item 1a of the current report on Form 8-
K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act'); or (ii) results in a
Change in Control of the Bank or the Company within the meaning of the Bank
Holding Company Act of 1956, as amended, and applicable rules and regulations
promulgated thereunder as in effect at the time of the Change in Control
(collectively, the BHCA"); or (iii) without limitation such a Change in Control
shall be deemed to have occurred at such time as (a) any "Person' (as the term
is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities
-18-
<PAGE>
of the Bank or the Company representing 25% or more of the Bank's or the
Company's outstanding securities except for any securities of the Bank purchased
by the Company in connection with the conversion of the Bank to the stock form
and any securities purchased by the Bank's employee stock ownership plan and
trust; or (b) individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided, however, that this sub-section (b) shall not apply if the
Incumbent Board is replaced by the appointment by a Federal banking agency of a
conservator or receiver for the Bank and, provided further that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least two-thirds of the directors comprising the Incumbent Board or
whose nomination for election by the Company's stockholders was approved by the
same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (b), considered as though he were a member of the
Incumbent Board; or (c) a reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Company, or similar transaction
in which the Association or Company is not the surviving institution occurs.
9.3-3 Upon a Change in Control described in Section 9.3-2, the Plan shall
be terminated and the Plan Administrator shall direct the Trustee to sell a
sufficient amount of Stock from the Unallocated Stock Fund to repay any
outstanding Stock Obligation in full. The proceeds of such sale shall be used to
repay such Stock Obligation. After repayment of the Stock Obligation, all
remaining shares in the Unallocated Stock Fund (or the proceeds thereof, if
applicable) shall be treated as earnings and shall be allocated in accordance
with the requirements of Section 8.1.
9.4 FULL VESTING UPON PLAN TERMINATION. Notwithstanding Section 9.1, a
----------------------------------
Participant's interest in his Account shall fully vest upon termination of this
Plan or upon the permanent and complete discontinuance of contributions by his
Employer. In the event of a partial termination, the interest of each affected
Participant shall fully vest with respect to that part of the Plan which is
terminated.
9.5 FORFEITURE, REPAYMENT, AND RESTORAL. If a Participant's Service
-----------------------------------
terminates before his interest in his Account is fully vested, that portion
which has not vested shall be forfeited if he either (i) receives a distribution
of his entire vested interest pursuant to Section 10.1, or (ii) incurs five (5)
consecutive one year Breaks in Service. If a Participant's Service terminates
prior to having any portion of his Account become vested, such Participant shall
be deemed to have received a distribution of his vested interest as of the
Valuation Date next following his termination of Service.
If a Participant who has received his entire vested interest returns to
Service before he has five (5) consecutive Breaks in Service, he may repay to
the Trustee an amount equal to the distribution. The Participant may repay such
amount at any time within five years after he has returned to Service. The
amount shall be credited to his Account at the time it is repaid; an additional
amount equal to that portion of his Account which was previously forfeited shall
be restored to his Account at the same time from other Employees' forfeitures
and, if such forfeitures are insufficient, from a special contribution by his
Employer for that year. A Participant who was deemed to have received a
distribution of his vested interest in the Plan shall have his Account restored
as of the first day on which he performs an Hour of Service after his return.
9.6 ACCOUNTING FOR FORFEITURES. If a portion of a Participant's Account
--------------------------
is forfeited, Stock allocated to said Participant's Account shall be forfeited
only after other assets are forfeited. If interests in more than one class of
Stock have been allocated to a Participant's Account, the Participant must be
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treated as forfeiting the same proportion of each class of Stock. A forfeiture
shall be charged to the Participant's Account as of the first day of the first
Valuation Period in which the forfeiture becomes certain pursuant to Section
9.5. Except as otherwise provided in that Section, a forfeiture shall be added
to the contributions of the terminated Participant's Employer which are to be
credited to other Participants pursuant to Section 4.1 as of the last day of the
Plan Year in which the forfeiture becomes certain.
9.7 VESTING AND NONFORFEITABILITY. A Participant's interest in his
-----------------------------
Account which has become vested shall be nonforfeitable for any reason.
SECTION 10. PAYMENT OF BENEFITS.
-------------------
10.1 BENEFITS FOR PARTICIPANTS. For a Participant whose Service ends for
-------------------------
any reason, distribution will be made to or for the benefit of the Participant
or, in the case of the Participant's death, his Beneficiary, by either, or a
combination of the following methods:
10.1.1 By payment in a lump sum, in accordance with Section 10.2;
or
10.1.2 By payment in a series of substantially equal annual
installments over a period not to exceed five (5) years, provided the
maximum period over which the distribution of a Participant's Account may
be made shall be extended by 1 year, up to five (5) additional years, for
each $145,000 (or fraction thereof) by which such Participant's Account
balance exceeds $725,000 (the aforementioned figures are subject to cost-
of-living adjustments prescribed by the Secretary of the Treasury pursuant
to Section 409(o)(2) of the Code).
The Participant shall elect the manner in which his vested Account
balance will be distributed to him. If a Participant so desires, he may
direct how his benefits are to be paid to his Beneficiary. If a deceased
Participant did not file a direction with the Committee, the Participant's
benefits shall be distributed to his Beneficiary in a lump sum.
Notwithstanding any provision to the contrary, if the value of a
Participant's vested Account balance at the time of any distribution, does
not equal or exceed $5,000, then such Participant's vested Account shall be
distributed in a lump sum within 60 days after the end of the Plan Year in
which employment terminates. If the value of a Participant's vested
Account balance is, or has ever been, in excess of $5,000, then his
benefits shall not be paid prior to the later of the time he has attained
Normal Retirement or age 62 unless he elects an early payment date in a
written election filed with the Committee. A Participant may modify such
an election at any time, provided any new benefit payment date is at least
30 days after a modified election is delivered to the Committee. Failure
of a Participant to consent to a distribution prior to the later of Normal
Retirement or age 62 shall be deemed to be an election to defer
commencement of payment of any benefit under this section.
10.2 TIME FOR DISTRIBUTION.
---------------------
10.2.1 If the Participant and, if applicable, with the consent of
the Participant's spouse, elects the distribution of the Participant's
Account balance in the Plan, distribution shall commence as soon as
practicable following his termination of Service, but no later than one
year after the close of the Plan Year:
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(i) in which the Participant separates from service by reason of
attainment of Normal Retirement Age under the Plan, Disability,
or death; or
(ii) which is the fifth Plan Year following the year in which the
Participant resigns or is dismissed, unless he is reemployed
before such date.
10.2.2 Unless the Participant elects otherwise, the distribution of
the balance of a Participant's Account shall commence not later than the 60th
day after the latest of the close of the Plan Year in which -
(i) the Participant attains the age of 65;
(ii) occurs the tenth anniversary of the year in which the
Participant commenced participation in the Plan; or
(iii) the Participant terminates his Service with the
Employer.
10.2.3 Notwithstanding anything to the contrary, (1) with respect
to a 5-percent owner (as defined in Code Section 416), distribution of a
Participant's Account shall commence (whether or not he remains in the
employ of the Employer) not later than the April 1 of the calendar year
next following the calendar year in which the Participant attains age 70-
1/2, and (2) with respect to all other Participants, payment of a
Participant's benefit will commence not later than April 1 of the calendar
year following the calendar year in which the Participant attains age 70-
1/2, or, if later, the year in which the Participant retires. A
Participant's benefit from that portion of his Account committed to the
Investment Fund shall be calculated on the basis of the most recent
Valuation Date before the date of payment.
10.2.4 Distribution of a Participant's Account balance after his
death shall comply with the following requirements:
(i) If a Participant dies before his distributions have
commenced, distribution of his Account to his Beneficiary shall
commence not later than one year after the end of the Plan Year in
which the Participant died, however, if the Participant's
Beneficiary is his surviving Spouse, distributions may commence on
the date on which the Participant would have attained age 70-1/2. In
either case, distributions shall be completed within five years
after the they commence.
(ii) If the Participant dies after distribution has
commenced pursuant to Section 10.1.2 but before his entire interest
in the Plan has been distributed to him, then the remaining portion
of that interest shall, in accordance with Section 401(a)(9) of the
Code, be distributed at least as rapidly as under the method of
distribution being used under Section 10.1.2 at the date of his
death.
(iii) If a married Participant dies before his benefit
payments begin, then unless he has specifically elected otherwise
the Committee shall cause the balance in his Account to be paid to
his Spouse. No election by a married Participant of a different
Beneficiary shall be valid unless the election is accompanied by the
Spouse's written consent, which
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(i) must acknowledge the effect of the election, (ii) must
explicitly provide either that the designated Beneficiary may not
subsequently be changed by the Participant without the Spouse's
further consent, or that it may be changed without such consent, and
(iii) must be witnessed by the Committee, its representative, or a
notary public. (This requirement shall not apply if the Participant
establishes to the Committee's satisfaction that the Spouse may not
be located.)
10.3 MARITAL STATUS. The Committee shall from time to time take whatever
--------------
steps it deems appropriate to keep informed of each Participant's marital
status. Each Employer shall provide the Committee with the most reliable
information in the Employer's possession regarding its Participants' marital
status, and the Committee may, in its discretion, require a notarized affidavit
from any Participant as to his marital status. The Committee, the Plan, the
Trustee, and the Employers shall be fully protected and discharged from any
liability to the extent of any benefit payments made as a result of the
Committee's good faith and reasonable reliance upon information obtained from a
Participant and his Employer as to his marital status.
10.4 DELAY IN BENEFIT DETERMINATION. If the Committee is unable to
------------------------------
determine the benefits payable to a Participant or Beneficiary on or before the
latest date prescribed for payment pursuant to Section 10.1 or 10.2, the
benefits shall in any event be paid within 60 days after they can first be
determined, with whatever makeup payments may be appropriate in view of the
delay.
10.5 ACCOUNTING FOR BENEFIT PAYMENTS. Any benefit payment shall be
-------------------------------
charged to the Participant's Account as of the first day of the Valuation Period
in which the payment is made.
10.6 OPTIONS TO RECEIVE AND SELL STOCK. Unless ownership of virtually
---------------------------------
all Stock is restricted to active Employees and qualified retirement plans for
the benefit of Employees pursuant to the certificates of incorporation or by-
laws of the Employers issuing Stock, a terminated Participant or the Beneficiary
of a deceased Participant may instruct the Committee to distribute the
Participant's entire vested interest in his Account in the form of Stock. In
that event, the Committee shall apply the Participant's vested interest in the
Investment Fund to purchase sufficient Stock from the Stock Fund or from any
owner of Stock to make the required distribution. In all other cases, the
Participant's vested interest in the Stock Fund shall be distributed in shares
of Stock, and his vested interest in the Investment Fund shall be distributed in
cash.
Any Participant who receives Stock pursuant to Section 10.1, and any person
who has received Stock from the Plan or from such a Participant by reason of the
Participant's death or incompetency, by reason of divorce or separation from the
Participant, or by reason of a rollover contribution described in Section
402(a)(5) of the Code, shall have the right to require the Employer which issued
the Stock to purchase the Stock for its current fair market value (hereinafter
referred to as the "put right"). The put right shall be exercisable by written
notice to the Committee during the first 60 days after the Stock is distributed
by the Plan, and, if not exercised in that period, during the first 60 days in
the following Plan Year after the Committee has communicated to the Participant
its determination as to the Stock's current fair market value. However, the put
right shall not apply to the extent that the Stock, at the time the put right
would otherwise be exercisable, may be sold on an established market in
accordance with federal and state securities laws and regulations. Similarly,
the put option shall not apply with respect to the portion of a Participant's
Account which the Employee elected to have reinvested under Code Section
401(a)(28)(B). If the put right is exercised, the Trustee may, if so directed by
the Committee in its sole discretion, assume the Employer's rights and
obligations with respect to purchasing the Stock.
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Notwithstanding anything herein to the contrary, in the case of a plan
established by a Bank (as defined in Code Section 581), the put option shall not
apply if prohibited by a federal or state law and Participants are entitled to
elect their benefits be distributed in cash.
If a Participant elects to receive his distribution in the form of a lump
sum pursuant to Section 10.1.1 of the Plan, the Employer or the Trustee, as the
case may be, may elect to pay for the Stock in equal periodic installments, not
less frequently than annually, over a period not longer than five years from the
day after the put right is exercised, with adequate security and interest at a
reasonable rate on the unpaid balance, all such terms to be set forth in a
promissory note delivered to the seller with normal terms as to acceleration
upon any uncured default.
If a Participant elects to receive his distribution in the form of an
installment payment pursuant to Section 10.1.2 of the Plan, the Employer or the
Trustee, as the case may be, shall pay for the Stock distributed in the
installment distribution over a period which shall not exceed 30 days after the
exercise of the put right.
Nothing contained herein shall be deemed to obligate any Employer to
register any Stock under any federal or state securities law or to create or
maintain a public market to facilitate the transfer or disposition of any Stock.
The put right described herein may only be exercised by a person described in
the second preceding paragraph, and may not be transferred with any Stock to any
other person. As to all Stock purchased by the Plan in exchange for any Stock
Obligation, the put right shall be nonterminable. The put right for Stock
acquired through a Stock Obligation shall continue with respect to such Stock
after the Stock Obligation is repaid or the Plan ceases to be an employee stock
ownership plan.
10.7 RESTRICTIONS ON DISPOSITION OF STOCK. Except in the case of Stock
------------------------------------
which is traded on an established market, a Participant who receives Stock
pursuant to Section 10.1, and any person who has received Stock from the Plan or
from such a Participant by reason of the Participant's death or incompetency, by
reason of divorce or separation from the Participant, or by reason of a rollover
contribution described in Section 402(a)(5) of the Code, shall, prior to any
sale or other transfer of the Stock to any other person, first offer the Stock
to the issuing Employer and to the Plan at the greater of (i) its current fair
market value, or (ii) the purchase price offered in good faith by an independent
third party purchaser. This restriction shall apply to any transfer, whether
voluntary, involuntary, or by operation of law, and whether for consideration or
gratuitous. Either the Employer or the Trustee may accept the offer within 14
days after it is delivered. Any Stock distributed by the Plan shall bear a
conspicuous legend describing the right of first refusal under this Section
10.7, as well as any other restrictions upon the transfer of the Stock imposed
by federal and state securities laws and regulations.
10.8 CONTINUING LOAN PROVISIONS; CREATIONS OF PROTECTIONS AND RIGHTS.
---------------------------------------------------------------
Except as otherwise provided in Sections 10.6 and 10.7 and this Section, no
shares of Employer Stock held or distributed by the Trustee may be subject to a
put, call or other option, or buy-sell arrangement. The provisions of this
Section shall continue to by applicable to such Stock even if the Plan ceases to
be an employee stock ownership plan under Section 4975(e)(7) of the Code.
10.9 DIRECT ROLLOVER OF ELIGIBLE DISTRIBUTION. A Participant or
----------------------------------------
distributee may elect, at the time and in the manner prescribed by the Trustee
or the Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the Participant or
distributee in a direct rollover.
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10.9-1 An "eligible rollover" is any distribution that does not
include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or
life expectancy) of the distributee or the joint lives (or joint life
expectancies) of the Participant and the Participant's Beneficiary, or for
a specified period of ten years or more; any distribution to the extent
such distribution is required under Code Section 401(a)(9); and the portion
of any distribution that is not included in gross income (determined
without regard to the exclusion for net unrealized appreciation with
respect to employer securities).
10.9-2 An "eligible retirement plan" is an individual retirement
account described in Code Section 401(a), an individual retirement annuity
described in Code Section 408(b), an annuity plan described in Code Section
403(a), or a qualified trust described in Code Section 401(a), that accepts
the distributee's eligible rollover distribution. However, in the case of
an eligible rollover distribution to the surviving Spouse, an eligible
retirement plan is an individual retirement account or individual
retirement annuity.
10.9-3 A "direct rollover" is a payment by the Plan to the eligible
retirement plan specified by the distributee.
10.9-4 The term "distributee" shall refer to a deceased
Participant's Spouse or a Participant's former Spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code
Section 414(p).
10.10 WAIVER OF 30 DAY PERIOD AFTER NOTICE OF DISTRIBUTION. If a
----------------------------------------------------
distribution is one to which Sections 401(a)(11) and 417 of the Code do not
apply, such distribution may commence less than 30 days after the notice
required under Section 4.11(a)-11(c) of the Income Tax Regulations is given,
provided that:
(i) the Trustee or Administrative Committee, as applicable,
clearly informs the Participant that the Participant has a
right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a
distribution (and, if applicable, a particular option), and
(ii) the Participant, after receiving the notice, affirmatively
elects a distribution.
SECTION 11. RULES GOVERNING BENEFIT CLAIMS AND REVIEW OF APPEALS.
----------------------------------------------------
11.1 CLAIM FOR BENEFITS. Any Participant or Beneficiary who qualifies
------------------
for the payment of benefits shall file a claim for his benefits with the
Committee on a form provided by the Committee. The claim, including any
election of an alternative benefit form, shall be filed at least 30 days before
the date on which the benefits are to begin. If a Participant or Beneficiary
fails to file a claim by the day before the date on which benefits become
payable, he shall be presumed to have filed a claim for payment for the
Participant's benefits in the standard form prescribed by Sections 10.1 or 10.2
11.2 NOTIFICATION BY COMMITTEE. Within 90 days after receiving a claim
-------------------------
for benefits (or within 180 days, if special circumstances require an extension
of time and written notice of the extension is given to the Participant or
Beneficiary within 90 days after receiving the claim for benefits), the
Committee shall notify the Participant or Beneficiary whether the claim has been
approved or denied. If the Committee
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<PAGE>
denies a claim in any respect, the Committee shall set forth in a written notice
to the Participant or Beneficiary:
(i) each specific reason for the denial;
(ii) specific references to the pertinent Plan provisions on which
the denial is based;
(iii) a description of any additional material or information which
could be submitted by the Participant or Beneficiary to support his claim,
with an explanation of the relevance of such information; and
(iv) an explanation of the claims review procedures set forth in
Section 11.3.
11.3 CLAIMS REVIEW PROCEDURE. Within 60 days after a Participant or
-----------------------
Beneficiary receives notice from the Committee that his claim for benefits has
been denied in any respect, he may file with the Committee a written notice of
appeal setting forth his reasons for disputing the Committee's determination.
In connection with his appeal the Participant or Beneficiary or his
representative may inspect or purchase copies of pertinent documents and records
to the extent not inconsistent with other Participants' and Beneficiaries'
rights of privacy. Within 60 days after receiving a notice of appeal from a
prior determination (or within 120 days, if special circumstances require an
extension of time and written notice of the extension is given to the
Participant or Beneficiary and his representative within 60 days after receiving
the notice of appeal), the Committee shall furnish to the Participant or
Beneficiary and his representative, if any, a written statement of the
Committee's final decision with respect to his claim, including the reasons for
such decision and the particular Plan provisions upon which it is based.
SECTION 12. THE COMMITTEE AND ITS FUNCTIONS.
-------------------------------
12.1 AUTHORITY OF COMMITTEE. The Committee shall be the "plan
----------------------
administrator" within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and
administration of the Plan, including the interpretation and application of its
provisions, except to the extent such responsibility and authority are otherwise
specifically (i) allocated to the Bank, the Employers, or the Trustee under the
Plan and Trust Agreement, (ii) delegated in writing to other persons by the
Bank, the Employers, the Committee, or the Trustee, or (iii) allocated to other
parties by operation of law. The Committee shall have exclusive responsibility
regarding decisions concerning the payment of benefits under the Plan. The
Committee shall have no investment responsibility with respect to the Investment
Fund except to the extent, if any, specifically provided in the Trust Agreement.
In the discharge of its duties, the Committee may employ accountants, actuaries,
legal counsel, and other agents (who also may be employed by an Employer or the
Trustee in the same or some other capacity) and may pay their reasonable
expenses and compensation.
12.2 IDENTITY OF COMMITTEE. The Committee shall consists of three or
---------------------
more individuals selected by the Bank. Any individual, including a director,
trustee, shareholder, officer, or Employee of an Employer, shall be eligible to
serve as a member of the Committee. The Bank shall have the power to remove any
individual serving on the Committee at any time without cause upon 10 days
written notice, and any individual may resign from the Committee at any time
upon 10 days written notice to the Bank. The Bank shall notify the Trustee of
any change in membership of the Committee.
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<PAGE>
12.3 DUTIES OF COMMITTEE. The Committee shall keep whatever records may
-------------------
be necessary to implement the Plan and shall furnish whatever reports may be
required from time to time by the Bank. The Committee shall furnish to the
Trustee whatever information may be necessary to properly administer the Trust.
The Committee shall see to the filing with the appropriate government agencies
of all reports and returns required of the plan Committee under ERISA and other
laws.
Further, the Committee shall have exclusive responsibility and authority
with respect to the Plan's holdings of Stock and shall direct the Trustee in all
respects regarding the purchase, retention, sale, exchange, and pledge of Stock
and the creation and satisfaction of Stock Obligations. The Committee shall at
all times act consistently with the Bank's long-term intention that the Plan, as
an employee stock ownership plan, be invested primarily in Stock. Subject to
the direction of the Board as to the application of Employer contributions to
Stock Obligations, and subject to the provisions of Sections 6.4 and 10.6 as to
Participants' rights under certain circumstances to have their Accounts invested
in Stock or in assets other than Stock, the Committee shall determine in its
sole discretion the extent to which assets of the Trust shall be used to repay
Stock Obligations, to purchase Stock, or to invest in other assets to be
selected by the Trustee or an investment manager. No provision of the Plan
relating to the allocation or vesting of any interests in the Stock Fund or the
Investment Fund shall restrict the Committee from changing any holdings of the
Trust, whether the changes involve an increase or a decrease in the Stock or
other assets credited to Participants' Accounts. In determining the proper
extent of the Trust's investment in Stock, the Committee shall be authorized to
employ investment counsel, legal counsel, appraisers, and other agents to pay
their reasonable expenses and compensation.
12.4 VALUATION OF STOCK. If the valuation of any Stock is not
------------------
established by reported trading on a generally recognized public market, the
valuation of such Stock shall be determined by an independent
appraiser. For purposes of the preceding sentence, the term "independent
appraiser" means any appraiser meeting requirements similar to the requirements
of the regulations prescribed under Section 170(a)(1) of the Code.
12.5 COMPLIANCE WITH ERISA. The Committee shall perform all acts
---------------------
necessary to comply with ERISA. Each individual member or employee of the
Committee shall discharge his duties in good faith and in accordance with the
applicable requirements of ERISA.
12.6 ACTION BY COMMITTEE. All actions of the Committee shall be governed
-------------------
by the affirmative vote of a number of members which is a majority of the total
number of members currently appointed, including vacancies. The members of the
Committee may meet informally and may take any action without meeting as a
group.
12.7 EXECUTION OF DOCUMENTS. Any instrument executed by the Committee
----------------------
shall be signed by any member or employee of the Committee.
12.8 ADOPTION OF RULES. The Committee shall adopt such rules and
-----------------
regulations of uniform applicability as it deems necessary or appropriate for
the proper administration and interpretation of the Plan.
12.9 RESPONSIBILITIES TO PARTICIPANTS. The Committee shall determine
--------------------------------
which Employees qualify to enter the Plan. The Committee shall furnish to each
eligible Employee whatever summary plan descriptions, summary annual reports,
and other notices and information may be required under ERISA.
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<PAGE>
The Committee also shall determine when a Participant or his Beneficiary
qualifies for the payment of benefits under the Plan. The Committee shall
furnish to each such Participant or Beneficiary whatever information is required
under ERISA (or is otherwise appropriate) to enable the Participant or
Beneficiary to make whatever elections may be available pursuant to Sections 6
and 10, and the Committee shall provide for the payment of benefits in the
proper form and amount from the assets of the Trust Fund. The Committee may
decide in its sole discretion to permit modifications of elections and to defer
or accelerate benefits to the extent consistent with applicable law and the best
interests of the individuals concerned.
12.10 ALTERNATIVE PAYEES IN EVENT OF INCAPACITY. If the Committee
-----------------------------------------
finds at any time that an individual qualifying for benefits under this Plan is
a minor or is incompetent, the Committee may direct the benefits to be paid, in
the case of a minor, to his parents, his legal guardian, or a custodian for him
under the Uniform Gifts to Minors Act, or, in the case of an incompetent, to his
spouse, or his legal guardian, the payments to be used for the individual's
benefit. The Committee and the Trustee shall not be obligated to inquire as to
the actual use of the funds by the person receiving them under this Section
12.10, and any such payment shall completely discharge the obligations of the
Plan, the Trustee, the Committee, and the Employers to the extent of the
payment.
12.11 INDEMNIFICATION BY EMPLOYERS. Except as separately agreed in
----------------------------
writing, the Committee, and any member or employee of the Committee, shall be
indemnified and held harmless by the Employer, jointly and severally, to the
fullest extent permitted by law against any and all costs, damages, expenses,
and liabilities reasonably incurred by or imposed upon it or him in connection
with any claim made against it or him or in which it or he may be involved by
reason of its or his being, or having been, the Committee, or a member or
employee of the Committee, to the extent such amounts are not paid by insurance.
12.12 NONPARTICIPATION BY INTERESTED MEMBER. Any member of the
-------------------------------------
Committee who also is a Participant in the Plan shall take no part in any
determination specifically relating to his own participation or benefits, unless
his abstention would leave the Committee incapable of acting on the matter.
SECTION 13. ADOPTION, AMENDMENT, OR TERMINATION OF THE PLAN.
-----------------------------------------------
13.1 ADOPTION OF PLAN BY OTHER EMPLOYERS. With the consent of the Bank,
-----------------------------------
any entity may become a participating Employer under the Plan by (i) taking such
action as shall be necessary to adopt the Plan, (ii) becoming a party to the
Trust Agreement establishing the Trust Fund, and (iii) executing and delivering
such instruments and taking such other action as may be necessary or desirable
to put the Plan into effect with respect to the entity's Employees.
13.2 ADOPTION OF PLAN BY SUCCESSOR. In the event that any Employer shall
-----------------------------
be reorganized by way of merger, consolidation, transfer of assets or otherwise,
so that an entity other than an Employer shall succeed to all or substantially
all of the Employer's business, the successor entity may be substituted for the
Employer under the Plan by adopting the Plan and becoming a party to the Trust
Agreement. Contributions by the Employer shall be automatically suspended from
the effective date of any such reorganization until the date upon which the
substitution of the successor entity for the Employer under the Plan becomes
effective. If, within 90 days following the effective date of any such
reorganization, the successor entity shall not have elected to become a party to
the Plan, or if the Employer shall adopt a plan of complete liquidation other
than in connection with a reorganization, the Plan shall be automatically
terminated with respect to Employees of the Employer as of the close of business
on the 90th day following
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<PAGE>
the effective date of the reorganization, or as of the close of business on the
date of adoption of a plan of complete liquidation, as the case may be.
13.3 PLAN ADOPTION SUBJECT TO QUALIFICATION. Notwithstanding any other
--------------------------------------
provision of the Plan, the adoption of the Plan and the execution of the Trust
Agreement are conditioned upon their being determined initially by the Internal
Revenue Service to meet the qualification requirements of Section 401(a) of the
Code, so that the Employers may deduct currently for federal income tax purposes
their contributions to the Trust and so that the Participants may exclude the
contributions from their gross income and recognize income only when they
receive benefits. In the event that this Plan is held by the Internal Revenue
Service not to qualify initially under Section 401(a), the Plan may be amended
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure qualification under Section 401(a). If this Plan is held by
the Internal Revenue Service not to qualify initially under Section 401(a)
either as originally adopted or as amended, each Employer's contributions to the
Trust under this Plan (including any earnings thereon) shall be returned to it
and this Plan shall be terminated. In the event that this Plan is amended after
its initial qualification and the Plan as amended is held by the Internal
Revenue Service not to qualify under Section 401(a), the amendment may be
modified retroactively to the earliest date permitted by U.S. Treasury
Regulations in order to secure approval of the amendment under Section 401(a).
13.4 RIGHT TO AMEND OR TERMINATE. The Bank intends to continue this Plan
---------------------------
as a permanent program. However, each participating Employer separately
reserves the right to suspend, supersede, or terminate the Plan at any time and
for any reason, as it applies to that Employer's Employees, and the Bank
reserves the right to amend, suspend, supersede, merge, consolidate, or
terminate the Plan at any time and for any reason, as it applies to the
Employees of each Employer. No amendment, suspension, supersession, merger,
consolidation, or termination of the Plan shall (i) reduce any Participant's or
Beneficiary's proportionate interest in the Trust Fund, (ii) reduce or restrict,
either directly or indirectly, the benefit provided any Participant prior to the
amendment, or (iii) divert any portion of the Trust Fund to purposes other than
the exclusive benefit of the Participants and their Beneficiaries prior to the
satisfaction of all liabilities under the Plan. Moreover, there shall not be
any transfer of assets to a successor plan or merger or consolidation with
another plan unless, in the event of the termination of the successor plan or
the surviving plan immediately following such transfer, merger, or
consolidation, each participant or beneficiary would be entitled to a benefit
equal to or greater than the benefit he would have been entitled to if the plan
in which he was previously a participant or beneficiary had terminated
immediately prior to such transfer, merger, or consolidation. Following a
termination of this Plan by the Bank, the Trustee shall continue to administer
the Trust and pay benefits in accordance with the Plan as amended from time to
time and the Committee's instructions.
SECTION 14. MISCELLANEOUS PROVISIONS.
------------------------
14.1 PLAN CREATES NO EMPLOYMENT RIGHTS. Nothing in this Plan shall be
---------------------------------
interpreted as giving any Employee the right to be retained as an Employee by an
Employer, or as limiting or affecting the rights of an Employer to control its
Employees or to terminate the Service of any Employee at any time and for any
reason, subject to any applicable employment or collective bargaining
agreements.
14.2 NONASSIGNABILITY OF BENEFITS. No assignment, pledge, or other
----------------------------
anticipation of benefits from the Plan will be permitted or recognized by the
Employer, the Committee, or the Trustee. Moreover, benefits from the Plan shall
not be subject to attachment, garnishment, or other legal process for debts or
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<PAGE>
liabilities of any Participant or Beneficiary, to the extent permitted by law.
This prohibition on assignment or alienation shall apply to any judgment,
decree, or order (including approval of a property settlement agreement) which
relates to the provision of child support, alimony, or property rights to a
present or former spouse, child or other dependent of a Participant pursuant to
a state domestic relations or community property law, unless the judgment,
decree, or order is determined by the Committee to be a qualified domestic
relations order within the meaning of Section 414(p) of the Code, as more fully
set forth in Section 14.2 hereof.
14.3 LIMIT OF EMPLOYER LIABILITY. The liability of the Employer with
---------------------------
respect to Participants under this Plan shall be limited to making contributions
to the Trust from time to time, in accordance with Section 4.
14.4 TREATMENT OF EXPENSES. All expenses incurred by the Committee and
---------------------
the Trustee in connection with administering this Plan and Trust Fund shall be
paid by the Trustee from the Trust Fund to the extent the expenses have not been
paid or assumed by the Employer or by the Trustee.
14.5 NUMBER AND GENDER. Any use of the singular shall be interpreted to
-----------------
include the plural, and the plural the singular. Any use of the masculine,
feminine, or neuter shall be interpreted to include the masculine, feminine, or
neuter, as the context shall require.
14.6 NONDIVERSION OF ASSETS. Except as provided in Sections 5.3 and
----------------------
13.3, under no circumstances shall any portion of the Trust Fund be diverted to
or used for any purpose other than the exclusive benefit of the Participants and
their Beneficiaries prior to the satisfaction of all liabilities under the Plan.
14.7 SEPARABILITY OF PROVISIONS. If any provision of this Plan is held
--------------------------
to be invalid or unenforceable, the other provisions of the Plan shall not be
affected but shall be applied as if the invalid or unenforceable provision had
not been included in the Plan.
14.8 SERVICE OF PROCESS. The agent for the service of process upon the
------------------
Plan shall be the president of the Bank, or such other person as may be
designated from time to time by the Bank.
14.9 GOVERNING STATE LAW. This Plan shall be interpreted in accordance
-------------------
with the laws of the State of New York to the extent those laws are applicable
under the provisions of ERISA.
14.10 EMPLOYER CONTRIBUTIONS CONDITIONED ON DEDUCTIBILITY. Employer
---------------------------------------------------
Contributions to the Plan are conditioned on deductibility under Code Section
404. In the event that the Internal Revenue Service shall determine that all or
any portion of an Employer Contribution is not deductible under that Section,
the nondeductible portion shall be returned to the Employer within one year of
the disallowance of the deduction.
14.11 UNCLAIMED ACCOUNTS. Neither the Employer nor the Trustees shall
------------------
be under any obligation to search for, or ascertain the whereabouts of, any
Participant or Beneficiary. The Employer or the Trustees, by certified or
registered mail addressed to his last known address of record with the Employer,
shall notify any Participant or Beneficiary that he is entitled to a
distribution under this Plan, and the notice shall quote the provisions of this
Section. If the Participant or Beneficiary fails to claim his benefits or make
his whereabouts known in writing to the Employer or the Trustees within seven
(7) calendar years
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<PAGE>
after the date of notification, the benefits of the Participant or Beneficiary
under the Plan will be disposed of as follows:
(a) If the whereabouts of the Participant is unknown but the
whereabouts of the Participant's Beneficiary is known to the Trustees,
distribution will be made to the Beneficiary.
(b) If the whereabouts of the Participant and his Beneficiary are
unknown to the Trustees, the Plan will forfeit the benefit, provided that
the benefit is subject to a claim for reinstatement if the Participant or
Beneficiary make a claim for the forfeited benefit.
Any payment made pursuant to the power herein conferred upon the Trustees
shall operate as a complete discharge of all obligations of the Trustees, to the
extent of the distributions so made.
14.12 QUALIFIED DOMESTIC RELATIONS ORDER. Section 14.2 shall not apply
----------------------------------
to a "qualified domestic relations order" defined in Code Section 414(p), and
such other domestic relations orders permitted to be so treated under the
provisions of the Retirement Equity Act of 1984. Further, to the extent
provided under a "qualified domestic relations order", a former Spouse of a
Participant shall be treated as the Spouse or surviving Spouse for all purposes
under the Plan.
In the case of any domestic relations order received by the Plan:
(a) The Employer or the Plan Committee shall promptly notify the
Participant and any other alternate payee of the receipt of such order and
the Plan's procedures for determining the qualified status of domestic
relations orders, and
(b) Within a reasonable period after receipt of such order, the
Employer or the Plan Committee shall determine whether such order is a
qualified domestic relations order and notify the Participant and each
alternate payee of such determination. The Employer or the Plan Committee
shall establish reasonable procedures to determine the qualified status of
domestic relations orders and to administer distributions under such
qualified orders.
During any period in which the issue of whether a domestic relations order
is a qualified domestic relations order is being determined (by the Employer or
Plan Committee, by a court of competent jurisdiction, or otherwise), the
Employer or the Plan Committee shall segregate in a separate account in the Plan
or in an escrow account the amounts which would have been payable to the
alternate payee during such period if the order had been determined to be a
qualified domestic relations order. If within eighteen (18) months the order
(or modification thereof) is determined to be a qualified domestic relations
order, the Employer or the Plan Committee shall pay the segregated amounts (plus
any interest thereon) to the person or persons entitled thereto. If within
eighteen (18) months it is determined that the order is not a qualified domestic
relations order, or the issue as to whether such order is a qualified domestic
relations order is not resolved, then the Employer or the Plan Committee shall
pay the segregated amounts (plus any interest thereon) to the person or persons
who would have been entitled to such amounts if there had been no order. Any
determination that an order is a qualified domestic relations order which is
made after the close of the eighteen (18) month period shall be applied
prospectively only. The term "alternate payee" means any Spouse, former Spouse,
child or other dependent of a Participant who is recognized by a domestic
relations order as having a right to receive all, or a portion of, the benefit
payable under a Plan with respect to such Participant.
-30-
<PAGE>
SECTION 15. TOP-HEAVY PROVISIONS.
--------------------
15.1 TOP-HEAVY PLAN. For any Plan Year beginning after December 31,
--------------
1983, this Plan is top-heavy if any of the following conditions exist:
(a) If the top-heavy ratio for this Plan exceeds sixty percent
(60%) and this Plan is not part of any required aggregation group or permissive
aggregation group;
(b) If this Plan is a part of a required aggregation group (but is
not part of a permissive aggregation group) and the aggregate top-heavy ratio
for the group of Plans exceeds sixty percent (60%); or
(c) If this Plan is a part of a required aggregation group and part
of a permissive aggregation group and the aggregate top-heavy ratio for the
permissive aggregation group exceeds sixty percent (60%).
15.2 SUPER TOP-HEAVY PLAN For any Plan Year beginning after December 31,
--------------------
1983, this Plan will be a super top-heavy Plan if any of the following
conditions exist:
(a) If the top-heavy ratio for this Plan exceeds ninety percent
(90%) and this Plan is not part of any required aggregation group or permissive
aggregation group.
(b) If this Plan is a part of a required aggregation group (but is
not part of a permissive aggregation group) and the aggregate top-heavy ratio
for the group of Plans exceeds ninety percent (90%), or
(c) If this Plan is a part of a required aggregation group and part
of a permissive aggregation group and the aggregate top-heavy ratio for the
permissive aggregation group exceeds ninety percent (90%).
15.3 DEFINITIONS.
-----------
In making this determination, the Committee shall use the following definitions
and principles:
15.3-1 The "Determination Date", with respect to the first Plan
Year of any plan, means the last day of that Plan Year, and with respect to
each subsequent Plan Year, means the last day of the preceding Plan Year.
If any other plan has a Determination Date which differs from this Plan's
Determination Date, the top-heaviness of this Plan shall be determined on
the basis of the other plan's Determination Date falling within the same
calendar years as this Plan's Determination Date.
15.3-2 A "Key Employee", with respect to a Plan Year, means an
Employee who at any time during the five years ending on the top-heavy
Determination Date for the Plan Year has received compensation from an
Employer and has been (i) an officer of the Employer having 415
Compensation greater than 50 percent of the limit then in effect under
Section 415(b)(1)(A) of the Code, (ii) one of the 10 Employees owning the
largest interests in the Employer having 415 Compensation greater than the
limit then in effect under Section 415(c)(1)(A), (iii) an owner of
-31-
<PAGE>
more than five percent of the outstanding equity interest or the
outstanding voting interest in any Employer, or (iv) an owner of more than
one percent of the outstanding equity interest or the outstanding voting
interest in an Employer whose annual compensation exceeds $150,000. For
purposes of determining whether an Employee is a Key Employee, annual
compensation means compensation as defined in Section 415(c)(3) of the
Code, but including amounts contributed by the Employee pursuant to a
salary reduction agreement which are excludable from the Employee's gross
income under Section 125, Section 402(e)(3), Section 402(H)(1)(B) or
Section 403(b) of the Code. The Beneficiary of a Key Employee shall also be
considered a Key Employee.
15.3-3 A "Non-key Employee" means an Employee who at any time
during the five years ending on the top-heavy Determination Date for the
Plan Year has received compensation from an Employer and who has never been
a Key Employee, and the Beneficiary of any such Employee.
15.3-4 A "required aggregation group" includes (a) each qualified
Plan of the Employer in which at least one Key Employee participates in the
Plan Year containing the Determination Date and any of the four (4)
preceding Plan Years, and (b) any other qualified Plan of the Employer
which enables a Plan described in (a) to meet the requirements of Code
Sections 401(a)(4) and 410. For purposes of the preceding sentence, a
qualified Plan of the Employer includes a terminated Plan maintained by the
Employer within the five (5) year period ending on the Determination Date.
In the case of a required aggregation group, each Plan in the group will be
considered a top-heavy Plan if the required aggregation group is a top-
heavy group. No Plan in the required aggregation group will be considered
a top-heavy Plan if the required aggregation group is not a top-heavy
group. All Employers aggregated under Code Sections 414(b), (c) or (m) or
(o) (but only after the Code Section 414(o) regulations become effective)
are considered a single Employer.
15.3-5 A "permissive aggregation group" includes the required
aggregation group of Plans plus any other qualified Plan(s) of the Employer
that are not required to be aggregated but which, when considered as a
group with the required aggregation group, satisfy the requirements of Code
Sections 401(a)(4) and 410 and are comparable to the Plans in the required
aggregation group. No Plan in the permissive aggregation group will be
considered a top-heavy Plan if the permissive aggregation group is not a
top-heavy group. Only a Plan that is part of the required aggregation
group will be considered a top-heavy Plan if the permissive aggregation
group is top-heavy.
15.4 TOP-HEAVY RULES OF APPLICATION.
------------------------------
For purposes of determining the value of Account balances and the
present value of accrued benefits the following provisions shall apply:
15.4-1 The value of Account balances and the present value of
accrued benefits will be determined as of the most recent Valuation Date
that falls within or ends with the twelve (12) month period ending on the
Determination Date.
15.4-2 For purposes of testing whether this Plan is top-heavy, the
present value of an individual's accrued benefits and an individual's
Account balances is counted only once each year.
-32-
<PAGE>
15.4-3 The Account balances and accrued benefits of a Participant
who is not presently a Key Employee but who was a Key Employee in a Plan
Year beginning on or after January 1, 1984 will be disregarded.
15.4-4 For years beginning after December 31, 1984, Employer
contributions attributable to a salary reduction or similar arrangement
will be taken into account.
15.4-5 When aggregating Plans, the value of Account balances and
accrued benefits will be calculated with reference to the Determination
Dates that fall within the same calendar year.
15.4-6 The present value of the accrued benefits or the amount of
the Account balances of an Employee shall be increased by the aggregate
distributions made to such Employee from a Plan of the Employer. No
distribution, however, made from the Plan to an individual (other than the
Beneficiary of a deceased Employee who was an Employee within the five (5)
year period ending on the Determination Date) who has not been an Employee
at any time during the five (5) year period ending on the Determination
Date shall be taken into account in determining whether the Plan is top-
heavy. Also, any amounts recontributed by an Employee upon becoming a
Participant in the Plan shall no longer be counted as a distribution under
this paragraph.
15.4-7 The present value of the accrued benefits or the amount of
the Account balances of an Employee shall be increased by the aggregate
distributions made to such Employee from a terminated Plan of the Employer,
provided that such Plan (if not terminated) would have been required to be
included in the aggregation group.
15.4-8 Accrued benefits and Account balances of an individual shall
not be taken into account for purposes of determining the top-heavy ratios
if the individual has performed no services for the Employer during the
five (5) year period ending on the applicable Determination Date.
Compensation for purposes of this subparagraph shall not include any
payments made to an individual by the Employer pursuant to a qualified or
non-qualified deferred compensation plan.
15.4-9 The present value of the accrued benefits or the amount of
the Account balances of any Employee participating in this Plan shall not
include any rollover contributions or other transfers voluntarily initiated
by the Employee except as described below. If this Plan transfers or rolls
over funds to another Plan in a transaction voluntarily initiated by the
Employee after December 31, 1983, then this Plan shall count the
distribution for purposes of determining Account balances or the present
value of accrued benefits. A transfer incident to a merger or consolidation
of two or more Plans of the Employer (including Plans of related Employers
treated as a single Employer under Code Section 414), or a transfer or
rollover between Plans of the Employer, shall not be considered as
voluntarily initiated by the Employee.
15.5 TOP-HEAVY RATIO.
---------------
If the Employer maintains one (1) or more defined contribution plans
(including any simplified Employee pension plan) and the Employer has never
maintained any defined benefit plans which have covered or could cover a
Participant in this Plan, the top-heavy ratio is a fraction, the numerator of
which is the sum of the Account balances of all Key Employees as of the
Determination Date, and the denominator of which is the sum of the Account
balances of all Employees as of the Determination Date.
-33-
<PAGE>
Both the numerator and denominator of the top-heavy ratio shall be increased to
reflect any contribution which is due but unpaid as of the Determination Date.
If the Employer maintains one (1) or more defined contribution plans
(including any simplified Employee pension plan) and the Employer maintains or
has maintained one (1) or more defined benefit plans which have covered or could
cover a Participant in this Plan, the top-heavy ratio is a fraction, the
numerator of which is the sum of Account balances under the defined contribution
plans for all Key Employees and the present value of accrued benefits under the
defined benefit plans for all Key Employees, and the denominator of which is the
sum of the Account balances under the defined contribution plans for all
Employees and the present value of accrued benefits under the defined benefit
plans for all Employees.
For these purposes, the accrued benefit of a Participant other than a Key
Employee in a defined benefit plan shall be determined under (a) the method, if
any, that uniformly applies for accrual purposes under all defined benefit plans
maintained by the Employer, or (b) if there is no such method, as if such
benefit accrued not more rapidly than the slowest accrual rate permitted under
the fractional rule of Section 411(b)(1)(C).
15.6 MINIMUM CONTRIBUTIONS. For any Top-Heavy Year, each Employer shall
---------------------
make a special contribution on behalf of each Participant to the extent that the
total allocations to his Account pursuant to Section 4 is less than the lesser
of:
(i) three percent of his 415 Compensation for that year, or
(ii) the highest ratio of such allocation to 415 Compensation
received by any Key Employee for that year. For purposes of the special
contribution of this Section 15.2, a Key Employee's 415 Compensation shall
include amounts the Key Employee elected to defer under a qualified 401(k)
arrangement. Such a special contribution shall be made on behalf of each
Participant who is employed by an Employer on the last day of the Plan
Year, regardless of the number of his Hours of Service, and shall be
allocated to his Account.
For any Plan Year when (1) the Plan is top-heavy and (2) a Non-key Employee
is a Participant in both this Plan and a defined benefit plan included in the
plan aggregation group which is top heavy, the sum of the Employer contributions
and forfeitures allocated to the Account of each such Non-key Employee shall be
equal to at least five percent (5%) of such Non-key Employee's 415 Compensation
for that year.
15.7 MINIMUM VESTING. For any Plan Year in which this Plan is Top-Heavy,
---------------
a Participant's vested interest in his Account shall be based on the following
"top-heavy table":
Vesting Percentage of
Years Interest Vested
------- ---------------
Fewer than 3 years 0%
3 or more 100%
15.8 TOP-HEAVY PROVISIONS CONTROL IN TOP-HEAVY PLAN. In the event this
----------------------------------------------
Plan becomes top-heavy and a conflict arises between the top-heavy provisions
herein set forth and the remaining provisions set forth in this Plan, the top-
heavy provisions shall control.
-34-
<PAGE>
EXHIBIT 10.2
AMENDMENT NUMBER ONE
TO THE
EMPLOYMENT AGREEMENT
BETWEEN
PROVIDENT BANK
AND
GEORGE STRAYTON
WHEREAS, Provident Bank ("Bank") and George Strayton ("Mr. Strayton")
entered into an employment agreement ("Agreement") on the 25th day of January,
1996; and
WHEREAS, in connection with the reorganization of the Bank into the mutual
holding company form as the subsidiary of Provident Bancorp, Inc., a mid-tier
stock holding company ("Company"), the Bank and Mr. Strayton wish to amend the
Agreement in certain respects; and
WHEREAS, Section 24 of the Agreement provides that no modification of the
Agreement shall be valid unless in writing and signed by the parties to the
Agreement.
NOW THEREFORE, BE IT RESOLVED, that the Agreement shall be amended in
accordance with this Amendment Number One, signed by all parties to the
Agreement as modified, in the manner set forth below:
1. All references to "Bank" shall refer to "Provident Bank."
2. The introductory Paragraph to the Agreement shall be revised by adding the
following sentence to the end thereof:
"Provident Bancorp, Inc. ("Company") is a party to this Agreement for the
sole purpose of guaranteeing the Bank's performance hereunder."
3. Section 2 entitled "Employment Period" shall be amended by revising sub-
section "(a)" to read as follows:
"Except as otherwise provided in this Agreement to the contrary, the terms
and conditions of this Agreement shall be and remain in effect during the
period of employment ("Employment Period") established under this Section
2. The Employment Period shall be for a term commencing on the date of
this Agreement and ending on the third anniversary of the date of this
Agreement provided, however, that on each day after the date of this
Agreement, the Agreement shall automatically renew so that the remaining
term shall be thirty-six (36) months, and; provided, further, that
commencing on each annual anniversary of the date of this Agreement (the
date of each annual anniversary hereof shall be hereinafter referred to as
the "Anniversary Date"), unless the Employment Period has been previously
terminated, the Board shall, at least 60 days prior to each such
<PAGE>
Anniversary Date, conduct a comprehensive performance evaluation and review
of Mr. Strayton's performance for purposes of determining whether to
extend the Agreement and the results thereof shall be included in the
minutes of the Board meeting. The Board shall give Mr. Strayton notice of
its decision whether or not to extend the Employment Period at least 60
days prior to the Anniversary Date, and if such notice is that the
Employment Period shall not be extended (a "Non-Renewal Notice"), the
Employment Period shall not be extended. In such case, Mr. Strayton's
employment shall cease at the end of thirty-six (36) months following such
Anniversary Date.
4. The Agreement shall be modified to replace the term "Renewal Date" with the
term "Anniversary Date" in each place that it appears therein.
5. Section 8(b)(vi) shall be amended by adding the following language to the
end of the last sentence thereof:
"and provided that the lump sum payment determined above shall be increased
by an amount necessary to satisfy any federal, state and local income taxes
or Medicare taxes which become due as a result of such payment, in
accordance with Section 8(c) below;"
6. Section 8(b)(vii) shall be amended by adding the following language to the
end of the last sentence thereof::
"and provided that the lump sum payment determined above shall be increased
by an amount necessary to satisfy any federal, state and local income taxes
or Medicare taxes which become due as a result of such payment, in
accordance with Section 8(c) below;"
7. Section 8(b)(viii) shall be amended by adding the following language to the
end of the last sentence thereof:
"and provided that the lump sum payment determined above shall be increased
by an amount necessary to satisfy any federal, state and local income taxes
or Medicare taxes which become due as a result of such payment, in
accordance with Section 8(c) below;"
8. Section 8(b)(ix) shall be amended by deleting the language set forth
therein and replacing it with the following:
"(ix) within 60 days (or within such shorter period to the extent
that information can reasonably be obtained) following his termination of
employment with the Bank, a lump sum payment in an amount equal to three
times the average of the prior three years incentive compensation earned or
received by him under all incentive compensation plans or programs adopted
by the Bank, including but not limited to, the Management Incentive
Program; and"
2
<PAGE>
9. Section 8 shall be amended by adding new sub-section 8(b)(x) to the end
thereof:
"(ix) the vesting of all remaining options awarded to Mr. Strayton under
any stock option plan and/or stock awards under any management
recognition plan adopted by the Bank or the Company."
10. Section 8 (b) shall be amended by removing the flush language at the end
thereof (which begins "Notwithstanding the foregoing, to the extent
required...") and inserting such language in new Sub-section 8(e)."
11. Sub-section 8(c) shall be amended by substituting "three years" for "two
years" in the next to the last line thereof.
12. New Sub-section 8(d) shall be added to the Agreement, which shall read as
follows:
"(c) In the event that Mr. Strayton becomes entitled to a benefit under
Sections 8(b)(vi), (vii) or (viii) (collectively, the "Retirement Plan
Replacement Benefit"), the Bank shall pay Mr. Strayton an additional
payment under such Sections, as set forth therein, in order to compensate
for the additional income and Medicare taxes that become due and owing as a
result of such Retirement Plan Replacement Benefit. The additional amount,
subject to applicable withholding requirements under state or federal law,
shall equal:
(i) the sum of the highest marginal federal, state and local income
tax rate and Medicare tax rate multiplied by the Retirement Plan
Replacement Benefit, and
(ii) such additional amount (tax allowance) as may be necessary to
compensate Mr. Strayton for the payment of federal, state and
local income taxes and Medicare taxes on the payment provided
under Clause (i) and on any payments under this Clause (ii). In
computing such tax allowance, the payments to be made under
Clause (i) shall be multiplied by the "gross up percentage"
("GUP"). The GUP shall be determined as follows:
Tax Rate
GUP = ------------------
1 - Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the
highest marginal federal, state and local income tax rate and the
highest Medicare tax rate, applicable to Mr. Strayton in the year
in which the payment made under Clause (i) is made."
3
<PAGE>
13. Section 9 shall be amended by adding the following language to the end
thereof:
"For purposes of this Section 9, no act or failure to act, on the part of
Mr. Strayton, shall be considered "willful" unless it is done, or omitted
to be done, by Mr. Strayton in bad faith or without reasonable belief that
Mr. Strayton's action or omission was in the best interests of the Company
and the Bank. Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board or based upon the
written advice of counsel for the Company or the Bank shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good faith
and in the best interests of the Company and the Bank. The cessation of
employment of Mr. Strayton shall not be deemed to be for "Cause" within the
meaning of Section 9(a) unless and until there shall have been delivered to
Mr. Strayton a copy of a resolution duly adopted by the affirmative vote of
three-fourths of the members of the Board at a meeting of the Board called
and held for such purpose (after reasonable notice is provided to Mr.
Strayton and Mr. Strayton is given an opportunity, together with counsel,
to be heard before the Board), finding that in the good faith opinion of
the Board, Mr. Strayton is guilty of the conduct described in Section 9(a)
above, and specifying the particulars thereof in detail."
14. Section 10(a) of the Agreement shall be deleted and the following
substituted therefor:
"(a) For purposes of this Agreement, the term "Change in Control" shall
mean a change in control of a nature that: (i) would be required to be reported
in response to Item 1(a) of the current report on Form 8-K, as in effect on the
date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act"); or (ii) results in a Change in Control of the Bank or
the Company within the meaning of the Home Owners Loan Act, as amended ("HOLA"),
and applicable rules and regulations promulgated thereunder, as in effect at the
time of the Change in Control; or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (a) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner"(as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or more of
the combined voting power of Company's outstanding securities except for any
securities purchased by the Bank's employee stock ownership plan or trust; or
(b) individuals who constitute the Board on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the directors comprising
the Incumbent Board, or whose nomination for election by the Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (b), considered as though
he were a member of the Incumbent Board; or (c) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the Bank
or the Company or similar transaction in which the Bank or Company is not the
surviving institution occurs; or (d) a proxy statement soliciting proxies from
stockholders of the Company, by someone other than the current management of the
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or similar transaction with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to the plan are to be exchanged for or
4
<PAGE>
converted into cash or property or securities not issued by the Company; or (e)
a tender offer is made for 25% or more of the voting securities of the Company
and the shareholders owning beneficially or of record 25% or more of the
outstanding securities of the Company have tendered or offered to sell their
shares pursuant to such tender offer and such tendered shares have been accepted
by the tender offeror."
15. New Section 26 shall be added to the end of the Agreement and shall state
as follows:
"Section 26. Source of Payments
------------------
"All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. The Company, however, guarantees
payment and provision of all amounts and benefits due hereunder to Mr.
Strayton and, if such amounts and benefits due from the Bank are not timely
paid or provided by the Bank, such amounts and benefits shall be paid or
provided by the Company.
16. In all other respects the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties to the Agreement and the Company have
caused this Amendment Number One to be executed as of the _______ day of
___________, 1998.
WITNESS EXECUTIVE
- --------------------------------- ----------------------------------
(Name) (Name)
ATTEST: PROVIDENT BANK
By: By:
------------------------------ -------------------------------
Secretary President
ATTEST: PROVIDENT BANCORP, INC.
By: By:
------------------------------ -------------------------------
Secretary President
5
<PAGE>
EMPLOYMENT AGREEMENT
by and between
PROVIDENT SAVINGS BANK, F.A.
and
GEORGE STRAYTON
-------------------------
Made and Entered Into As Of
January 25, 1996
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
the 25th day of January, 1996, by and between PROVIDENT SAVINGS BANK, F.A., a
savings bank organized and existing under the laws of the State of New York and
having its executive offices at 400 Rella Boulevard, Montebello, New York 10901
("Bank"), and GEORGE STRAYTON, residing at 606 Knollwood Court, Valley
Cottage, New York 10989 ("Mr. Strayton").
WITNESSETH:
WHEREAS, Mr. Strayton is currently serving as President and Chief
Executive Officer of the Bank; and
WHEREAS, the Board of Directors of the Bank ("Board") considers the
continued availability of Mr. Strayton's services to be important to the
successful management, and conduct of the Bank's business and desires to secure
for itself the continued availability of his services; and
WHEREAS, for purposes of securing for the Bank Mr. Strayton's
services, the Board has approved and authorized the execution of this Agreement
with Mr. Strayton on the terms and conditions set forth herein; and
WHEREAS, Mr. Strayton is willing to continue to make his services
available to the Bank on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and obligations hereinafter set forth, the Bank and Mr. Strayton
hereby agree as follows:
Section 1. Employment.
----------
The Bank hereby agrees to continue the employment of Mr. Strayton, and
Mr. Strayton hereby agrees to continue such employment, during the period and
upon the terms and conditions set forth in this Agreement.
Section 2. Employment Period.
-----------------
(a) Except as otherwise provided in this Agreement to the contrary,
the terms and conditions of this Agreement shall be and remain in effect during
the period of employment ("Employment Period") established under this section 2.
The Employment Period shall be for a term commencing on the date of this
Agreement and ending on the third anniversary of the date of this Agreement;
provided however that commencing on the date one year after the date
<PAGE>
-2-
of this Agreement and on each annual anniversary of such date (such date of each
annual anniversary thereof shall be hereinafter referred to as the "Renewal
Date"), unless the Employment Period has been previously terminated, the Board
shall, at least 60 days prior to each such Renewal Date, review and determine
whether or not to approve a one-year extension of the Employment Period, and
such Board shall give Mr. Strayton notice of its decision whether or not to
extend the Employment Period at least 60 days prior to the Renewal Date, and if
such notice is that the Employment Period shall not be extended (a "Non-Renewal
Notice"), the Employment Period shall not be extended.
(b) Notwithstanding anything herein contained to the contrary: (i)
Mr. Strayton's employment with the Bank may be terminated by the Bank or Mr.
Strayton during the Employment Period, subject to the terms and conditions of
this Agreement; and (ii) nothing in this Agreement shall mandate or prohibit a
continuation of Mr. Strayton's employment following the expiration of the
Employment Period upon such terms and conditions as the Board and Mr. Strayton
may mutually agree.
(c) If Mr. Strayton's employment with the Bank is terminated under
circumstances described in section 8(a), the term "unexpired Employment Period"
in section 8(a) shall mean the period of time commencing on the date of such
termination and ending on the last day of the Employment Period.
(d) Notwithstanding anything contained in this section 2 to the
contrary, in the event of a Change of Control of the Bank as defined in Section
10, the Employment Period shall be extended until the third anniversary of the
Change of Control Date; provided however that commencing on the date one year
-------- -------
after the Change of Control Date and on each anniversary of such date (such date
and each annual anniversary thereof shall also be hereinafter referred to as the
"Renewal Date"), unless the Employment Period has been previously terminated,
the Board shall, at least 60 days prior to each Renewal Date, review and
determine whether or not to approve a one year extension of the Employment
Period so that the Employment Period terminates three years from such Renewal
Date, and the Bank shall give Mr. Strayton notice of the Board's decision
whether or not to extend the Employment Period at least 60 days prior to the
Renewal Date, and if such notice is that the Employment Period shall not be
extended (a "Non-Renewal Notice"), the Employment Period shall not be extended.
Section 3. Duties.
------
Mr. Strayton shall: (a) devote his full business time and attention
(other than during weekends, holidays, vacation periods, and periods of illness,
disability or approved leave of absence) to the business and affairs of the Bank
and use his best efforts to advance the Bank's interests; (b) if duly appointed
or elected, serve as President and Chief Executive Officer of the Bank and a
director of the Bank; and (c) perform such duties not inconsistent with his
title and office as may be assigned to him by or under the authority of the
Board. Mr. Strayton shall have such authority as is necessary or appropriate to
carry out his assigned duties. Mr. Strayton shall be entitled to a minimum of
five weeks of vacation time each year during the Employment Period.
<PAGE>
-3-
Section 4. Compensation.
------------
In consideration for the services rendered by Mr. Strayton under this
Agreement, the Bank shall pay to Mr. Strayton a salary at an annual rate equal
to the greatest of:
(a) $238,000; or
(b) such higher annual rate as may be prescribed by or under the
authority of the Board; or
(c) for each calendar year that begins on or after the date on which
a Change of Control Date, as defined in section 10, occurs, the
product of Mr. Strayton's annual rate of salary in effect
immediately prior to such calendar year, multiplied by the
greatest of:
(i) 1.06;
(ii) the quotient of (A) the U.S. City Average All Items
Consumer Price Index for All Urban Consumers (or, if such
index shall cease to be published, such other measure of
general consumer price levels as the Board may, in good
faith, prescribe) for October of the immediately preceding
calendar year, divided by (B) the U.S. City Average All
Items Consumer Price Index for All Urban Consumers (or, if
such index shall cease to be published, such other measure
of general consumer price levels as the Board may, in good
faith, prescribe) for October of the second preceding
calendar year; and
(iii) the quotient of (A) the average annual rate of salary,
determined as of the first day of such calendar year, of
the officers of the Bank (other than Mr. Strayton) who are
assistant vice presidents or more senior officers, divided
by (B) the average annual rate of salary, determined as
of the first day of the immediately preceding calendar
year, of the officers of the Bank (other than Mr.
Strayton) who are assistant vice presidents or more senior
officers;
provided however that in no event shall Mr. Strayton's annual rate of salary
- -------- -------
under this Agreement in effect at a particular time be reduced without his prior
written consent. The annual rate of salary payable under this section 4 shall be
paid in approximately equal installments in accordance with the Bank's customary
payroll practices.
Section 5. Employee Benefit Plans and Programs.
-----------------------------------
Except as otherwise provided in this Agreement, Mr. Strayton shall,
during the Employment Period, be treated as an employee of the Bank and be
entitled to participate in and receive benefits under the Bank's Defined Benefit
Pension Plan, 401(k) Plan, Management Incentive Program, Supplemental Executive
Retirement Plan, group life, health (including
<PAGE>
-4-
hospitalization, medical and major medical), prescription drug, dental and long
term disability insurance and such other employee benefit plans and programs,
including but not limited to any other incentive compensation plans or programs
(whether or not employee benefit plans or programs), as the Bank may maintain
from time to time, in accordance with the terms and conditions of such employee
benefit plans and programs and compensation plans and programs and in accordance
with the Bank's customary practices to the extent maintained by the Bank,
provided that he is a member of the class of employees authorized to participate
in such plans or programs.
Section 6. Outside Activities and Board Memberships.
----------------------------------------
During the term of this Agreement, Mr. Strayton shall not, directly or
indirectly, provide services on behalf of any competitive financial institution,
any insurance company or agency, any mortgage or loan broker or any other
competitive entity or on behalf of any subsidiary or affiliate of any such
competitive entity, as an employee, consultant, independent contractor, agent,
sole proprietor, partner, joint venturer, corporate officer or director; nor
shall Mr. Strayton acquire by reason of purchase during the term of this
Agreement the ownership of more than 5% of the outstanding equity interest in
any such competitive entity. In addition, during the term of this Agreement, Mr.
Strayton shall not, directly or indirectly, acquire a beneficial interest in any
real estate in which the Bank, directly or indirectly, also has a beneficial
interest, or engage in any joint venture in real estate with the Bank. Subject
to the foregoing, and to Mr. Strayton's right to continue to serve as an officer
and/or director or trustee of any business organization as to which he was so
serving on the effective date of this Agreement (including the Community Bankers
of New York State, Jawonio, Rockland County BSA, Rockland Economic Development
Corporation, Historical Society of Rockland, Saint Thomas Aquinas College, the
Federal Home Loan Bank of New York in which he serves in a paid position,
Rockland County Bankers Association and Rockland County Business Association),
Mr. Strayton may serve on boards of directors of unaffiliated corporations,
subject to Board approval, which shall not be unreasonably withheld, and such
service shall be presumed for these purposes to be for the benefit of the Bank.
In addition, the parties contemplate that Mr. Strayton will continue to engage
in activities consistent with his leadership role in state and local civic
affairs, inclusive of active participation in trade and financial institution
organizations. Except as specifically set forth herein, Mr. Strayton may engage
in personal business and investment activities, including real estate
investments and personal investments in the stocks, securities and obligations
of other financial institutions. Notwithstanding the foregoing, in no event
shall Mr. Strayton's outside activities, services, personal business and
investments materially interfere with the performance of his duties under this
Agreement.
Section 7. Working Facilities and Expenses.
-------------------------------
Mr. Strayton's principal place of employment shall be at the Bank's
principal executive offices at the address first above written, or at such other
office of the Bank in Rockland County as the Board shall, in its sole
discretion, deem to be in the best interest of the Bank, or at such other
location as the Board and Mr. Strayton may mutually agree upon; provided that
Mr. Strayton's place of employment shall be at the Bank's principal executive
offices. The Bank shall not be entitled to transfer Mr. Strayton to an office
that is not located in Rockland County without Mr. Strayton's consent, which may
be withheld in his sole
<PAGE>
-5-
discretion. The Bank shall provide Mr. Strayton, at his principal place of
employment, with a private office, stenographic services and other support
services and facilities suitable to his position with the Bank and necessary or
appropriate in connection with the performance of his assigned duties under this
Agreement. The Bank shall provide Mr. Strayton with an automobile suitable to
the position of President and Chief Executive Officer of the Bank, and such
automobile may be used by Mr. Strayton in carrying out his duties under this
Agreement, including commuting between his residence and his principal place of
employment, and other personal use. The Bank shall reimburse Mr. Strayton for
the cost of maintenance and servicing such automobile and for insurance,
gasoline and oil for such automobile. The Bank shall reimburse Mr. Strayton for
his ordinary and necessary business expenses, including, without limitation,
fees for memberships in the Rockland Country Club, such other clubs and
organizations as Mr. Strayton and the Board shall mutually agree are necessary
and appropriate for business purposes, and travel and entertainment expenses,
incurred in connection with the performance of his duties under this Agreement,
upon presentation to the Bank of an itemized account of such expenses in such
form as the Bank may reasonably require. Except as provided in section 17, Mr.
Strayton shall be responsible for the payment of any taxes on account of his
personal use of the automobile provided by the Bank and on account of any other
benefit provided herein.
Section 8. Termination of Employment with Bank Liability.
---------------------------------------------
(a) In the event that Mr. Strayton's employment with the Bank shall
terminate during the Employment Period on account of:
(i) Mr. Strayton's voluntary resignation from employment with the Bank
within one year following:
(A) the failure of the Bank's Board to appoint or re-appoint or elect
or re-elect Mr. Strayton to the offices of President and Chief
Executive Officer of the Bank, or both;
(B) the failure to elect or re-elect Mr. Strayton as a director of
the Bank;
(C) a material adverse change made by the Bank in Mr. Strayton's
functions, duties, or responsibilities in his position as
President and Chief Executive Officer of the Bank, which the Bank
fails to cure within 30 days following written notice thereof
from Mr. Strayton;
(D) a material breach of this Agreement by the Bank, which the Bank
fails to cure within 30 days following written notice thereof
from Mr. Strayton; or
(E) a Change of Control Date of the Bank as defined in section 10; or
(ii) the discharge of Mr. Strayton by the Bank for any reason other than
for "cause" as defined in section 9(a); or
<PAGE>
-6-
(iii) the termination of Mr. Strayton's employment with the Bank as a
result of Mr. Strayton's "total and permanent disability" which, for
purposes of this Agreement, shall apply only if a majority of the
members of the Board acting in good faith determine that, based upon
competent and independent medical evidence presented by a physician
or physicians agreed upon by the parties, Mr. Strayton's physical or
mental condition is such that he is totally and permanently
incapable of engaging in any substantial gainful employment based
upon his education, training and experience;
then the Bank shall provide the benefits and pay to Mr. Strayton the amounts
provided for under section 8(b).
(b) Upon the termination of Mr. Strayton's employment with the Bank
under circumstances described in section 8(a) of this Agreement, the Bank shall
pay and provide to Mr. Strayton (or, in the event of his death, to his surviving
spouse or such other beneficiary as Mr. Strayton may designate in writing, or if
there is neither, to his estate):
(i) his earned but unpaid salary as of the date of the termination of
his employment with the Bank;
(ii) the benefits, if any, to which he is entitled as a former employee
under the Bank's employee benefit plans and programs and
compensation plans and programs;
(iii) continued group life, health (including hospitalization, medical and
major medical), prescription drug, dental and long term disability
insurance benefits, in addition to those provided pursuant to
section 8(b)(ii), if and to the extent necessary to provide for Mr.
Strayton, for the remaining unexpired Employment Period, coverage
equivalent to the coverage to which he would have been entitled if
he had continued working for the Bank during the remaining unexpired
Employment Period at the highest annual rate of salary achieved
during the Employment Period;
(iv) if and to the extent not already provided under sections 8(b)(ii)
and 8(b)(iii), health (including hospitalization, medical and major
medical) insurance benefits and life insurance coverage, during his
lifetime and his spouse's lifetime, equivalent to the greater of (A)
the coverage provided on the date of this Agreement to retirees of
the Bank who had retired on normal retirement or (B) the coverage
provided at the date of Mr. Strayton's termination of employment
with the Bank to retirees of the Bank who retire on normal
retirement;
(v) within thirty (30) days following his termination of employment with
the Bank, a lump sum payment, as liquidated damages, in an amount
equal to the sum of (A) the present value of the salary that Mr.
Strayton would have earned (but offset by any payments made under
any short-term or long-term disability plan or program maintained by
the Bank) if he had continued working for the Bank during the
remaining unexpired Employment Period (assuming, if a Change of
<PAGE>
-7-
Control Date as defined in section 10 has occurred, that the annual
increases under section 4(c)(i) would apply) and (B) the present value
of any fees that he would have received as a member of the Board of
Directors of the Bank if he had continued as a director of the Bank
during the remaining unexpired Employment Period, where such present
values are to be determined using a discount rate of 6%, such lump sum
to be paid in lieu of all other payments of salary and directors fees
provided for under this Agreement in respect of the period following any
such termination and to be payable without proof of damages and without
regard to Mr. Strayton's efforts, if any, to mitigate damages;
(vi) within 60 days (or within such shorter period to the extent that
information can be reasonably be obtained) following his termination of
employment with the Bank, a lump sum payment in an amount equal to the
excess, if any, of: (A) the present value of the benefits to which he
would be entitled under the Bank's Defined Benefit Pension Plan (and any
other defined benefit plan maintained by the Bank) if he had the
additional years of service that he would have had if he had continued
working for the Bank during the remaining unexpired Employment Period
earning the salary that would have been paid during the remaining
unexpired Employment Period (assuming, if a Change of Control Date as
defined in section 10 has occurred, that the annual salary increases
under section 4(c)(i) would apply), determined as if each such plan had
continued in effect without change in accordance with its terms as of
the day prior to his actual date of his Termination and as if such
benefits were payable beginning on the first day of the month coincident
with or next following his actual date of his termination, over (B) the
present value of the benefits to which he is actually entitled under the
Bank's Defined Benefit Pension Plan (and any other defined benefit plan
maintained by the Bank) as of the date of his termination, where such
present values are to be determined using a discount rate of 6% and the
mortality tables prescribed under section 72 of the Internal Revenue
Code of 1986 ("Code");
(vii) within 60 days (or within such shorter period to the extent that
information can be reasonably be obtained) following his termination of
employment with the Bank, a lump sum payment in an amount equal to the
present value of the Bank's contributions that would have been made on
his behalf under the Bank's 401(k) Plan (and any other defined
contribution plan maintained by the Bank) if he had continued working
for the Bank during the remaining unexpired Employment Period earning
the salary that would have been achieved during the remaining unexpired
Employment Period (assuming, if a Change of Control Date as defined in
section 10 has occurred, that the annual salary increases under section
4(c)(i) would apply) and making the maximum amount of employee
contributions permitted, if any, under such plan or plans, where such
present values are to be determined using a discount rate of 6%;
(viii) within 60 days (or within such shorter period if to the extent that can
be reasonably be obtained) following his termination of employment with
the Bank, a lump sum payment in an amount equal to the excess, if any,
of (A) the present value of the benefits to which he would be entitled
under the Supplemental
<PAGE>
-8-
Executive Retirement Plan (and any other excess benefit plan within
the meaning of section 3(36) of the Employee Retirement income
Security Act of 1974, as amended, or any deferred compensation plan
for management or highly compensated employees that are maintained by
the Bank), if he had continued working for the Bank during the
remaining unexpired Employment Period earning the salary that would
have been achieved during the remaining unexpired Employment Period
(assuming, if a Change of Control Date as defined in section 10 has
occurred, that the annual salary increases under section 4(c)(i) would
apply), determined as if each such plan had continued in effect
without change in accordance with its terms as of the day prior to his
actual date of his termination and as if such benefits were payable
beginning on the first day of the month coincident with or next
following his actual date of his termination, over (B) the present
value of the benefits to which he is actually entitled under any such
plan, as of the date of his termination of employment with the Bank,
where such present values are to be determined using a discount rate
of 6% and the mortality tables prescribed under section 72 of the
Code; and
(ix) the payments that would have been made to Mr. Strayton under all
incentive compensation plans and programs adopted by the Bank,
including the Management incentive Program, if he had continued
working for the Bank during the remaining unexpired Employment Period
and had earned an incentive award in each calendar year that ends
during the remaining unexpired Employment Period in an amount equal to
the product of (A) the maximum percentage rate of incentive
compensation award (as a percentage of base salary) for the previous
three years under such incentive compensation plans and programs,
multiplied by (B) the salary that would have been paid to Mr.
Strayton during each such calendar year (assuming, if a Change of
Control Date as defined in section 10 has occurred, that the annual
salary increases under section 4(c)(i) would apply), such payments to
be made at the same time and in the same manner as payments are made
to other officers of the Bank pursuant to the terms of such incentive
compensation plans and programs; provided, however, that payments
-------- -------
under this section 8(b)(ix) shall not be made to Mr. Strayton for any
year in which no incentive compensation payments are made to any of
the Bank's officers as a result of the performance of the Bank;
provided, further, that, if a Change of Control Date as defined in
-------- -------
section 10 has occurred, payments shall be made to Mr. Strayton under
this section 8(b)(ix) during each calendar year without regard to
whether such payments are made to any of the Bank's officers and
without regard to whether such incentive compensation plans and
programs have been amended or terminated, in an amount that is not
less than the product of (A) the maximum percentage rate at which an
award was ever available to Mr. Strayton under such incentive
compensation plans and programs, multiplied by (B) the salary that
would have been paid to Mr. Strayton during each such calendar year
(assuming that the annual salary increases under section 4(c)(i) would
apply).
Notwithstanding the foregoing, to the extent required by regulations or
interpretations of the Office of Thrift Supervision, all payments under the
Agreement shall not exceed three times Mr. Strayton's average annual
compensation over the most recent five taxable years. The Bank and
<PAGE>
-9-
Mr. Strayton hereby stipulate that the damages which may be incurred by Mr.
Strayton following any such termination of employment are not capable of
accurate measurement as of the date first above written and that such liquidated
damages constitute reasonable damages under the circumstances.
(c) If the Bank gives Mr. Strayton a Non-Renewal Notice, or if the
Bank does not extend the Employment Period at least 60 days prior to any Renewal
Date as described in Section 2 of the Agreement, Mr. Strayton may resign from
the employment of the Bank at any time after such an event. In such a case, (i)
the Bank shall pay to Mr. Strayton severance benefits in a lump sum in cash
within 30 days after such resignation equal to the amounts described in Section
8(b) of the Agreement (except that the maximum number of years that may be taken
into account under Section 8(b)(v), (vi), (vii), (viii) and (ix) shall be two
years), and (ii) the Bank shall provide the benefits described in Section
8(b)(ii), (iii) and (iv).
Section 9. Termination without Additional Bank Liability.
---------------------------------------------
In the event that Mr. Strayton's employment with the Bank shall
terminate during the Employment Period on account of:
(a) the discharge of Mr. Strayton for "cause", which, for purposes of this
Agreement, shall mean a discharge because the Board determines, by the
affirmative vote of a majority of its members acting in good faith,
that Mr. Strayton:
(i) has intentionally failed to perform his assigned duties under
this Agreement;
(ii) has intentionally engaged in dishonest or illegal conduct in
connection with his performance of services for the Bank or has
been convicted of a felony;
(iii) has willfully violated, in any material respect, any law, rule,
regulation, written agreement or final cease-and-desist order
with respect to his performance of services for the Bank, as
determined by the Board; or
(iv) has intentionally breached the material terms of this
Agreement;
provided, however, that on and after the earliest date on which a
-------- -------
Change of Control Date as defined in section 10 occurs, such a
determination shall require the affirmative vote of at least three-
fourths of the members of the Board acting in good faith and such vote
shall not be made prior to the expiration of a 60 day period following
the date on which the Board shall, by written notice to Mr. Strayton,
furnish to him a statement of its grounds for proposing to make such
determination, during which period Mr. Strayton shall be afforded a
reasonable opportunity to make oral and written presentations to the
members of the Board, and to be represented by his legal counsel at
such presentations, to refute the grounds for the proposed
determination;
<PAGE>
-10-
(b) Mr. Strayton's voluntary resignation from employment with the Bank for
reasons other than those specified in section 8(a)(i) or 8(c); or
(c) Mr. Strayton's death;
then the Bank shall have no further obligations under this Agreement, other than
the payment to Mr. Strayton of his earned but unpaid salary as of the date of
the termination of his employment, and the provision of such other benefits, if
any, to which he is entitled as a former employee under the Bank's employee
benefit plans and programs and compensation plans and programs.
Section 10. Change of Control.
-----------------
(a) For purposes of this Agreement, the term "Change of Control of the
Bank" shall mean any of the following events:
(i) if the Bank converts to a stock-form savings bank, bank,
savings and loan association or other financial institution,
the occurrence of any event if, immediately following such
event, at least 50% of the members of the Board do not belong
to any of the following groups:
(A) individuals who were members of the Board immediately
prior to the conversion of the Bank to stock-form; or
(B) individuals who first became members of the Board after
the Bank's conversion to stock-form either:
(I) upon election to serve as a member of the Board by
affirmative vote of a majority of the members of the
Board, or a nominating committee thereof, in office
at the time of such first election; or
(II) upon election by the Bank's shareholders to serve as
a member of the Board, but only if nominated for
election by affirmative vote of a majority of the
members of the Board, or a nominating committee
thereof, in office at the time of such first
nomination; or
(ii) the reorganization, merger or consolidation of the Bank with
one or more other savings banks, banks, savings and loan
associations or other financial institutions or other entities,
other than a transaction following which a majority of the
members of the Board of the resulting organization were members
of the Bank's Board immediately prior to the reorganization;
(iii) if the Bank converts to a stock-form savings bank, bank,
savings and loan association or other financial institution,
the acquisition of legal or
<PAGE>
-11-
beneficial ownership of substantially all of the assets of the
Bank or of more than twenty-five percent of the voting shares of
the Bank, by any person or entity, or by any persons or entities
acting in concert.
Notwithstanding the foregoing, no Change of Control of the Bank shall be deemed
to have occurred solely by reason of the reorganization of the Bank pursuant to
which the Bank becomes a wholly owned subsidiary of a bank holding company
("Holding Company"); provided, that, immediately following such reorganization,
--------
a majority of the board of directors of the Holding Company is comprised of
individuals who were directors of the Bank immediately prior to the
reorganization. If the Bank is reorganized as specified in the preceding
sentence, then, following such reorganization, a Change of Control of the Bank
shall be deemed to have occurred if any of the events specified in subsections
(i) or (ii) of this section 10 would have occurred if the words "the Bank or the
Holding Company" were substituted for the words "the Bank" and the word "Board"
referred equally to the board of trustees or directors of the Bank or the
Holding Company. Notwithstanding the foregoing provisions of this section 10, no
Change of Control of the Bank shall be deemed to have occurred by reason of any
reorganization, merger or consolidation of the Bank, any acquisitions of assets
or stock of the Bank, or any changes in the membership of the Bank's Board, if
any such event, acquisition or change is, directly or indirectly, a result of
actions taken by the Office of Thrift Supervision ("OTS"), the Federal Deposit
Insurance Corporation ("FDIC"), or any other appropriate federal or state
banking regulator, because such regulator has (1) determined that the Bank is
insolvent or that grounds exist for the appointment of a conservator or
receiver, (2) determined that the Bank is operating in an unsafe or unsound
banking condition, or (3) caused the event, acquisition or change to occur
because of a violation, in any material respect, of any banking law or
regulation, rule, written agreement or final cease-and-desist order.
(b) For purposes of this Agreement, the term "Change of Control Date"
shall mean the first date during the Employment Period on which a Change of
Control occurs. Anything in this Agreement to the contrary notwithstanding, if
Mr. Strayton's employment with the Bank is terminated and if it is reasonably
demonstrated by Mr. Strayton that such termination of Employment (i) was at the
request of a third party who has taken steps reasonably calculated to effect a
Change of Control or (ii) otherwise arose in connection with or anticipation of
a Change of Control, then for all purposes of this Agreement the "Change of
Control Date" shall mean the date immediately prior to the date of such
termination of employment.
Section 11. Covenant Not To Compete.
-----------------------
Mr. Strayton hereby covenants and agrees that for a period of one (1)
year following the date of his termination of employment with the Bank, if such
termination occurs prior to the end of the Employment Period, he shall not,
without the written consent of the Board, become an officer, employee,
consultant, director independent contractor, agent, sole proprietor, partner
or trustee of any savings bank, savings and loan association, savings and loan
holding company, bank or bank holding company, insurance company or agency, any
mortgage or loan broker or any other entity competing with the Bank or its
affiliates if such position entails working in (or providing services in)
Rockland or Orange Counties; provided, however, that this section 11 shall not
-------- -------
apply if Mr. Strayton's employment is terminated for the reasons set forth in
section 8(a) or 8(c).
<PAGE>
-12-
Section 12. Additional Termination and Suspension Provisions.
------------------------------------------------
(a) If Mr. Strayton is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act, as amended (12
U.S.C. 1818(e)(3) and (g)(1)), all obligations of the Bank under this Agreement
shall be suspended as of the date of service unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay Mr. Strayton all of the compensation withheld while the
Bank's obligations under this Agreement were suspended and (ii) reinstate (in
whole) any of the Bank's obligations which were suspended, and in exercising
such discretion, the Bank shall consider the facts and make a decision promptly
following such dismissal of charges and act in good faith in deciding whether to
pay any withheld compensation to Mr. Strayton and to reinstate any suspended
obligations of the Bank.
(b) If Mr. Strayton is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, as amended (12
U.S.C. 1818 (e)(4) or (g)(1)), all obligations of the Bank under this Agreement
shall terminate as of the effective date of the order, but vested rights of the
parties shall not be affected.
(c) if the Bank is in default, as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, as amended (12 U.S.C. 1813(x)(1)), all
obligations under this Agreement shall terminate as of the date of default, but
this provision shall not affect any vested rights of the parties.
(d) All obligations under this Agreement shall be terminated, except
to the extent determined that continuation of this Agreement is necessary for
the continued operation of the Bank, (i) by the Director of the OTS (the
"Director") or his or her designee, at the time the FDIC enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the Federal Deposit Insurance Act, as amended; or
(ii) by the Director or his or her designee, at the time the Director or his or
her designee approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the Director to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
(e) If any regulation applicable to the Bank shall hereafter be
adopted, amended or modified, or if any new regulation applicable to the Bank
and effective after the date of this Agreement:
(i) shall require the inclusion in this Agreement of a provision
not presently included in this Agreement, then the foregoing
provisions of this section 12 shall be deemed amended to the
extent necessary to give effect in this Agreement to any such
amended, modified or new regulation; and
(ii) shall permit the exclusion of a limitation in this Agreement on
the payment to Mr. Strayton of an amount or benefit provided for
presently in this Agreement, then the foregoing provisions of
this section 12 shall
<PAGE>
-13-
be deemed amended to the extent permissible to exclude from this
Agreement any such limitation previously required to be included
in this Agreement by a regulation prior to its amendment,
modification or repeal.
Section 13. No Effect on Employee Benefit Plans or Programs.
-----------------------------------------------
Except as expressly provided in this Agreement, the termination of Mr.
Strayton's employment during the term of this Agreement or thereafter, whether
by the Board or by Mr. Strayton, shall have no effect on the rights and
obligations of the parties hereto under the Bank's Defined Benefit Pension Plan,
4O1(k) Plan, Supplemental Executive Retirement Plan, Management Incentive
Program, group life, health (including basic hospitalization and major medical),
prescription drug, dental and long term disability insurance plans or such other
employee benefit plans or programs, including but not limited to any incentive
compensation plans or programs (whether or not employee benefit plans or
programs) as the Bank may maintain from time to time.
Section 14. Successors and Assigns.
----------------------
This Agreement will inure to the benefit of and be binding upon Mr.
Strayton, his legal representatives and testate or intestate distributees, and
the Bank, its successors and assigns, including any successor by merger or
consolidation or conversion to stock form or a statutory receiver or any other
person or firm or corporation to which all or substantially all of the assets
and business of the Bank may be sold or otherwise transferred. Any such
successor of the Bank shall be deemed to have assumed this Agreement and to have
become obligated hereunder to the same extent as the Bank, and Mr. Strayton's
obligations hereunder shall continue in favor of such successor.
Section 15. Notices.
-------
Any communication to a party required or permitted under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally or received by overnight carrier, or
five days after mailing if mailed, postage prepaid, by registered or certified
mail, return receipt requested, addressed to such patty at the address listed
below or at such other address as one such patty may by written notice specify
to the other party:
If to Mr. Strayton:
Mr. George Strayton
606 Knollwood Court
Valley Cottage, New York 10989
<PAGE>
-14-
If to the Bank:
Provident Savings Bank, F.A.
400 Rella Boulevard
Montebello, New York 10901
Attention: Chairman of the Board of Directors
Section 16. Settlement Indemnification and Attorneys' Fees.
-----------------------------------------------
The Bank's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Bank may have against Mr. Strayton or others. In no event
shall Mr. Strayton be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to Mr. Strayton under any of
the provisions of this Agreement and such amounts shall not be reduced whether
or not Mr. Strayton obtains other employment.
(b) Unless it is determined that a claim made by Mr. Strayton was
either frivolous or made in bad faith, the Bank agrees to pay as incurred, to
the full extent permitted by law, all legal fees and expenses which Mr. Strayton
may reasonably incur as a result of or in connection with his consultation with
legal counsel or arising out of any action, suit, proceeding or contest
(regardless of the outcome thereof) by the Bank, Mr. Strayton or others
regarding the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by Mr. Strayton about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in section 7872(f)(2)(A) of the Code.
(c) The Bank shall indemnify, hold harmless and defend Mr. Strayton
for all acts or omissions taken or not taken by him in good faith while
performing services for the Bank to the same extent and upon the same terms and
conditions as other similarly situated officers and directors of the Bank. If
and to the extent that the Bank maintains, at any time during the Employment
Period, an insurance policy covering the other officers and directors of the
Bank against lawsuits, the Bank shall use its best efforts to cause Mr. Strayton
to be covered under such policy upon the same terms and conditions as other
similarly situated officers and directors.
Section 17. Excise Tax.
----------
(a) This section 17 shall apply if at the relevant date and during the
six-month period ending on tile relevant date, the Bank was in compliance with
all applicable minimum capital requirements imposed upon the Bank by federal or
state regulatory authorities, taking into account any phase-in period,
grandfather rights or similar provisions that are applicable to the Bank. For
purposes of the preceding sentence, the term "relevant date" shall mean the day
before the date on which the change "in the ownership or effective control" of
the Bank or "in the ownership of a substantial portion of the assets of the.
Bank occurs within the meaning of section 280G of the Code. If this section 17
applies, then if, for any taxable year, Mr. Strayton shall be liable for the
payment of an excise tax under section 4999 of the Code, with respect to
<PAGE>
-15-
any payment in the nature of compensation made by the Bank to (or for the
benefit of) Mr. Strayton, the Bank shall pay to Mr. Strayton an amount equal to
X determined under the following formula:
E x P
------------------------------------
X = 1 - [(FI x (1 - SLI)) + SLI + E + M)
where
E = the rate at which the excise tax is assessed under section 4999
of the Code;
P = the amount with respect to which such excise tax is assessed,
determined without regard to this section 17;
Fl = the highest marginal rate of income tax applicable to Mr.
Strayton under the Code for the taxable year in question;
SLI = the sum of the highest marginal rates of income tax applicable
to Mr. Strayton under all applicable state and local laws for
the taxable year in question; and
M = the highest marginal rate of Medicare tax applicable to Mr.
Strayton under the Code for the taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Mr. Strayton under the terms of this Agreement or otherwise
and on which an excise tax under section 4999 of the Code will be assessed, the
payment determined under this section 17(a) shall be made to Mr. Strayton on the
earlier of (i) the date the Bank is required to withhold such tax, or (ii) the
date the tax is required to be paid by Mr. Strayton.
(b) Notwithstanding anything in this section 17 to the contrary, in
the event that Mr. Strayton's liability for the excise tax under section 4999 of
the Code for a taxable year is subsequently determined to be different than the
amount determined by the formula (X + P) x E, where X, P and E have the meanings
provided in section 17(a), Mr. Strayton or the Bank, as the case may be, shall
pay to the other patty at the time that the amount of such excise tax is finally
determined, an appropriate amount, plus interest, such that the payment made
under section 17(a), when increased by the amount of the payment made to Mr.
Strayton under this section 17(b) by the Bank, or when reduced by the amount of
the payment made to the Bank under this section 17(b) by Mr. Strayton, equals
the amount that, it is finally determined, should have properly been paid to Mr.
Strayton under section 17(a). The interest paid under this section 17(b) shall
be determined at the rate provided under section 1274(b)(2)(B) of the Code. To
confirm that the proper amount, if any, was paid to Mr. Strayton under this
section 17, Mr. Strayton shall furnish to the Bank a copy of each tax return
which reflects a liability for an excise tax payment made by the Bank, at least
twenty (20) days before the date on which such return is required to be filed
with the Internal Revenue Service.
<PAGE>
-16-
Section 18. Severability.
------------
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
Section 19. Waiver.
------
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
Section 20. Counterparts.
------------
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same Agreement.
Section 21. Governing Law.
-------------
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without reference to
conflicts of law principles, except to the extent governed by federal law in
which case federal law shall govern.
Section 22. Headings and Construction.
-------------------------
The headings of sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any section. Any
reference to a section number shall refer to a section of this Agreement, unless
otherwise stated.
Section 23. Arbitration.
-----------
Any dispute or controversy arising out of, under, in connection with,
or relating to this Agreement and any amendment hereof shall be submitted to
binding arbitration before three arbitrators in Rockland County in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
for expedited arbitration, and any judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.
Section 24. Entire Agreement; Modifications.
-------------------------------
This instrument contains the entire agreement of the parties relating
to the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
<PAGE>
-17-
Section 25. Compliance with Law.
-------------------
Any payments made to Mr. Strayton pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
1828(i) and any regulations promulgated thereunder.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed
and Mr. Strayton has hereunto set his hand, all as of the day and year first
above written.
/s/ George Strayton
-----------------------------------
GEORGE STRAYTON
PROVIDENT SAVINGS BANK, F.A.
By /s/ Gary Zeh
---------------------------------
Name: Gary Zeh
-------------------------------
for the Board of Directors
ATTEST:
By /s/ Carol Benoist
------------------------
Secretary
[Seal]
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
by and between
PROVIDENT BANK
And
___________________
____________________________________
Made and Entered Into As Of
__________, 1998
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is made and entered into as of the
____ day of _________, 1998, by and between PROVIDENT BANK, a savings bank
organized and existing under the laws of the United States of America and
having its executive offices at 400 Rella Boulevard, Montebello, New York 10901
("Bank"), and ____________________ ("Executive"). Provident Bancorp, Inc.
("Company") is a party to this Agreement for the sole purpose of guaranteeing
the Bank's performance hereunder.
WITNESSETH:
WHEREAS, Executive is currently serving as _____________________________of
the Bank; and
WHEREAS, the Board of Directors of the Bank ("Board") considers the
continued availability of Executive's services to be important to the successful
management and conduct of the Bank's business and desires to secure for itself
the continued availability of his or her services; and
WHEREAS, for purposes of securing Executive's services for the Bank, the
Board has approved and authorized the execution of the Agreement with Executive
on the terms and conditions set forth herein; and
WHEREAS, Executive is willing to continue to make his or her services
available to the Bank on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and obligations hereinafter set forth, the Bank and Executive hereby agree as
follows:
SECTION 1. EMPLOYMENT
----------
The Bank hereby agrees to continue the employment of the Executive and the
Executive hereby agrees to continue such employment, during the period and upon
the terms and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD
-----------------
(a) Except as otherwise provided in this Agreement to the contrary, the
terms and conditions of this Agreement shall be and remain in effect during the
period of employment ("Employment Period") established under this Section 2. The
Employment Period shall be for a term commencing on the date of this Agreement
and ending on the [second] anniversary of the date of this Agreement; provided,
however, that on each day after the date of this Agreement, the Agreement shall
automatically renew so that the remaining term shall be [twenty-four (24)]
months, and provided, further that commencing on each annual anniversary of the
date of this Agreement (the
<PAGE>
date of each annual anniversary hereof shall be hereinafter referred to as the
"Anniversary Date"), unless the Employment Period has been previously
terminated, the Board shall, at least 60 days prior to each such Anniversary
Date, conduct a comprehensive performance evaluation and review of the Executive
for purposes of determining whether to extend the Agreement and the results
thereof shall be included in the minutes of the Board meeting. The Board shall
give the Executive notice of its decision whether or not to extend the
Employment Period at least 60 days prior to the Anniversary Date, and if such
notice is that the Employment Period shall not be extended (a "Non-Renewal
Notice"), the Employment Period shall not be extended. In such case, the
Executive's employment shall cease at the end of [twenty-four (24)] months
following such Anniversary Date.
(b) Notwithstanding anything herein contained to the contrary: (i) the
Executive's employment with the Bank may be terminated by the Bank or the
Executive during the Employment Period, subject to the terms and conditions of
this Agreement; and (ii) nothing in this Agreement shall mandate or prohibit a
continuation of the Executive's employment following the expiration of the
Employment Period upon such terms and conditions as the Board and the Executive
may mutually agree.
(c) If the Executive's employment with the Bank is terminated under
described in Section 8(a), the term "unexpired Employment Period" in Section
8(b) shall mean the period of time commencing on the date of such termination
and ending on the last day of the Employment Period.
(d) Notwithstanding anything continued in this Section 2 to the contrary,
in the event of a Change in Control of the Bank as defined in Section 10, the
Employment Period shall be extended until the third anniversary of the Change in
Control Date; provided, however, that commencing on the date one year after the
Change in Control Date and on each anniversary of such date (such date and each
annual anniversary thereof shall also be hereinafter referred to as the
"Anniversary Date"), unless the Employment Period has been previously
terminated, the Board shall, at least 60 days prior to each Anniversary Date,
review and determine whether or not to approve a one-year extension of the
Employment Period so that the Employment Period terminates three years from such
Anniversary Date, and the Bank shall give the Executive notice of the Board's
decision whether or not to extend the Employment Period at least 60 days prior
to the Anniversary Date, and if such notice is that the Employment Period shall
not be extended (a "Non-Renewal Notice"), the Employment Period shall not be
extended.
SECTION 3. DUTIES
------
The Executive shall: (a) devote his or her full business time and attention
(other than during weekends, holidays, vacation periods, and periods of illness,
disability or approved leave of absence) to the business and affairs of the Bank
and use his or her best efforts to advance the Bank's interests; (b) if duly
appointed or elected, serve as [______________________________________] of the
Bank; and (c) perform such duties not inconsistent with his or her title and
office as may be assigned to him or her by or under the authority of the Board.
The Executive shall have such authority as is
2
<PAGE>
necessary or appropriate to carry out his or her assigned duties. The Executive
shall be entitled to a minimum of four weeks of vacation time each year during
the Employment Period.
SECTION 4. COMPENSATION
------------
In consideration for the services rendered by the Executive under this
Agreement, the Bank shall pay to the Executive a salary at an annual rate equal
to the greatest of:
(a) $__________;
(b) such higher annual rate as may be prescribed by or under the
authority of the Board;
(c) for each calendar year that begins on or after the date on which
a change in Control Date, as defined in Section 10, occurs, the
product of the Executive's annual rate of salary in effect
immediately prior to such calendar year, multiplied by the
greatest of:
(i) 1.06; or
(ii) the quotient of (A) the average annual rate of salary,
determined as of the first day of such calendar year, of the
officers of the Bank (other than the Executive ) who are
assistant vice presidents or more senior officers, divided
by (B) the average annual rate of salary, determined as of
the first day of the immediately preceding calendar year, of
the officers of the Bank (other than the Executive) who are
assistant vice presidents or more senior officers;
provided, however, that in no event shall the Executive's annual rate of salary
- -------- -------
under this Agreement in effect at a particular time be reduced without the
Executive's prior written consent. The annual rate of salary payable under this
Section 4 shall be paid in approximately equal installments in accordance with
the Bank's customary payroll practices.
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS
-----------------------------------
Except as otherwise provided in this Agreement, the Executive shall, during
the Employment Period, be treated as an employee of the Bank, and be entitled to
participate in and receive benefits under the Bank's Defined Benefit Pension
Plan, 401(k) Plan, Management Incentive Program, Supplemental Executive
Retirement Plan, group life, health (including hospitalization, medical and
major medical), prescription drug, dental, short and long term disability
insurance plans, and such other employee benefit plans and programs, including
but not limited to any other incentive compensation plans or programs (whether
or not employee benefit plans or programs), stock option plans and stock award
plans, if any, as the Bank may maintain from time to time, in accordance with
3
<PAGE>
the terms and conditions of such employee benefit plans and programs and
compensations plans and programs and in accordance with the Bank's customary
practices to the extent maintained by the Bank, provided that he or she is a
member of the class of employees authorized to participate in such plans or
programs.
SECTION 6. OUTSIDE ACTIVITIES AND BOARD MEMBERSHIPS
----------------------------------------
During the term of this Agreement, the Executive shall not, directly or
indirectly, provide services on behalf of any competitive financial
institutions, any insurance company or agency, any mortgage or loan broker or
any other competitive entity or on behalf of any subsidiary or affiliate of any
such competitive entity, as an employee, consultant, independent contractor,
agent, sole proprietor, partner, joint venturer, corporate officer or director;
nor shall the Executive acquire by reason of purchase during the term of this
Agreement the ownership of more than 5% of the outstanding equity interest in
any such competitive entity. In addition, during the term of this Agreement,
the Executive shall not, directly or indirectly, acquire a beneficial interest,
or engage in any joint venture in real estate with the Bank. Subject to the
foregoing, and to the Executive's right to continue to serve as an officer
and/or director or trustee of any business organization as to which he or she
was so serving on the effective date of this Agreement, the Executive may serve
on boards of directors of unaffiliated corporations, subject to Board approval,
which shall not be unreasonably withheld, and such services shall be presumed
for these purposes to be for the benefit of the Bank. Except as specifically set
forth herein, the Executive may engage in personal business and investment
activities, including real estate investments and personal investments in the
stocks, securities and obligations of other financial institutions.
Notwithstanding the foregoing, in no event shall the Executive's outside
activities, services, personal business and investments materially interfere
with the performance of his or her duties under this Agreement.
SECTION 7. WORKING FACILITIES AND EXPENSES
-------------------------------
The Executive's principal place of employment shall be at the Bank's
principal executive office at the address first above written, or at such other
office of the Bank in Rockland County as the Board shall, in its sole
discretion, deem to be in the best interest of the Bank, or at such other
location upon which the Board and the Executive may mutually agree. The Bank
shall reimburse the Executive for his or her ordinary and necessary business
expenses and travel and entertainment expenses, incurred in connection with the
performance of his or her duties under this Agreement, upon presentation to the
Bank of an itemized account of such expenses in such form as the Bank may
reasonably require.
SECTION 8. TERMINATION OF EMPLOYMENT WITH BANK LIABILITY
---------------------------------------------
(a) In the event that the Executive's employment with the Bank shall
terminate during the Employment Period on account of:
4
<PAGE>
(i) The Executive's voluntary resignation from employment with the
Bank within one year following:
(A) the failure of the Bank's President or the Bank's Board to
re-appoint the Executive to the position set forth under
Section 3;
(B) a material change in Executive's functions, duties, or
responsibilities, which change would cause Executive's
position to become one of lesser responsibility, importance,
or scope, which the Bank fails to cure within 30 days
following written notice thereof from the Executive;
(C) liquidation or dissolution of the Bank or the Company other
than liquidations or dissolutions that are caused by
reorganizations that do not affect the status of the
Executive;
(D) a material breach of this Agreement by the Bank, which the
Bank fails to cure within 30 days following written notice
thereof from the Executive; or
(E) a Change in Control Date of the Bank as defined in Section
10; or
(ii) the discharge of the Executive by the Bank for any reason
other than for "Cause" as defined in Section 9(a); or
(iii) the termination of the Executive's employment with the Bank as a
result of the Executive's "total and permanent disability" which,
for purposes of this Agreement, shall apply only if a majority of
the members of the Board acting in good faith determine that,
based upon competent and independent medical evidence presented
by a physician or physicians agreed upon by the parties, the
Executive's physical or mental condition is such that he or she
is totally and permanently incapable of engaging in any
substantial gainful employment based upon his or her education,
training and experience;
then the Bank shall provide the benefits and pay to the Executive the amounts
provided for under Section 8(b).
(b) Upon the termination of the Executive's employment with the Bank under
circumstances described in Section 8(a) of this Agreement, the Bank shall pay
and provide or credit to the Executive (or, in the event of his or her death, to
his or her surviving spouse or such other beneficiary as the Executive may
designate in writing, or if there is neither, to his or her estate):
5
<PAGE>
(i) his earned but unpaid salary as of the date of the termination
of his or her employment with the Bank;
(ii) the benefits, if any, to which he or she is entitled as a former
employee under the Bank's employee benefit plans and programs
and compensation plans and programs;
(iii) continued group, life, health (including hospitalization,
medical and major medical), prescription drug, dental, short and
long term disability insurance benefits, in addition to those
provided pursuant to Section 8(b)(ii), if and to the extent
necessary to provide the Executive for the remaining unexpired
Employment Period, coverage equivalent to the coverage to which
he or she would have been entitled if he or she had continued
working for the Bank during the remaining unexpired Employment
Period at the highest annual rate of salary achieved during the
Employment Period;
(iv) within thirty (30) days following his or her termination of
employment with the Bank, a lump sum payment, as liquidated
damages, in an amount equal to the present value of the salary
that the Executive would have earned (but offset by any payments
made under any short-term or long-term disability plan or
program maintained by the Bank) if he or she had continued
working for the Bank for the remaining unexpired Employment
Period at the highest annual rate of salary achieved during the
Employment Period, where such present value shall be determined
using a discount rate of 6%, and shall be paid in lieu of all
other payments of salary provided for under this Agreement in
respect of the period following any such termination and to be
payable without proof of damages and without regard to the
Executive's efforts, if any, to mitigate damages;
(v) within 60 days (or within such shorter period to the extent that
information can reasonably be obtained) following his or her
termination of employment with the Bank, a lump sum payment in
an amount equal to the excess, if any, of: (A) the present value
of the benefits to which he or she would be entitled under the
Bank's Defined Benefit Pension Plan if he or she had the
additional years of service that he or she would have had if he
or she were 100% vested thereunder and had continued working for
the Bank during the remaining unexpired Employment Period
following his or her termination earning the salary that would
have been paid during the remaining unexpired Employment Period,
determined as if the plan had continued in effect without change
in accordance with its terms as of the day prior to his or her
actual date of termination and as if such benefits were payable
beginning on the first day of the month coincident with or next
following the actual date of his or her termination, over (B)
the present value of the benefits to which he or she
6
<PAGE>
is actually entitled under the Bank's Defined Benefit Pension
Plan as of the date of his or her termination, where such
present value is to be determined using a discount rate of 6%
and the mortality tables prescribed under Section 72 of the
Internal Revenue Code of 1986 ("Code") and provided that the
lump sum payment determined above shall be increased by an
amount necessary to satisfy any federal, state and local income
taxes and Medicare taxes which become due as a result of such
payment, in accordance with Section 8(e) below;
(vi) within 60 days (or within such shorter period to the extent that
information can be reasonably be obtained) following his or her
termination of employment with the Bank, a lump sum payment in
an amount equal to the present value of the Bank's contributions
that would have been made on his or her behalf under the Bank's
401(k) Plan and Employee Stock Ownership Plan (and any other
defined contribution plan maintained by the Bank) if he or she
had continued working for the Bank for the remaining unexpired
Employment Period following his or her termination earning the
salary that would have been achieved during the remaining
unexpired Employment Period and making the maximum amount of
employee contributions permitted, if any, under such plan or
plans, where such present values are to be determined using a
discount rate of 6% and provided that the lump sum payment
determined above shall be increased by an amount necessary to
satisfy any federal, state and local income taxes and Medicare
taxes which become due as a result of such payment, in
accordance with Section 8(e) below;
(vii) within 60 days (or within such shorter period to the extent that
information can be reasonably be obtained) following his or her
termination of employment with the Bank, a lump sum payment in
an amount equal to the excess, if any, of (A) the present value
of the benefits to which he or she would be entitled under the
Supplemental Executive Retirement Plan (and any other excess
benefit plan within the meaning of Section 3(36) of the
Employment Retirement Income Security Act of 1974, as amended,
or any deferred compensation plan for management or highly
compensated employees that are maintained by the Bank), if he or
she had continued working for the Bank for the remaining
unexpired Employment Period following his or her termination
earning the salary that would have been achieved during the
remaining unexpired Employment Period, determined as if each
such plan had continued in effect without change in accordance
with its terms as of the day prior to his or her actual date of
termination and as if such benefits were payable beginning on
the first day of the month coincident with or next following his
or her actual date of termination, over (B) the present value of
the benefits to which he or she is actually entitled under any
7
<PAGE>
such plan, as of the date of his or her termination of
employment with the Bank, where such present values are to be
determined using a discount rate of 6% and the mortality
tables prescribed under Section 72 of the Code and provided
that the lump sum payment determined above shall be increased
by an amount necessary to satisfy any federal, state and local
income taxes and Medicare taxes which become due as a result
of such payment, in accordance with Section 8(e) below;
(viii) within 60 days (or within such shorter period to the extent
that information can reasonably be obtained) following his or
her termination of employment with the Bank, a lump sum
payment in an amount equal to [two times] the average of the
prior two years incentive compensation earned or received by
him or her under all incentive compensation plans or programs
adopted and maintained by the Bank, including but not limited
to, the Management Incentive Program; and
(ix) the lesser of [two (2)] additional years of vesting or the
vesting of all remaining options awarded to Executive under
any stock option plan and/or stock awards under any management
recognition plan adopted by the Bank or the Company.
(c) Notwithstanding the foregoing, upon the termination of the Executive's
employment with the Bank under circumstances described in Section 8(a)(i)(E) of
this Agreement, the Bank shall pay and provide or credit to the Executive (or in
the event of his or her death, to his or her surviving spouse or such other
beneficiary as the Executive may designate in writing, or if there is neither,
to his or her estate), a benefit under Sections 8(b)(iii) through 8(b)(ix) above
as if the "remaining unexpired Employment Period" under the Agreement is
[thirty-six] rather than [twenty-four] months.
(d) If the Bank gives Executive a Non-Renewal Notice, or if the Bank does
not extend the Employment Period at least 60 days prior to any Renewal Date as
described in Section 2 of the Agreement, Executive may resign from the
employment of the Bank at any time after such an event. In such case, (i) the
Bank shall pay to Executive severance benefits in a lump sum in cash within 30
days after such resignation equal to the amounts described in Section 8(b) of
the Agreement, and (ii) the Bank shall provide the benefits described in Section
8(b)(ii), (iii) and (iv).
(e) In the event that the Executive becomes entitled to a benefit under
Sections 8(b)(v), (vi) or (vii) (collectively, the "Retirement Plan Replacement
Benefit"), the Bank shall pay the Executive an additional payment under such
Sections, as set forth therein, in order to compensate for the additional income
and Medicare taxes that become due and owing as a result of such Retirement Plan
Replacement Benefit. The additional amount, subject to applicable withholding
requirements under state or federal law, shall equal:
8
<PAGE>
(i) the sum of the highest marginal federal, state and local income
tax rate and Medicare tax rate multiplied by the Retirement Plan
Replacement Benefit, and
(ii) such additional amount (tax allowance) as may be necessary to
compensate the Executive for the payment by the Executive of
federal, state and local income taxes and Medicare taxes on the
payment provided under Clause (i) and on any payments under this
Clause (ii). In computing such tax allowance, the payments to be
made under Clause (i) shall be multiplied by the "gross up
percentage" ("GUP"). The GUP shall be determined as follows:
Tax Rate
GUP = ------------------
1 - Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the
highest marginal federal, state and local income tax rate and the highest
Medicare tax rate, applicable to the Executive in the year in which the
payment made under Clause (i) is made.
(f) Notwithstanding the foregoing, to the extent required by regulations or
interpretations of the Office of Thrift Supervision, all payments under the
Agreement shall not exceed three times the Executive's average annual
compensation over the most recent five taxable years. The Bank and the
Executive hereby stipulate that the damages which may be incurred by the
Executive following any such termination of employment are not capable of
accurate measurement as of the date first written and that such liquidated
damages constitute reasonable damages under the circumstances.
SECTION 9. TERMINATION WITHOUT ADDITIONAL BANK LIABILITY
---------------------------------------------
In the event that the Executive's employment with the Bank shall terminate
during the Employment Period on account of:
(a) the discharge of the Executive for "Cause", which, for purposes
of this Agreement, shall mean a discharge because the Board
determines, by the affirmative vote of a majority of its members
acting in good faith, that the Executive:
(i) has intentionally failed to perform his or her assigned
duties under this Agreement;
9
<PAGE>
(ii) has intentionally engaged in dishonest or illegal conduct
in connection with his or her performance of services for
the Bank or has been convicted of a felony;
(iii) has willfully violated, in any material respect, any law,
rule, regulation, written agreement or final cease-and-
desist order with respect to his or her performance of
services for the Bank, as determined by the Board, or
(iv) has intentionally breached the material terms of this
Agreement;
provided, however, that on and after the earliest date on which a
--------- --------
Change in Control Date as defined in Section 10 occurs, such a
determination shall require the affirmative vote of at least three
fourths of the members of the Board acting in good faith and such vote
shall not be made prior to the expiration of a 60 day period following
the date on which the Board shall by written notice to the Executive,
furnish to him or her a statement of its grounds for proposing to make
such determination, during which period the Executive shall be
afforded a reasonable opportunity to make oral and written
presentations to the members of the Board, and to be represented by
his or her legal counsel at such presentations, or to refute the
grounds for the proposed determination;
(b) The Executive's voluntary resignation from employment with the
Bank for reasons other than those specified in Section 8(a)(i) or
8(c); or
(c) The Executive's death;
then the Bank shall have no further obligations under this Agreement, other than
the payment to the Executive of his or her earned but unpaid salary as of the
date of the termination of his or her employment, and the provision of such
benefits, if any, to which he or she is entitled as a former employee under the
Bank's employee benefit plans and programs and compensation plans and programs.
For purposes of this Section 9, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company and the
Bank. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or based upon the written advice of counsel
for the Company or the Bank shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interests of
the Company and the Bank. The cessation of employment of the Executive shall
not be deemed to be for "Cause" within the meaning of Section 9(a) unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of three-fourths of the members of the
Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is
10
<PAGE>
given an opportunity, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, the Executive is guilty of
the conduct described in Section 9(a) above, and specifying the particulars
thereof in detail.
SECTION 10. CHANGE IN CONTROL
-----------------
(a) For purposes of this Agreement, the term "Change in Control" shall
mean a change in control of a nature that: (i) would be required to be reported
in response to Item 1(a) of the current report on Form 8-K, as in effect on the
date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act"); or (ii) results in a Change in Control of the Bank or
the Company within the meaning of the Home Owners Loan Act, as amended ("HOLA"),
and applicable rules and regulations promulgated thereunder, as in effect at the
time of the Change in Control; or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (a) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner"(as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or more of
the combined voting power of Company's outstanding securities except for any
securities purchased by the Bank's employee stock ownership plan or trust; or
(b) individuals who constitute the Board on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the directors comprising
the Incumbent Board, or whose nomination for election by the Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (b), considered as though
he or she were a member of the Incumbent Board; or (c) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the Bank
or the Company or similar transaction in which the Bank or Company is not the
surviving institution occurs; or (d) a proxy statement soliciting proxies from
stockholders of the Company, by someone other than the current management of the
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or similar transaction with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to the plan are to be exchanged for or converted into
cash or property or securities not issued by the Company; or (e) a tender offer
is made for 25% or more of the voting securities of the Company and the
shareholders owning beneficially or of record 25% or more of the outstanding
securities of the Company have tendered or offered to sell their shares pursuant
to such tender offer and such tendered shares have been accepted by the tender
offeror.
(b) For purposes of this Agreement, the term "Change in Control Date"
shall mean the first date during the Employment Period on which a Change in
Control occurs. Anything in this Agreement to the contrary notwithstanding, if
the Executive's employment with the Bank is terminated and if it is reasonably
demonstrated by the Executive that such termination of Employment (i) was at the
request of a third party who has taken steps reasonably calculated to effect a
Change in Control or (ii) otherwise arose in connection with or anticipation of
a Change in Control, then for all purposes of this Agreement the "Change in
Control Date" shall mean the date immediately prior to the date such termination
of employment.
11
<PAGE>
SECTION 11. COVENANT NOT TO COMPETE
-----------------------
The Executive hereby covenants and agrees that for a period of one (1) year
following the date of his or her termination of employment with the Bank, if
such termination occurs prior to the end of the Employment Period, he or she
shall not, without the written consent of the Board, become an officer,
employee, consultant, director, independent contractor, agent, sole proprietor,
partner or trustee of any savings bank, savings and loan association, savings
and loan holding company, bank or bank holding company, insurance company or
agency, any mortgage or loan broker or any other entity competing with the Bank
or its affiliates if such position entails working in (or providing services in)
Rockland or Orange Counties; provided, however, that this Section 11 shall not
-------- -------
apply if the Executive's employment is terminated for the reasons set forth in
Section 8(a) or 8(d).
SECTION 12. ADDITIONAL TERMINATION AND SUSPENSION PROVISIONS
------------------------------------------------
(a) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act, as amended (12
U.S.C. 1818(e)(3) and (g)(1)), all obligations of the Bank under this Agreement
shall be suspended as of the date of service unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay the Executive all of the compensation withheld while the
Bank's obligations under this Agreement were suspended and (ii) reinstate (in
whole) any of the Bank's obligations which were suspended, and in exercising
such discretion, the Bank shall consider the facts and make a decision promptly
following such dismissal of charges and act in good faith in deciding whether to
pay any withheld compensation to the Executive and to reinstate any suspended
obligations of the Bank.
(b) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, as amended (12
U.S.C. 1818 (e)(4) or (g)(1)), all obligations of the bank under this Agreement
shall terminate as of the effective date of the order, but vested rights of the
parties shall not be affected.
(c) If the Bank is in default, as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, as amended (12 U.S.C. 1813 (x)(1)), all
obligations under this Agreement shall terminate as of the date of default, but
this provision shall not affect any vested rights of the parties.
(d) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Bank, (i) by the Director of the OTS (the "Director")
or his or her designee, at the time the FDIC enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in Section
13(c) of the Federal Deposit Insurance Act, as amended; or (ii) by the Director
or his or her designee, at the time the Director or his or her designee approves
a supervisory merger to resolve problems related to operation of the Bank or
when the Bank is determined by the Director to be in an unsafe or unsound
condition. Any rights of the parties that have already vested, however, shall
not be affected by such action.
12
<PAGE>
(e) If any regulation applicable to the Bank shall hereafter be adopted,
amended or modified, or if any new regulation applicable to the Bank and
effective after the date of this Agreement:
(i) shall require the inclusion in this Agreement of a provision not
presently included in this Agreement, then the foregoing
provisions of this Section 12 shall be deemed amended to the
extent necessary to give effect in this Agreement to any such
amended, modified or new regulation; and
(ii) shall permit the exclusion of a limitation in this Agreement on
the payment to the Executive of an amount or benefit provided for
presently in this Agreement, then the foregoing provisions of
this Section 12 shall be deemed amended to the extent permissible
to exclude from this Agreement any such limitation previously
required to be included in this Agreement by a regulation prior
to its amendment, modification or repeal.
SECTION 13. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS
-----------------------------------------------
Except as expressly provided in this Agreement, the termination of the
Executive's employment during the term of this Agreement or thereafter, whether
by the Board or by the Executive, shall have no effect on the rights and
obligations of the parties hereto under the Bank's Defined Benefit Pension Plan,
401(k) Plan, Supplemental Executive Retirement Plan, Management Incentive
Program, group life, health (including basic hospitalization and major medical),
prescription drug, dental, short and long term disability insurance plans or
such other employee benefit plans or programs, including but not limited to any
incentive compensation plans or program (whether or not employee benefit plans
or programs) as the Bank may maintain from time to time.
SECTION 14. SUCCESSORS AND ASSIGNS
----------------------
This Agreement will inure to the benefits of and be binding upon the
Executive, his or her legal representatives and estate and intestate
distributees, and the Bank, its successors and assigns, including any successor
by merger or consolidation or conversion to stock form or a statutory receiver
or any other person or firm or corporation to which all or substantially all of
the assets and business of the Bank may be sold or otherwise transferred. Any
such successor of the Bank shall be deemed to have assumed this Agreement and to
have become obligated hereunder to the same extent as the Bank, and the
Executive's obligations hereunder shall continue in favor of such successor.
SECTION 15. NOTICES
-------
Any communication to a party required or permitted under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally or received by overnight carrier, or
five days after mailing if mailed, postage prepaid, by registered or certified
mail, return
13
<PAGE>
receipt requested, addressed to such party at the address listed below or at
such other address as one such party may by written notice specify to the other
party:
If to the Executive:
[to come]
If to the Bank:
Provident Bank
400 Rella Boulevard
Montebello, New York 10901
Attention: President.
With a copy to:
Luse Lehman Gorman Pomerenk & Schick, LLP
5335 Wisconsin Avenue, NW, Suite 400
Washington, DC 20015
Attention: Eric Luse, Esq.
SECTION 16. SETTLEMENT, INDEMNIFICATION AND ATTORNEY'S FEES
-----------------------------------------------
(a) The Bank's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Bank may have against the Executive or others. In no event
shall the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement and such amounts shall not be reduced whether
or not the Executive obtains other employment.
(b) Unless it is determined that a claim made by the Executive was either
frivolous or made in bad faith, the Bank agrees to pay as incurred, to the full
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of or in connection with his or her consultation
with legal counsel or arising out of any action, suit, proceeding or contest
(regardless of the outcome thereof) by the Bank, the Executive or others
regarding the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment
14
<PAGE>
pursuant to this Agreement), plus in each case interest on any delayed payment
at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Code.
(c) The Bank shall indemnify, hold harmless and defend the Executive for
all acts or omissions taken or not taken by him or her in good faith while
performing services for the Bank to the same extent and upon the same terms and
conditions as other similarly situated officers and directors of the Bank. If
and to the extent that the Bank maintains, at any time during the Employment
Period, an insurance policy covering the other officers and directors of the
Bank against lawsuits, the Bank shall use its best efforts to cause the
Executive to be covered under such policy upon the same terms and conditions as
other similarly situated officers and directors.
SECTION 17. SEVERABILITY
------------
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
SECTION 18. WAIVER
------
Failure to insist upon strict compliance with any terms, covenants or
conditions hereof shall not be deemed a waiver of such term, covenant or
condition. A waiver of any provision of this Agreement must be made in writing,
designated as a waiver, and signed by the party against whom its enforcement is
sought. Any waiver or relinquishment or any right or power hereunder at any one
or more times shall not be deemed a waiver or relinquishment of such right or
power at any other time or times.
SECTION 19. COUNTERPARTS
------------
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, and all of which shall constitute one and the same
Agreement.
SECTION 20. GOVERNING LAW
-------------
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without reference to
conflicts of law principles, except to the extent governed by federal law in
which case federal law shall govern.
SECTION 21. HEADINGS AND CONSTRUCTION
-------------------------
The headings of sections in this Agreement are for convenience of reference
only and are not intended to qualify the meaning of any Section. Any reference
to a Section number shall refer to a Section of this Agreement, unless otherwise
specified.
15
<PAGE>
SECTION 22. ARBITRATION
-----------
Any dispute or controversy arising out of, under, in connection with, or
relating to this Agreement and any amendment hereof shall be submitted to
binding arbitration before three arbitrators in Rockland County in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
for expedited arbitration, and any judgement upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.
SECTION 23. ENTIRE AGREEMENT: MODIFICATIONS
-------------------------------
This instrument contains the entire agreement of the parties relating to
the subject matter hereof, and supercedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
SECTION 24. SOURCE OF PAYMENTS
------------------
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. The Company, however, guarantees
payment and provision of all amounts and benefits due hereunder to Executive
and, if such amounts and benefits due from the Bank are not timely paid or
provided by the Bank, such amounts and benefits shall be paid or provided by the
Company.
SECTION 25. COMPLIANCE WITH LAW
-------------------
Any payments made to the Executive pursuant to this Agreement, or otherwise
are subject to and conditioned upon their compliance with 12 U.S.C. 1828(i) and
any regulations promulgated thereunder.
[Remainder of Page Intentionally Blank]
16
<PAGE>
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed
and the Executive has hereunto set his or her hand, all as of the day and year
first above written.
WITNESS EXECUTIVE
______________________________ _________________________________
(Name) (Name)
ATTEST: PROVIDENT BANK
By:___________________________ By: _____________________________
Secretary President
[Seal]
ATTEST: PROVIDENT BANCORP, INC.
By: __________________________ By: ___________________________
Secretary President
17
<PAGE>
EXHIBIT 10.4
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT, amended and restated on this _____ day of____________, 19__
(as amended and restated, the "Agreement"), by and between Provident Bank, a
savings association having its principal offices at 400 Rella Boulevard,
Montebello, New York 10901 (the "Bank"), and ________________ (the "Director").
WHEREAS, the Director has agreed to serve as a director of the Bank, and
WHEREAS, on __________, 199__, the Bank and the Director entered into an
agreement whereby the Bank will provide to the Director a vehicle under which
the Director can defer receipt of any or all directors' fees or incentive
payments payable by the Bank; and
WHEREAS, in connection with the reorganization of the Bank into mutual
holding company form as a subsidiary of Provident Bancorp, Inc., a mid-tier
stock holding company ("Company"), the Bank and the Director desire to amend the
Agreement to permit the Director to express an investment preference to have all
or a portion of his account invested in stock of the Company or other investment
options made available to him; and
WHEREAS, Section 5.1 of the Agreement permits the Agreement to be amended
from time to time.
NOW, THEREFORE, in consideration of the mutual covenants and obligations
set forth in this Agreement, the Bank and the Director hereby agree as follows:
1. DEFINITION OF TERMS AND CONSTRUCTION
------------------------------------
1.1 Definitions. Unless a different meaning is plainly implied by the
-----------
context, the following terms as used in this Agreement shall have the following
meanings:
(a) "Beneficiary" means the person or persons (and their heirs) as
designated by the Director in a written instrument submitted to the Director of
Human Resources of the Bank to whom the deceased Director's benefits are
payable. In the event the Director fails to properly designate a Beneficiary,
his Beneficiary shall be the person or persons in the first of the following
classes of successive preference surviving at the death of the Director: the
Director's (1) surviving spouse or (2) estate.
(b) "Board of Directors" shall mean the Board of Directors of the
Bank.
(c) "Change in Control" shall mean a change in control of a nature
that: (i) would be required to be reported in response to Item 1(a) of the
current report on Form 8-K, as in effect on the date hereof, pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii)
results in a Change in Control of the Bank or the Company within the
1
<PAGE>
meaning of the Home Owners Loan Act, as amended ("HOLA"), and applicable rules
and regulations promulgated thereunder, as in effect at the time of the Change
in Control; or (iii) without limitation such a Change in Control shall be deemed
to have occurred at such time as (a) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of Company's outstanding securities except for any
securities purchased by the Bank's employee stock ownership plan or trust; or
(b) individuals who constitute the Board on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof,
provided, however, that this sub-section (b) shall not apply if the Incumbent
Board is replaced by the appointment by a Federal banking agency of a
conservator or receiver for the Bank provided further, that any person becoming
a director subsequent to the date hereof whose election was approved by a vote
of at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Company's stockholders was approved by the
same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (b), considered as though he were a member of the
Incumbent Board; or (c) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Bank or the Company or similar
transaction in which the Bank or Company is not the surviving institution
occurs; or (d) a proxy statement soliciting proxies from stockholders of the
Company, by someone other than the current management of the Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Company or similar transaction with one or more corporations as a result of
which the outstanding shares of the class of securities then subject to the
Agreement are to be exchanged for or converted into cash or property or
securities not issued by the Company; or (e) a tender offer is made for 25% or
more of the voting securities of the Company and the shareholders owning
beneficially or of record 25% or more of the outstanding securities of the
Company have tendered or offered to sell their shares pursuant to such tender
offer and such tendered shares have been accepted by the tender offeror.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute.
(e) "Committee" shall mean the Committee appointed to administer the
Agreement pursuant to Article VII.
(f) "Compensation" shall mean the amount of directors' fees paid by
the Bank to the Director during a Deferral Year prior to reduction for
Compensation Deferrals made under this Agreement. In the case of management,
compensation shall be defined as incentive payments, paid by the Bank to the
Director, in his capacity as an employee during a Deferral Year prior to
reduction for Compensation Deferrals made under this Agreement.
(g) "Compensation Deferral" shall mean the amount or amounts of the
Director's Compensation deferred under the provisions of Section 3 of this
Agreement.
(h) "Deferral Account" shall mean the account maintained to reflect
the Director's
2
<PAGE>
Compensation Deferrals made pursuant to Section 3 hereof and any other credits
or debits thereto.
(i) "Deferral Year" shall mean each calendar year during which the
Director makes, or is entitled to make, Compensation Deferrals under Section 3
hereof.
(j) "Hardship" shall mean a sudden or unexpected illness, accident or
similar event affecting the Director, his Beneficiary or a family member, which
is beyond the control of the Director, his Beneficiary and any family member and
which causes the Director or, if applicable, his Beneficiary to incur a severe
financial hardship, as determined by the Committee (acting without the
participation of the requesting Director, if he is a member of the Committee) in
its sole discretion. For purposes of the above, the members of the Directors's
or his Beneficiary's families shall include their spouses, lineal descendants
and ancestors.
(k) "Investment Options" shall mean the investment options designated
by the Committee from which the Director may express a preference for the
constructive investment of his Account. Investment Options may include, for
example, (i) equity markets (including the stock of the Company or its
successors), (ii) money market securities (i.e., Treasury bills or other
obligations of the United States government or any state government or
municipality, certificates of deposit), or (iii) assets which can be liquidated
within sixty (60) days with no loss of principal. Investment Options are
subject to change from time to time as the Committee, in its discretion, deems
necessary or appropriate. Investment Options shall be used as earning indices
in order to determine the gain or loss in the Director's Deferral Account. No
provision of the Agreement shall be construed as giving any Director an interest
in any of the Investment Options nor shall any provision require that the
Company make any investment in any option.
(l) "Trustee" shall mean the Trustee, if any, of any grantor trust
which may be established by the Bank to accumulate assets for the purpose of
funding the benefits promised under this Agreement.
(m) "Valuation Date" shall mean the last business day of each calendar
quarter and any other day upon which the Bank makes a valuation of the Deferral
Account.
1.2. Plurals and Gender. Where appearing in this Agreement the singular
------------------
shall include the plural and the masculine shall include the feminine, and vice
versa, unless the context clearly indicates a different meaning.
1.3. Headings. The headings and sub-headings in this Agreement are
--------
inserted for the convenience of reference only and are to be ignored in any
construction of the provisions hereof.
2. PERIOD DURING WHICH COMPENSATION DEFERRALS ARE PERMITTED
--------------------------------------------------------
2.1. Commencement of Compensation Deferrals. The Director may elect, on a
--------------------------------------
form provided by, and submitted to, the Director of Human Resources of the Bank,
to commence
3
<PAGE>
Compensation Deferrals under Section 3 hereof for the Deferral Year beginning
immediately following the later of (i) the date this Agreement is executed or
(ii) the date such form is submitted to the Director of Human Resources of the
Bank.
2.2. Termination of Deferrals. The Director shall not be eligible to make
------------------------
Compensation Deferrals after the earliest of the following dates:
(a) The date on which he ceases to serve as a Director of the Bank; or
(b) The effective date of the termination of this Agreement.
3. COMPENSATION DEFERRALS
----------------------
3.1. Compensation Deferral Elections.
-------------------------------
(a) Prior to the first day of any Deferral Year, the Director may
elect, on the form described in Section 2.1 hereof, to defer the receipt of all
or a portion of his Compensation for such Deferral Year. Such writing shall set
forth the amount of such Compensation Deferral (in whole percentage or dollar
amounts) and may set forth a specific type of his Compensation (i.e., based on
the activity for which a specific portion of Compensation is paid) from which
such Compensation Deferrals are to be made. Such election shall continue in
effect for all subsequent Deferral Years unless it is canceled or modified as
provided below.
(b) Compensation Deferrals shall be withheld pro rata from each
payment of Compensation (or payment of a specific type of Compensation, if
applicable) by the Bank to the Director based upon the percentage or dollar
amount elected by the Director under Section 3.1(a) hereof.
(c) The Director may cancel or modify the amount of his Compensation
Deferrals on a prospective basis by submitting to the Director of Human
Resources of the Bank a revised Compensation Deferral election form. Such
change will be effective as of the first day of the Deferral Year following the
date such revision is submitted to the Director of Human Resources of the Bank.
3.2. Valuation of Deferral Account.
-----------------------------
(a) The Bank shall establish a bookkeeping Deferral Account to which
will be credited an amount equal to the Director's Compensation Deferrals under
this Agreement. Compensation Deferrals shall be allocated to the Deferral
Account on the first business day following the date such Compensation Deferrals
are withheld from the Director's Compensation. As of the date of this Agreement,
the Deferral Account also shall be credited with the amounts credited to the
Director under each other outstanding elective deferred compensation agreement
entered into by and between the Bank and the Director which is superseded by
this Agreement
4
<PAGE>
pursuant to Section 6.10 hereof. The Deferral Account shall be debited to
reflect any distributions from such Account. Such debits shall be allocated to
the Deferral Account as of the date such distributions are made.
(b) As of each Valuation Date, income, gain and loss equivalents
(determined as if the Deferral Account is invested in the manner set forth under
Section 3.3, below) attributable to the period following the immediately
preceding Valuation Date shall be credited to and/or deducted from the
Director's Deferral Account.
3.3 Investment of Deferral Account Balance. Subject to such limitations as
--------------------------------------
may from time to time be required by law or imposed by the Committee, and
subject to such operating rules and procedures as may be imposed from time to
time by the Committee, each Director may express to the Committee a preference
as to how the Director's Deferral Account should be constructively invested
among the Investment Options.
(a) Any initial or subsequent expression of investment preference
shall be in writing, on a form provided by and filed with the Committee, and
shall be subject to such rules and procedures as the Committee may promulgate
from time to time, including rules as to when an expression of investment
preference will be effective. In the event a grantor trust has been established,
the Committee shall forward the Directors expression of investment preference to
the Trustee.
(b) If the Committee (or Trustee, in the case of establishment of a
grantor trust) chooses to honor a Director's investment preferences, in whole or
in part, (i) the contributions and credits and other amounts added to a
Director's Deferral Account shall be constructively invested in accordance with
the then effective designation of investment preference and (i) as of the
effective date of any new investment preference, all or a portion of the
Director's Deferral Account at that date shall be constructively reallocated
among the designated Investment Options according to the directions specified in
the investment preference unless and until a subsequent investment preference
shall be filed and become effective. Unless otherwise announced by the
Committee, investment preferences may be changed no more than two times per
calendar year and must be received by the Committee no less than ten (10) days
before the effective date of the change. In the event the Committee, or in the
case a grantor trust is established, the Trustee, fails to honor a Director's
expression of investment preference, in whole or in part, the Committee or
Trustee shall so inform the Director as soon as reasonably practicable.
(c) If the Committee receives an initial or revised investment
preference which it deems to be incomplete, unclear or improper, the Director's
investment preference then in effect shall remain in effect (or, in the case of
a deficiency in an initial investment preference) until the next Valuation Date,
unless the Committee provides for, and permits the application of, corrective
action prior to that time. The Committee shall announce to the Director a
default Investment Option, which shall be substituted for the Director's
investment preference for any portion of his Deferral Account from which he
fails to file an investment preference.
5
<PAGE>
(d) All investment preferences shall be advisory only and shall not
bind the Bank, the Committee, or Trustee (if any). The Bank shall not be
obligated to invest any funds in connection with this Agreement. If, however,
the Bank chooses to invest funds to provide for its liabilities under this
Agreement, the Committee, or in the event a grantor trust has been established,
the Trustee, shall have complete discretion as to investment.
(e) Each Director's Deferral Account will be credited with earnings or
losses as if the Deferral Account were actually invested in accordance with the
Director's expression of investment preference, as follows. As of each Valuation
Date, the net earnings or losses of each Investment Option since the preceding
Valuation Date shall be allocated among all Deferral Accounts in accordance with
the preferences indicated by each Director as though the Deferral Accounts had
been invested in the Investment Option in accordance with each Director's
indicated preference. For purposes of this allocation, the Deferral Account of
each Director will consist of the balance of the Deferral Account as of the
preceding Valuation Date, adjusted (i) by adding to the balance any elective
deferred Compensation made since the preceding Valuation Date and (ii) by
subtracting from such balance all distributions made to the Director or to a
Beneficiary. Each Deferral Account shall be further adjusted to reflect any
changes in investment preferences which have become effective since the last
Valuation Date.
(f) If it is determined that the constructive value of a Deferral
Account as of any date on which distributions are to be made differs materially
from the constructive value of the Deferral Account on the prior Valuation Date
upon which the distribution is to be based, the Committee, in its discretion,
shall have the right to designate any date in the interim as a Valuation Date
for the purpose of constructively revaluing the Deferral Account so that the
Deferral Account from which the distribution is being made will, prior to the
distribution, reflect its share of such material difference in value. Similarly,
the Committee may adopt a policy of providing for regular interim valuations
without regard to the materiality of changes in the value of the Deferral
Accounts.
4. DISTRIBUTIONS FROM DEFERRAL ACCOUNT
-----------------------------------
4.1. (a) In General. Distributions from the Director's Deferral Account
----------
shall be paid in quarterly installments over a period of five (5) years
beginning on the first day of the first calendar quarter coincident with or next
following the Director's mandatory retirement date, except in the event of an
accelerated distribution following a Change in Control or due to Hardship, in
accordance with Section 4.3 or 4.5 hereof. Each quarterly installment shall be
in an amount equal to the product of the then current balance in the Director's
Deferral Account multiplied by a fraction, the numerator of which shall be "one"
and the denominator of which shall be the number of remaining quarterly payments
to which the Director is entitled. A Director's mandatory retirement date shall
be the date determined under the retirement policy set by the Bank and
applicable to the Director.
(b) Request for Alternate Distribution. At any time on or before
----------------------------------
twenty-four (24) months prior to a Director's mandatory retirement date, a
Director may request in writing, an earlier or later commencement of
distributions from his Deferral Account so long as the new distribution
6
<PAGE>
date is at least twenty-four (24) months after the Director files such written
request. In addition, a Director may also request that his Deferral Account be
paid in quarterly installments over a period of no more than ten (10) years,
rather than five (5) years. The Committee (acting without the participation of
the requesting Director, if he is a member of the Committee) may, in its sole
discretion, decide whether to grant any request to accelerate or delay the
commencement of distributions or to distribute the Deferral Account over a
shorter or longer period, provided however, that distribution shall not commence
prior to the date on which a Director attains age sixty-five (65).
4.2. Death Prior to Complete Distribution of Deferral Account. Upon the
--------------------------------------------------------
death of the Director prior to the commencement of the distribution of the
amounts credited to his Deferral Account, the balance of such Account shall be
distributed to his Beneficiary in the manner set forth under Section 4.1 hereof
beginning on the first day of the first calendar quarter coincident with or next
following the date the Director dies. In the event of the death of the Director
after the commencement of such distribution, but prior to the complete
distribution of his Deferral Account, the balance of the amounts credited to his
Deferral Account shall be distributed to his Beneficiary over the remaining
period during which such amounts were distributable to the Director under
Section 4.1 hereof. Notwithstanding the above, the Board of Directors, in its
sole discretion, may accelerate the distribution of the Deferral Account upon
the Beneficiary's petition for acceleration based upon his incurring a Hardship,
in accordance with Section 4.5.
4.3. Accelerated Distribution Following a Change in Control.
------------------------------------------------------
Notwithstanding any other provision of this Agreement, at any time after a
Change in Control, upon written request to the Committee and with the consent of
the Committee, a Director shall be entitled to request a lump sum distribution
of the Director's vested Deferral Account balance. The Committee shall make a
determination on distribution within thirty (30) days of receipt of the written
request from the Director. The amount payable under this Section, if approved by
the Committee, shall be paid in a lump sum within thirty (30) days following
consent to such payment by the Board of Directors and shall be the fair market
value of the Deferral Account balance on the date of distribution.
4.4. Payments Due Missing Persons. The Bank shall make a reasonable effort
----------------------------
to locate all persons entitled to benefits under this Agreement. However,
notwithstanding any provisions of this Agreement to the contrary, if, after a
period of five (5) years from the date such benefit shall be due, any such
persons entitled to benefits have not been located, their rights under this
Agreement shall stand suspended. Before this provision becomes operative, the
Bank shall send a certified letter to all such persons to their last known
address advising them that their benefits under this Agreement shall be
suspended. Any such suspended amounts shall be held by the Bank for a period of
three (3) additional years (or a total of eight (8) years from the time the
benefits first become payable) and thereafter, if unclaimed, such amounts shall
be forfeited.
4.5 Hardship Distributions. A Director, who believes he has incurred a
----------------------
Hardship may petition the Committee for a Hardship distribution. Upon a finding
that the Director has suffered a Hardship, the Committee may, in its sole
discretion, make distributions from the Director's Deferral Account prior to the
time specified for payment of benefits under the Agreement. The
7
<PAGE>
amount of such distribution shall be limited to the amount reasonably necessary
to meet the requirements during the financial Hardship.
5. AMENDMENTS AND TERMINATION
--------------------------
5.1. Amendments.
----------
(a) The Bank and the Director may, by a written instrument signed by
both such parties, amend this Agreement at any time and in any manner except
that no such amendment shall have the effect of accelerating distributions of a
Director's Deferral Account other than as provided in Article 4 hereof.
(b) The Bank reserves the right to amend, in whole or in part, and in
any manner, any or all of the provisions of this Agreement by action of its
Board of Directors for the purposes of complying with any provision of the Code
or any other technical or legal requirements, provided that:
(1) No such amendment shall make it possible for any part of the
Director's Deferral Account to be used for, or diverted to, purposes other than
for the exclusive benefit of the Director or his Beneficiaries, except to the
extent otherwise provided in this Agreement; and
(2) No such amendment may reduce the amount of the Director's
Deferral Account as of the effective date of such amendment.
6. MISCELLANEOUS.
-------------
6.1. Rights of Creditors.
-------------------
(a) This Agreement is unfunded. Neither the Director nor any other
persons shall have any interest in any specific asset or assets of the Bank by
reason of any Deferral Account hereunder, nor any rights to receive distribution
of his Deferral Account except and as to the extent expressly provided
hereunder. The Bank shall not be required to purchase, and shall not hold or
dispose of any investments pursuant to this Agreement.
(b) The rights of the Director and the Beneficiaries to the amounts
held in the Deferral Account are unsecured and shall be subject to the creditors
of the Bank. With respect to the payment of amounts held under the Deferral
Account, the Director and his Beneficiaries have the status of unsecured
creditors of the Bank. This Agreement is executed on behalf of the Bank by an
officer of the Bank as such and not individually. Any obligation of the Bank
hereunder shall be an unsecured obligation of the Bank and not of any other
person.
6.2. Agents. The Bank may employ agents and provide for such clerical,
------
legal, actuarial,
8
<PAGE>
accounting, advisory or other services as it deems necessary to perform its
duties under this Agreement. The Bank shall bear the cost of such services and
all other expenses it incurs in connection with the administration of this
Agreement.
6.3. Incapacity. If the Bank shall receive evidence satisfactory to it
----------
that the Director or any Beneficiary entitled to receive any benefit under the
Agreement is, at the time when such benefit becomes payable, a minor, or is
physically or mentally incompetent to receive such benefit and to give a valid
release therefor, the Bank may make payment of such benefit otherwise payable to
the Director or Beneficiary to the conservator, executor, committee or other
legal representative of the estate of the Director or Beneficiary, and the
release of such other person or institution shall be a valid and complete
discharge for the payment of such benefit.
6.4. Cooperation of Parties. All parties to this Agreement and any person
----------------------
claiming any interest hereunder agree to perform any and all acts and execute
any and all documents and papers which are necessary or desirable for carrying
out this Agreement or any of its provisions.
6.5. Governing Law. This Agreement is made and entered into in the State
-------------
of New York and all matters concerning its validity, construction and
administration shall be governed by the laws of the State of New York.
6.6. Nonguarantee of Directorship. Nothing contained in this Agreement
----------------------------
shall be construed as a contract or guarantee of the right of the Director to
be, or remain as, a director of the Bank or to receive any, or any particular
rate of, compensation.
6.7. Counsel. The Bank may consult with legal counsel with respect to the
-------
meaning or construction of this Agreement, its obligations or duties hereunder
or with respect to any action or proceeding or any question of law, and it shall
be fully protected with respect to any action taken or omitted by it in good
faith pursuant to the advice of legal counsel.
6.8. Spendthrift Provision. The Director's and Beneficiaries' interests in
---------------------
the Deferral Account may not be anticipated, sold, encumbered, pledged,
mortgaged, charged, transferred, alienated, assigned nor become subject to
execution, garnishment or attachment and any attempt to do so by any person
shall render the Deferral Amount immediately forfeitable.
6.9. Notices. For purposes of this Agreement, notices and all other
-------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or mailed by United
States registered or certified mail, return receipt requested, postage prepaid,
or by nationally recognized overnight delivery service providing for a signed
return receipt, addressed to the Director at the home address set forth in the
Bank's records and to the Bank at the address set forth on the first page of
this Agreement, provided that all notices to the Bank shall be directed to the
attention of the Director of Human Resources of the Bank or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
9
<PAGE>
6.10. Entire Agreement. This Agreement contains the entire understanding
----------------
between the Bank and the Director with respect to the payment of non-qualified
elective deferred compensation by the Bank to the Director . Effective as of the
date hereof, this Agreement replaces, and supersedes, all other non-qualified
elective deferred compensation agreements by and between the Director and the
Bank.
6.11. Interpretation of Agreement. Interpretations of, and including any
---------------------------
determinations of the amounts of the Deferral Account, shall be conclusive and
binding upon all parties; and the Bank shall not incur any liability to the
Director for any such interpretation or determination so made or for any other
action taken by it in connection with this Agreement in good faith.
6.12. Successors and Assigns. This Agreement shall be binding upon, and
----------------------
shall inure to the benefit of, the Bank and its successors and assigns and to
the Director and his heirs, executors, administrators and personal
representatives.
6.13. Severability. In the event any one or more provisions of this
------------
Agreement are held to be invalid or unenforceable, such illegality or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof and such other provisions shall remain in full force and
effect, unaffected by such invalidity or unenforceability.
6.14. Execution in Counterparts. This Agreement may be executed in any
-------------------------
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
6.15. Indemnification. It is understood and agreed that the Director
---------------
shall indemnify and hold the Bank harmless from any and all costs, expenses or
losses incurred by the Bank as a result of implementing any actions pursuant to
the instructions or directions given by the Director.
6.16 Trust Fund. The Bank shall be responsible for the payment of all
----------
benefits provided under the Agreement. At its discretion, the Bank may establish
one or more trusts, with such trustees as the Board may approve, for the purpose
of providing for the payment of such benefits. Such trust may be irrevocable,
but the assets thereof shall be subject to the claims of the Bank's creditors,
as set forth in Section 6.1(b). To the extent any benefits provided under the
Agreement are actually paid from any trust, the Bank shall have no further
obligation with respect thereto, but to the extent not so paid, such benefits
shall remain the obligation of, and shall be paid by, the Bank.
10
<PAGE>
7. ADMINISTRATION
--------------
7.1 Committee; Duties. This Agreement shall be administered by the
-----------------
Committee, which shall be appointed by the Board. The Committee shall have the
authority to make, amend, interpret, and enforce all appropriate rules and
regulations for the administration of this Agreement and decide or resolve any
and all questions, including interpretations of this Agreement, as may arise in
connection with the Agreement. A majority vote of the Committee members shall
control any decision.
7.2 Agents. The Committee may, from time to time, employ other agents and
------
delegate to them such administrative duties as it sees fit, and may from time to
time consult with counsel who may be counsel to the Bank.
7.3 Binding Effect of Decisions. The decision or action of the Committee
---------------------------
in respect to any question arising out of or in connection with the
administration, interpretation and application of the Agreement and the rules of
regulations promulgated hereunder shall be final, conclusive and binding upon
all persons having any interest in the Agreement.
7.4 Indemnity of Committee. The Bank shall indemnify and hold harmless
----------------------
the members of the Committee against any and all claims, loss, damage, expense
or liability arising from any action or failure to act with respect to this
Agreement, except in the case of gross negligence or willful misconduct.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
ATTEST: PROVIDENT SAVINGS BANK
________________________________ By: __________________________
Secretary Name:
Title:
WITNESS: DIRECTOR
________________________________ ______________________________
11
<PAGE>
EXHIBIT 10.5
SECOND AMENDMENT
TO THE
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN OF
PROVIDENT BANK
WHEREAS, Provident Bank ("Bank") adopted a Supplemental Executive
Retirement Plan, effective January 1, 1995, which was amended on ________, 199__
(as amended, the "Plan"); and
WHEREAS, in connection with the reorganization of the Bank into mutual
holding company form as a subsidiary of Provident Bancorp, Inc., a mid-tier
stock holding company ("Company"), the Bank desires to amend the Plan to include
a supplemental contribution in consideration of ; and
WHEREAS, Section 5.1 of the Plan permits the Plan to be amended from time
to time.
NOW THEREFORE, BE IT RESOLVED, that the Agreement is hereby amended,
effective __________, 1998, in accordance with the amendments set forth below.
1. The name "Provident Bank" shall be substituted for "Provident Savings Bank,
F.A." wherever the later appears therein.
2. Section 1.2 shall be modified to read as follows:
"Section 1.2 Applicable Limitation means any one of the following: (a) the
---------------------
maximum limitation on annual benefits payable by a qualified defined benefit
plan under section 415(b) of the Code; (b) the maximum limitations on annual
additions to a qualified defined contribution plan under section 415(c) of the
Code; (c) the maximum limitation on the aggregate projected annual benefits
payable by qualified defined benefit plans and the annual additions to qualified
defined contribution plans under section 415(e) of the Code; (d) the maximum
limitation on the annual amount of compensation that may be taken into
consideration for contribution and benefit purposes, under section 401(a)(17) of
the Code; (e) with respect to the 401(k) Plan, the limitations on salary
deferrals and matching contributions under sections 401(k), 401(m) and 402(g) of
the Code, and (f) with respect to the ESOP, the limitations under Section
415(c)(6) with respect to allocations to highly compensated employees that apply
in order to avoid taking interest contributions and forfeitures under the ESOP
into consideration in applying the limitations of Section 415(c)(1)."
3. New Section 1.20 shall be added to the Plan which shall state as follows:
"Section 1.20 ESOP means the Provident Bank Employee Stock Ownership Plan,
----
as amended from time to time (including the provisions of any successor
qualified defined contribution plan adopted by the Bank)."
<PAGE>
4. New Section 1.21 shall be added to Plan which shall state as follows:
"Common Stock" shall mean common stock of Provident Bancorp, Inc. or any
successor in interest.
5. Section 2.1 shall be amended by deleting the language after "(ii)" and
replacing it with the following:
"his or her benefit under the Retirement Plan, 401(k) Plan or ESOP is
reduced because of any Applicable Limitation."
6. Section 3.2 of the Plan shall be amended by deleting "(or any other tax-
qualified defined contribution plan maintained by the Bank)" in the three
places that said language is contained therein.
7. New Section 3.3 shall be added to the Plan which shall read as follows:
"3.3 Supplemental Benefits
----------------------
"(a) A Participant or Former Participant shall be entitled to supplemental
ESOP benefits under this Plan which, when expressed as a dollar amount, is equal
to (A) less (B), where:
(A) is the aggregate of the fair market values (determined annually
as of the last day of the relevant ESOP plan year) of the number
of shares of Common Stock that would have been allocated to the
ESOP account of the Participant, and the earnings thereon, but
for the Applicable Limitations; and
(B) is the aggregate of the fair market values (determined annually
as of the last day of the relevant ESOP plan year) of the number
of shares of Common Stock actually allocated to the ESOP account
of the Participant for the relevant plan year, and earnings
thereon.
"(b) The supplemental ESOP benefit shall be a benefit paid in cash, or if
elected by the Participant or Former Participant, in the form set forth in
Section 3.3(c) below. Such benefit shall be paid to, or with respect to the
Participant, at the same time as the Participant's benefit is distributed to the
Participant or the Participant's Beneficiary under the ESOP. If the
supplemental ESOP benefit is paid in cash installments, rather then in a lump
sum, the amount of each installment shall be determined by multiplying the value
of the Participant's or Former Participant's supplemental ESOP benefit by a
fraction, the numerator of which shall be "one" and the denominator of which
shall be the number of remaining installments, including the current
installment, to which the Participant or Former Participant is entitled.
<PAGE>
"(c) If a trust is established and is permitted to hold Common Stock, a
Participant's or Former Participant's supplemental ESOP benefit shall be
distributed in shares of Common Stock, if elected by the Participant, and
approved by the Committee. Any fractional shares of Common Stock attributable
to the Participant or Former Participant will be distributed in cash. If no
trust is established, and if approved by the Committee, a Participant or Former
Participant may elect at the time of the distribution, that the Committee
convert the value of his or her account attributed to his or her supplemental
ESOP benefit into shares of Common Stock. The value of the Participant's
supplemental ESOP benefit at the time of the distribution shall be converted to
shares of the Common Stock by dividing the cash credited to the Participant's
supplemental ESOP benefit by the last price quoted for the shares of Common
Stock on the National Association of Securities Dealers Automated Quotation
("NASDAQ") National Market System. Such shares of Common Stock will be issued
in the name of the Participant. The delivery of the shares to the Participant
will act as a discharge of the Committee's obligation of payment on the
supplemental ESOP benefit. Any funds that cannot be converted to shares of
Common Stock will be distributed in cash."
8. Sections 5.2 and 5.3 of the Plan shall be amended to include "the ESOP"
after the words "the 401(k) Plan" in both such Sections and a comma shall
be inserted after "the 401(k) Plan" in both such sections.
9. In all other respects the Plan shall remain in full force and effect.
IN WITNESS WHEREOF, the Bank has caused this Second Amendment to be
executed as of the _______ day of ___________, 1998.
ATTEST: PROVIDENT BANK
By:____________________________ By: ________________________________
Secretary President
<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
OF
PROVIDENT SAVINGS BANK, F.A.
-------------------------
Effective as of January 1, 1995
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
-----------
<TABLE>
<CAPTION>
<S> <C> <C>
Section 1.1 Actuarial Equivalent........................................... 1
Section 1.2 Applicable Limitation.......................................... 1
Section 1.3 Bank........................................................... 1
Section 1.4 Bank Contributions............................................. 1
Section 1.5 Beneficiary.................................................... 1
Section 1.6 Board.......................................................... 1
Section 1.7 Code........................................................... 2
Section 1.8 Committee...................................................... 2
Section 1.9 Earnings Period................................................ 2
Section 1.10 Eligible Employee.............................................. 2
Section 1.11 Employee....................................................... 2
Section 1.12 ERISA.......................................................... 2
Section 1.13 Former Participant............................................. 2
Section 1.14 401k Plan...................................................... 2
Section 1.15 Participant.................................................... 2
Section 1.16 Plan........................................................... 2
Section 1.17 Retirement Plan................................................ 2
Section 1.18 Termination of Service......................................... 2
Section 1.19 Valuation Date................................................. 2
ARTICLE II
PARTICIPATION
-------------
Section 2.1 Eligibility for Participation.................................. 3
Section 2.2 Commencement of Participation.................................. 3
Section 2.3 Termination of Participation................................... 3
Section 2.4 Limitation on Participation.................................... 3
</TABLE>
(i)
<PAGE>
Page
----
ARTICLE III
BENEFITS TO PARTICIPANTS
------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Section 3.1 Supplemental Retirement Benefits............................... 3
Section 3.2 Supplemental Incentive Savings Benefits........................ 4
ARTICLE IV
ADMINISTRATION
--------------
Section 4.1 Duties of the Committee........................................ 5
Section 4.2 Liabilities of Committee....................................... 5
Section 4.3 Expenses....................................................... 5
Section 4.4 Unfunded Character of Plan..................................... 6
Section 4.5 Claims Procedure............................................... 6
ARTICLE V
AMENDMENT AND TERMINATION
-------------------------
Section 5.1 Amendment and Termination...................................... 6
Section 5.2 Vesting on Termination......................................... 6
Section 5.3 Preservation of Benefits on Amendment.......................... 6
Section 5.4 Distribution of Benefits on Termination........................ 7
ARTICLE VI
TRUST
-----
Section 6.1 Establishment of Trust......................................... 7
Section 6.2 Contributions to Trust......................................... 7
</TABLE>
(ii)
<PAGE>
Page
----
ARTICLE VII
MISCELLANEOUS PROVISIONS
------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Section 7.1 Governing Law.................................................. 7
Section 7.2 No Right to Continued Employment............................... 7
Section 7.3 Construction of Language....................................... 8
Section 7.4 Non-alienation of Benefits..................................... 8
Section 7.5 Non-duplication of Benefits; Avoidance of Omissions............ 8
Section 7.6 Operation as Unfunded Plan..................................... 8
</TABLE>
(iii)
<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
OF
--
PROVIDENT SAVINGS BANK, F.A.
---------------------------
ARTICLE I
DEFINITIONS
-----------
Wherever appropriate to the purposes of the Plan, capitalized terms
shall have the meanings assigned to them under the Retirement Plan and the
401(k) Plan; provided, however, that the following special definitions shall
-------- -------
apply for purposes of the Plan, unless a different meaning is clearly
indicated by the context:
Section 1.1 Actuarial Equivalent means a benefit of equivalent
--------------------
value when computed on the basis of actuarial tables and interest rates
adopted under the provisions of the Retirement Plan for use in making such
computations.
Section 1.2 Applicable Limitation means any one of the following:
---------------------
(a) the maximum limitation on annual benefits payable by a qualified defined
benefit plan under section 415(b) of the Code; (b) the maximum limitations on
annual additions to a qualified defined contribution plan under section 415(c)
of the Code; (c) the maximum limitation on the aggregate projected annual
benefits payable by qualified defined benefit plans and the annual additions
to qualified defined contribution plans under section 415(e) of the Code; (d)
the maximum limitation on the annual amount of compensation that may, under
section 401(a)(17) of the Code, be taken into account in determining
contributions to and benefits under qualified plans: AND (E) WITH RESPECT TO
-----------------------
THE 4O1(K) P1AN, THE LIMITATIONS ON SALARY DEFERRALS AND MATCHING
-----------------------------------------------------------------
CONTRIBUTIONS UNDER SECTIONS 4O1(K), 401(M) AND 402(G) OF THE CODE.
------------------------------------------------------------------
Section 1.3 Bank means Provident Savings Bank, F.A., and any
----
successor thereto, and any corporation that is a member of a controlled group
of corporations (as defined in section 414(b) of the Code) that includes
Provident Savings Bank, F.A. or any trade or business (whether or not
incorporated) that is under common control (as defined in section 414(c) of
the Code) with the Provident Savings Bank, F.A. which, with the prior approval
of the Board of Provident Savings Bank, F.A., and subject to such conditions
as may be imposed by such Board, shall adopt this Plan.
Section 1.4 Bank Contributions means contributions by the Bank to
------------------
the 401(k) Plan.
Section 1.5 Beneficiary means any person, other than a Participant
-----------
or Former Participant who is determined to be entitled to benefits under the
terms of the Plan.
<PAGE>
-2-
Section 1.6 Board means the Board of Directors of the Bank.
-----
Section 1.7 Code means the Internal Revenue Code of 1986, as
----
amended from time to time (including the corresponding provisions of any prior
law or succeeding law).
Section 1.8 Committee means the Compensation Committee of the Board,
---------
or such other person, committee or other entity as shall be designated by or
on behalf of the Board to perform the duties set forth in Article IV.
Section 1.9 Earnings Period means, with respect to a Participant or
---------------
Former Participant, the period beginning on the date on which he first becomes a
Participant and ending on December 31st of the year in which the Participant's
or Former Participant's Termination of Service occurs.
Section 1.10 Eligible Employee means an Employee who is eligible for
-----------------
participation in the Plan in accordance with the provisions of Article II.
Section 1.11 Employee means any person, including an officer, who
--------
is employed by the Bank.
Section 1.12 ERISA means the Employee Retirement Income Security Act
-----
of 1974, as amended from time to time (including the corresponding provisions of
any succeeding law).
Section 1.13 Former Participant means a person whose participation
------------------
in the Plan has terminated as provided under section 2.3.
Section 1.14 401(k) Plan means the Provident Savings Bank 401(k)
-----------
Plan, as amended from time to time (including the provisions of any successor
qualified defined contribution plan adopted by the Bank).
Section 1.15 Participant means any person who is participating in
-----------
the Plan in accordance with its terms.
Section 1.16 Plan means this Supplemental Executive Retirement Plan
----
of Provident Savings Bank, F.A., as amended from time to time (including the
corresponding provisions of any successor supplemental executive retirement plan
adopted by the Bank).
Section 1.17 Retirement Plan means the Provident Savings Bank
---------------
Defined Benefit Pension Plan, as amended from time to time (including the
corresponding provisions of any successor qualified defined benefit plan adopted
by the Bank).
Section 1.18 Termination of Service means an Employee's separation
----------------------
from the service of the Bank, whether by resignation, discharge, death,
disability retirement or otherwise.
<PAGE>
-3-
Section 1.19 Valuation Date means the last business day of each
--------------
calendar month.
ARTICLE II
PARTICIPATION
-------------
Section 2.1 Eligibility for Participation.
-----------------------------
Only Eligible Employees may be or become Participants. An Employee
shall become an Eligible Employee if (i) his salary is paid at an annual rate
equal to or in excess of the annual limitation under section 401(a)(17) of the
Code as in effect from time to time, or (ii) his benefit under the Retirement
Plan or 401(k) Plan is reduced because of any Applicable Limitation.
Section 2.2 Commencement of Participation.
-----------------------------
An Employee shall become a Participant on the date when he first
becomes an Eligible Employee.
Section 2.3 Termination of Participation.
----------------------------
Participation in the Plan shall cease on the earlier of (a) the date
of the Participant's Termination of Service, or (b) the date on which he ceases
to be an employee. Participation shall continue even if the person does not
continue to meet the requirements of section 2.1 until participation ceases
under this section 2.3.
Section 2.4 Limitation on Participation.
---------------------------
An Eligible Employee shall not be a Participant if his or her
participation causes the Plan to be subject to Parts 2, 3 or 4 of Title I of
ERISA.
ARTICLE III
BENEFITS TO PARTICIPANTS
------------------------
Section 3.1 Supplemental Retirement Benefits.
--------------------------------
(a) A Participant or Former Participant shall be entitled to a
supplemental retirement benefit or survivor benefit under this Plan in an amount
equal to the excess of:
(i) the retirement or survivor benefit to which he would be entitled
under the Retirement Plan (or any other tax-qualified defined
benefit plan maintained
<PAGE>
-4-
by the Bank) in the absence of the Applicable Limitations,
determined on the basis of the benefit form elected under the
Retirement Plan (or any other tax-qualified defined benefit plan
maintained by the Bank); over
(ii) the actual retirement or survivor benefit to which he is entitled
under the Retirement Plan (or any other tax-qualified defined
benefit plan maintained by the Bank), computed at Termination of
Service, determined on the basis of the benefit form elected under
the Retirement Plan (or any other tax-qualified defined benefit
plan maintained by the Bank);
provided, however, that if the Plan is terminated with respect to a
- -------- -------
Participant or Former Participant prior to the occurrence of his Termination of
Service, such supplemental retirement or survivor benefit shall not exceed the
supplemental retirement or survivor benefit that would have been payable to him
under this section 3.1(a), on the basis of the benefit form elected under the
Retirement Plan (or any other tax-qualified defined benefit plan maintained by
the Bank), if his Termination of Service had occurred as of the date of the
termination of the Plan. In the event of the Participant's death, benefits will
be paid to his Beneficiary, if applicable.
(b) The supplemental retirement or survivor benefit provided for in
section 3.1 (a) shall be paid commencing at the same time, over the same
period, to the same persons and in the same benefit form as shall have been
elected with respect to such benefit under the Retirement Plan (or any other
tax-qualified defined benefit plan maintained by the Bank).
(c) Notwithstanding the provisions of section 3.1(b) , a
Participant or Former Participant may, with the prior written consent of the
Committee and upon such terms and conditions as the Committee may impose,
request that the supplemental retirement benefit to which he is entitled, and
the survivor benefit to which his Beneficiary under the Retirement Plan may be
entitled under section 3.1(a) be paid commencing at a different time, over a
different period, in a different form, or to different persons, than the benefit
to which he or his Beneficiary may be entitled, under the Retirement Plan (or
any other tax-qualified defined benefit plan maintained by the Bank); provided,
--------
however, that in the event of any such difference, the benefit actually paid
- -------
under this section 3.1 shall be the Actuarial Equivalent of the supplemental
retirement or survivor benefit that would be paid in accordance with the
provisions of section 3.1(b).
Section 3.2 Supplemental Incentive Savings Benefits.
---------------------------------------
(a) A Participant or Former Participant shall be entitled to
supplemental incentive savings benefits under this Plan which, when on the last
Valuation Date to occur during his Earnings Period, are equal to the product of
(i) the amounts of Bank Contributions that could not be credited to the
Participant's or Former Participant's account in the 401(k) Plan (or any other
tax-qualified defined contribution plan maintained by the Bank) as a result of
the application of the Applicable Limitations, together with interest deemed to
accrue each year at the one-year Treasury rate for the first auction in January
of such year, rounded to the nearest hundredth of a point, multiplied by (ii)
his vested percentage under the 401(k) Plan (or any other tax-qualified defined
contribution plan maintained by the Bank); provided, however, that the
-------- -------
<PAGE>
-5-
amount determined under this section 3.2(a) shall in no event be less than zero.
FOR PURPOSES OF THIS PLAN, THE PARTICIPANT OR FORMER PARTICIPANT SHALL BE DEEMED
- --------------------------------------------------------------------------------
TO HAVE MADE THE MAXIMUM AMOUNT OF SALARY DEFERRALS UNDER THE 4O1(K) PLAN (OR
- -----------------------------------------------------------------------------
ANY OTHER TAX-QUALIFIED I DEFINED CONTRIBUTION PLAN MAINTAINED BY THE BANK)
- ---------------------------------------------------------------------------
WITHOUT REGARD TO SECTIONS 4O1(k), 401(m) OR 402(g) OF THE CODE.
- ---------------------------------------------------------------
(b) The supplemental incentive savings benefits provided under
section 3.2(a) shall be paid in 10 annual installments commencing on the first
business day of the year following the year in which the Participant's or
Former Participant's Termination of Service occurs. The amount of the first
installment shall be equal to 1/10th of the supplemental incentive savings
benefits provided under section 3.2(a), and the remaining amount shall be
deemed to accrue interest each year at the one-year Treasury rate for the
first auction in January of such year, rounded to the nearest hundredth of a
point, with such earnings to be credited on December 31st of each year. The
amount of the second and each subsequent annual installment shall be equal to
the amount remaining to be paid as of the first business day in each year
divided by the number of installment payments remaining to be made. All
payments shall be made to the Participant or Former Participant, or in the
event of his death, to such person or persons as he shall have designated as
his Beneficiary under the 401(k) Plan, or if there are none, then to his
estate.
(c) Notwithstanding the provisions of section 3.2(b), a
Participant or Former Participant may, with the prior written consent of the
Committee and. upon such terms and conditions as the Committee may impose,
request that his benefit under section 3.2(a) be paid at such other time or
times, and to such other persons, as he shall designate in writing.
ARTICLE IV
ADMINISTRATION
--------------
Section 4.1 Duties of the Committee.
-----------------------
The Committee shall have full responsibility for the management,
operation, interpretation and administration of the Plan in accordance with
its terms, and shall have such authority as is necessary or appropriate in
carrying out its responsibilities. Actions taken by the Committee pursuant to
this section 4.1 shall be conclusive and binding upon the Bank, Participants,
Former Participants, Beneficiaries, and other interested parties.
Section 4.2 Liabilities of Committee.
------------------------
Neither the Committee nor its individual members shall be deemed to
be a fiduciary with respect to this Plan; nor shall any of the foregoing
individuals or entities be liable to any Participant Former Participant or
Beneficiary in connection with the management. operation, interpretation or
administration of the Plan, any such liability being solely that of the Bank.
<PAGE>
-6-
Section 4.3 Expenses.
--------
Any expenses incurred in the management, operation, interpretation or
administration of the Plan shall be paid by the Bank. In no event shall the
benefits otherwise payable under this Plan be reduced to offset the expenses
incurred in managing, operating, interpreting or administering the Plan.
Section 4.4 Unfunded Character of Plan.
--------------------------
The Plan shall be unfunded. Neither the Bank nor the Committee nor
its individual members shall segregate or otherwise identify specific assets to
be applied to the purposes of the Plan, nor shall any of them be deemed to be a
trustee of any amounts to be paid under the Plan. Any liability of the Bank to
any person with respect to benefits payable under the Plan shall be based solely
upon such contractual obligations, if any, as shall be created by the Plan, and
shall give rise only to a claim against the general assets of the Bank. No such
liability shall be deemed to be secured by any pledge or any other encumbrance
on any specific property of the Bank.
Section 4.5 Claims Procedure.
----------------
If any claim for benefits under this Plan is denied, in whole or in
part, and a request for review is filed by the Participant or other person
within sixty (60) days after receiving notice of such denial, the Committee
shall review such request within sixty (60) days after receipt. The Committee
shall conduct a full and fair review of the denial of claim for benefits under
the Plan. The Participant or other person shall be notified in writing of the
final decision of such full and fair review by the Committee, including the
specific reasons for the decision and specific reference to the pertinent Plan
provisions upon which the decision is based.
ARTICLE V
AMENDMENT AND TERMINATION
-------------------------
Section 5.1 Amendment and Termination.
-------------------------
Subject to the provisions of sections 5.2 or 5.3, the Board shall
have the right to amend or terminate the Plan, in whole or in part.
Section 5.2 Vesting on Termination.
----------------------
In the event of a termination or partial termination of the Plan, the
rights of all affected parties, if any, to benefits accrued to the date of such
termination or partial termination shall become nonforfeitable to the same
extent that such rights would be nonforfeitable if such benefits were provided
under the Retirement Plan, the 401(k) Plan or any other tax-qualified plan and
such plans were terminated on such date.
<PAGE>
-7-
Section 5.3 Preservation of Benefits on Amendment.
-------------------------------------
No amendment of this Plan shall reduce the vested and accrued
benefits, if any, of a Participant under this Plan, except to the extent that
such a reduction would be permitted if such benefits were provided under the
Retirement Plan, the 401(k) Plan or any other tax-qualified plan.
Section 5.4 Distribution of Benefits on Termination.
---------------------------------------
In the event of termination or partial termination of the Plan, the
Bank shall pay to affected Participants, Former Participants or Beneficiaries
the supplemental incentive savings benefits, if any, to which they are entitled
under section 3.2 and section 3.3, respectively, as if such Participants'
Termination of Service had occurred on the date the Plan is terminated or
partially terminated, but the supplemental retirement benefits, if any, to which
they are entitled under section 3.1 shall continue to be payable as provided in
section 3.1.
ARTICLE VI
TRUST
-----
Section 6.1 Establishment of Trust.
----------------------
Subject to sections 4.4 and 7.6, the Bank may establish a trust to
which assets may be transferred by the Bank in order to provide a portion or all
of the benefits otherwise payable by the Bank under the Plan; provided, however,
-------- -------
that the assets of such trust shall be subject to the claims of the creditors of
the Bank in the event that it is determined that the Bank is insolvent or that
grounds exist for the appointment of a conservator or receiver of the Bank. Any
payments made to a Participant, Former Participant or Beneficiary from a trust
established under this section 6.1 shall offset payments which would otherwise
be payable by the Bank in the absence of the establishment of such trust.
Section 6.2 Contributions to Trust.
----------------------
If a trust is established in accordance with section 6.1, the Bank
shall make contributions to such trust in such amounts and at such times as
specified by the Committee.
<PAGE>
-8-
ARTICLE VII
MISCELLANEOUS PROVISIONS
------------------------
Section 7.1 Governing Law.
-------------
Except to the extent preempted by federal law, the Plan shall be
construed, administered, and enforced according to the laws of the State of New
York without regard to conflicts of laws principles.
Section 7.2 No Right to Continued Employment.
--------------------------------
Neither the establishment of the Plan nor any provisions of the Plan,
nor any action of the Committee shall be held or construed to confer upon any
Employee any right to a continuation of employment by the Bank. Subject to any
employment contract, the Bank reserves the right to dismiss any Employee or
otherwise deal with any Employee to the same extent as though the Plan had not
been adopted.
Section 7.3 Construction of Language.
------------------------
Wherever appropriate in the Plan, words used in the singular may be
read in the plural, words in the plural may be read in the singular, and words
importing the masculine gender shall include the feminine and the neuter. Any
reference to any Article or section shall be to an Article or section of this
Plan, unless otherwise indicated.
Section 7.4 Non-alienation of Benefits.
--------------------------
The right to receive a benefit under the Plan shall not be subject in
any manner to anticipation, alienation, or assignment, nor shall such right be
liable for or subject to debts, contracts, liabilities or torts. Should any
Participant, Former Participant, Beneficiary or other person attempt to
anticipate, alienate or assign his interest in or right to a benefit, or should
any person claiming against him seek to subject such interest or right to legal
or equitable process, all the interest or right of such Participant or Former
Participant, Beneficiary or other person entitled to benefits under the Plan
shall cease, and in that event, such interest or right shall be held or applied,
at the direction of the Committee, for or to the benefit of such Participant,
Former Participant, Beneficiary or other person or his spouse, children or other
dependents in such manner and in such proportions as the Committee may deem
proper.
Section 7.5 Non-duplication of Benefits: Avoidance of Omissions.
---------------------------------------------------
The Committee, in its discretion, may increase or decrease the amount
of any benefit payable hereunder if and to the extent that it determines, in
good faith, that an increase is necessary in order to avoid the omission of a
benefit intended to be payable under this Plan or that a decrease is necessary
in order to avoid a duplication of the benefits intended to be provided under
this Plan.
<PAGE>
-9-
Section 7.6 Operation as Unfunded Plan.
--------------------------
The Plan is intended to be (a) to the maximum extent permitted under
applicable laws, an unfunded, non-qualified excess benefit plan as contemplated
by section 3(36) of ERISA for the purpose of providing benefits in excess of the
limitations imposed by section 415 of the Code, and (b) to the extent not so
permitted, an unfunded, non-qualified benefit plan for the purpose of providing
benefits to a select group of management or highly compensated individuals, such
that the benefits payable hereunder shall not be taxable to recipients until
paid. The Plan is not intended to comply with the requirements of section 401(a)
of the Code or to be subject to Parts 2, 3 and 4 of Title I of ERISA. The Plan
shall be administered and construed so as to effectuate these intentions.
<PAGE>
Exhibit A
---------
-------------------------
FIRST AMENDMENT TO
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN OF
PROVIDENT SAVINGS BANK, F.A.
-------------------------
The Supplemental Executive Retirement Plan of Provident Savings Bank,
F A. ("SERP") is hereby amended as follows, effective as of January 1 1995:
1. Section 3.l(a) of the SERP shall be revised in its entirety so as to
read as follows:
(a) A Participant or Former Participant shall be entitled to a
supplemental retirement benefit or survivor benefit under this Plan in an
amount equal to the excess of:
(i) the retirement or survivor benefit to which he would be
entitled under the Retirement Plan (or any other tax
qualified defined benefit plan maintained by the Bank) in
the absence of the Applicable Limitations and as if any
deferred compensation or deferred fees as an officer or
director of the Bank were counted as compensation under the
Retirement Plan in tile year to which the deferred
compensation or fees relate, determined on the basis of the
benefit form elected under the Retirement Plan (or any other
tax-qualified defined benefit plan maintained by the Bank);
over
(ii) the actual retirement or survivor benefit to which he is
entitled under the Retirement Plan (or any other tax-
qualified defined benefit plan maintained by the Bank).
computed at Termination of Service. determined oil the basis
of the benefit form elected under the Retirement Plan (or
any other tax-qualified defined benefit plan maintained by
the Bank):
provided, however, that if the Plan is terminated with respect to a
-------- -------
Participant or Former Participant prior to the occurrence of his Termination
of Service, such supplemental retirement or survivor benefit shall not
exceed the supplemental retirement or survivor benefit that would have been
payable to him under this section 3.1(a), on the basis of the benefit form
elected under the Retirement Plan or any other tax-qualified defined benefit
plan maintained by the Bank), if his Termination of Service had occurred as
of the date of the termination of the Plan.
<PAGE>
-2-
In the event of the Participant's death, benefits will be paid to his
Beneficiary, if applicable.
2. Section 3.2(a) of the SERP shall be revised in its entirety so as to
read as follows:
(a) A Participant or Former Participant shall be entitled to
supplemental incentive savings benefits under this Plan which, when on the
last Valuation Date to occur during his Earnings Period, are equal to the
product of (i) the amounts of Bank Contributions that could not he
credited to tile Participant's or Former Participant's account in the
401(k) Plan (or any other tax-qualified defined contribution plan
maintained by the Bank) as a result of the application of the Applicable
Limitations and computed as if any deferred compensation or deferred fees
an officer or director of the Bank were counted as compensation under tile
401(k) Plan in the year to which the deferred compensation or fees
relate, together with interest deemed to accrue each year at the one-year
Treasury rate for the first auction in January of such year, rounded to
the nearest hundredth of a point, multiplied by (ii) his vested percentage
under the 4O1(k) Plan (or any other tax-qualified defined contribution
plan maintained by the Bank) provided, however, that the amount determined
under this section 3.2(a) shall in no event be less than zero. For
purposes of this Plan, the participant or Former Participant shall be
deemed to have made die maximum amount of salary deferrals under the
401(k) Plan (or any other tax-qualified defined contribution plan
maintained by the Bank) without regard to sections 401(k), 401(m) or
402(g) of the Code.
3. Except as amended by the foregoing, the SERF shall continue in full
force and effect:
This First Amendment to the Supplemental Executive Retirement Plan of
Provident Savings Bank. F.A. is hereby adopted as of the ____ day of February,
1996.
PROVIDENT SAVINGS BANK, F.A.
By:
--------------------------
Name:
Title:
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following is a list of the subsidiaries of Provident Bancorp, Inc.
following the Reorganization:
Name State of Incorporation
---- ----------------------
Provident Bank Federal
Provest Services Corp. I New York
Provest Services Corp. II New York
<PAGE>
EXHIBIT 23.2
Consent of Independent Auditors
-------------------------------
The Board of Directors
Provident Bank:
We consent to the inclusion in the registration statement of our report dated
October 31, 1997 relating to the consolidated statements of financial condition
of Provident Bank and subsidiaries as of September 30, 1997 and 1996, and the
related consolidated statements of income, changes in equity, and cash flows for
the years then ended. We further consent to the use of our opinion dated
September 14, 1998, included herein as an exhibit, regarding certain state
income tax consequences of the proposed reorganization and offering.
We consent to the references to our firm under the headings "THE REORGANIZATION
AND OFFERING - Federal and State Tax Consequences of the Reorganization",
"PROVIDENT BANK CONSOLIDATED STATEMENTS OF INCOME", "LEGAL AND TAX MATTERS",and
"EXPERTS" in the prospectus.
/s/ KPMG Peat Marwick LLP
Stamford, Connecticut
September 14, 1998
<PAGE>
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Provident Bancorp, Inc.
on Form S-1 of our report dated November 17, 1995 relating to the consolidated
statements of income, changes in equity, and cash flows of Provident Bank and
subsidiaries for the year ended September 30, 1995, appearing in the Prospectus,
which is part of this Registration Statement.
We also consent to the reference to us under the headings "Provident Bank
Consolidated Statements of Income" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
September 16, 1998
<PAGE>
EXHIBIT 23.4
[LETTERHEAD OF RP FINANCIAL, LC. APPEARS HERE]
September 11, 1998
Board of Directors
Provident Bank
400 Rella Boulevard
Montebello, New York 10901
Gentlemen:
We hereby consent to the use of our firm's name in the Form MHC-1, Form
MHC-2 and Application on Form H-e(1) for Provident Bank, Montebello, New York,
and any amendments thereto, and in the Form S-1 Registration Statement and any
amendments thereto for Provident Bancorp, Inc. We also hereby consent to the
inclusion of, summary of and references to our Appraisal Report and our
statement concerning subscription rights in such filings including the
Prospectus of Provident Bancorp, Inc.
Respectfully submitted,
RP FINANCIAL, LC.
/s/ James P. Hennessey
James P. Hennessey
Senior Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,785
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 92,404
<INVESTMENTS-CARRYING> 109,531
<INVESTMENTS-MARKET> 110,242
<LOANS> 444,908
<ALLOWANCE> 4,548
<TOTAL-ASSETS> 679,104
<DEPOSITS> 580,075
<SHORT-TERM> 25,195
<LIABILITIES-OTHER> 19,955
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 53,879
<TOTAL-LIABILITIES-AND-EQUITY> 679,104
<INTEREST-LOAN> 25,962
<INTEREST-INVEST> 6,748
<INTEREST-OTHER> 3,029
<INTEREST-TOTAL> 35,739
<INTEREST-DEPOSIT> 14,315
<INTEREST-EXPENSE> 15,609
<INTEREST-INCOME-NET> 20,130
<LOAN-LOSSES> 1,347
<SECURITIES-GAINS> 10
<EXPENSE-OTHER> 15,642
<INCOME-PRETAX> 5,439
<INCOME-PRE-EXTRAORDINARY> 5,439
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,444
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.30
<LOANS-NON> 5,737
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,779
<CHARGE-OFFS> 611
<RECOVERIES> 33
<ALLOWANCE-CLOSE> 4,548
<ALLOWANCE-DOMESTIC> 4,548
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
[LETTERHEAD OF RP FINANCIAL, LC APPEARS HERE]
April 29, 1998
Board of Directors
c/o Mr. George Strayton, President and CEO
Provident Bank
400 Rella Boulevard
Montebello, New York 10901
Dear Members of the Board:
This letter sets forth the agreement between Provident Bank, Montebello,
New York ("Provident" or the "Bank"), and RP Financial, LC. ("RP Financial") for
the independent appraisal services pertaining to the Bank's formation of a "two-
tier" mutual holding company (the "Reorganization"), including a mid-tier stock
holding company and minority stock offering by the mid-tier stock holding
company (the "Stock Offering"). The specific appraisal services to be rendered
by RP Financial are described below. These appraisal services will be rendered
by a team of two to three senior consultants on staff and will be directed by
the undersigned.
Description of Conversion Appraisal Services
- --------------------------------------------
Prior to preparing the valuation report, RP Financial will conduct a
financial due diligence, including on-site interviews of senior management and
reviews of financial and other documents and records, to gain insight into the
Bank's operations, financial condition, profitability, market area, risks and
various internal and external factors which impact the pro forma value of the
Bank. RP Financial will prepare a written detailed valuation report of Provident
which will be fully consistent with applicable regulatory guidelines and
standard pro forma valuation practices. The appraisal report will include an in-
depth analysis of the Bank's financial condition and operating results, as well
as an assessment of the Bank's financial condition and operating results, as
well as an assessment of the Bank's interest rate risk, credit risk and
liquidity risk. The appraisal report will describe the Bank's business
strategies, market area, prospects for the future and the intended use of
proceeds both in the short term and over the longer term. A peer group analysis
relative to publicly-traded savings institutions will be conducted for the
purpose of determining appropriate valuation adjustments relative to the group.
We will review pertinent sections of the applications and offering documents to
obtain necessary data and information for the appraisal, including the impact of
key deal elements on the appraised value, such as dividend policy, use of
proceeds and reinvestment rate, tax rate, conversion expenses and
characteristics of stock plans. The appraisal report will conclude with a
midpoint pro forma value which will establish the range of value, and reflect
the Stock Offering size determined by the Bank's Board of Directors. The
appraisal report may be periodically updated throughout the conversion process
and there will be at least one updated valuation prepared at the time of the
closing of the Stock Offering.
<PAGE>
Board of Directors
April 29, 1998
Page 2
RP Financial agrees to deliver the valuation appraisal and subsequent
updates, in writing, to Provident at the above address in conjunction with the
filing of the regulatory application. Subsequent updates will be filed promptly
as certain events occur which would warrant the preparation and filing of such
valuation updates. Further, RP Financial agrees to perform such other services
as are necessary or required in connection with the regulatory review of the
appraisal and respond to the regulatory comments, if any, regarding the
valuation appraisal and subsequent updates.
Fee Structure and Payment Schedule
- ----------------------------------
Provident agrees to pay RP Financial a fixed fee of $45,000 for these
appraisal services, plus reimbursable expenses. Payment of these fees shall be
made according to the following schedule:
. $10,000 upon execution of the letter of agreement engaging RP
Financial's appraisal services;
. $30,000 upon delivery of the completed original appraisal report;
and
. $5,000 upon completion of the Reorganization and Stock Offering
to cover all subsequent valuation updates that may be required,
provided that the transaction is not delayed for reasons
described below.
The Bank will reimburse RP Financial for out-of-pocket expenses incurred in
preparation of the valuation. Such out-of-pocket expenses will likely include
travel, printing, telephone, facsimile, shipping, computer an data services. RP
Financial will agree to limit reimbursable expenses to $10,000 in connection
with this engagement and in connection with the preparation of a regulatory
business plan as described in the accompanying letter, subject to written
authorization from the Bank to exceed such level.
In the even Provident shall, for any reason, discontinue the proposed
Reorganization and Stock Offering prior to delivery of the completed documents
set forth above and payment of the respective progress payment fees, Provident
agrees to compensate RP Financial according to RP Financial's standard billing
rates for consulting services based on accumulated and verifiable time expenses,
not to exceed the respective fee caps noted above, after giving full credit to
the initial retainer fee. RP Financial's standard billing rates range from $75
per hour for research associates to $250 per hour for managing directors.
If during the course of the proposed transaction, unforseen events occur so
as to materially change the nature or the work content of the services described
in this contract, the terms of said contract shall be subject to renegotiation
by Provident and RP Financial. Such unforseen events shall include, but not be
limited to, major changes in the conversion regulations, appraisal guidelines or
processing procedures as they relate to appraisals, major changes in
<PAGE>
Board of Directors
April 29, 1998
Page 3
management or procedures, operating policies or philosophies, and excessive
delays or suspension of processing of conversion applications by the regulators
such that completion of the transaction requires the preparation by RP Financial
of a new appraisal or financial projections.
Representations and Warranties
- ------------------------------
Provident and RP Financial agree to the following:
1. The Bank agrees to make available or to supply to RP Financial
such information with respect to its business and financial condition as RP
Financial may reasonably request in order to provide the aforesaid valuation.
Such information heretofore or hereafter supplied or made available to RP
Financial shall include: annual financial statements, periodic regulatory
filings and material agreements, debt instruments, off balance sheet assets or
liabilities, commitments and contingencies, unrealized gains or losses and
corporate books and records. All information provided by the Bank to RP
Financial shall remain strictly confidential (unless such information is
otherwise made available to the public), and if the Reorganization and Stock
Offering are not consummated or the services of RP Financial are terminated
hereunder, RP Financial shall upon request promptly return to the Bank the
original and any copies of such information.
2. The Bank hereby represents and warrants to RP Financial that any
information provided to RP Financial does not and will not, to the best of the
Bank's knowledge, at the times it is provided to RP Financial, contain any
untrue statement of a material fact or fail to state a material fact necessary
to make the statements therein not false or misleading in light of the
circumstances under which they were made.
3. (a) The Bank agrees that it will indemnify and hold harmless RP
Financial, any affiliates of RP Financial, the respective directors, officers,
agents and employees of RP Financial or their successors and assigns who act for
or on behalf of RP Financial in connection with the services called for under
this agreement (hereinafter referred to as "RP Financial"), from and against any
and all losses, claims, damages and liabilities (including, but not limited to,
all losses and expenses in connection with claims under the federal securities
laws) attributable to (i) any untrue statement or alleged untrue statement of a
material fact contained in the financial statements or other information
furnished or otherwise provided by the Bank to RP Financial, either orally or in
writing; (ii) the omission or alleged omission of a material fact from the
financial statements or other information furnished or otherwise made available
by the Bank to RP Financial; or (iii) any action or omission to act by the Bank,
or the Bank's respective officers, Directors, employees or agents which action
or omission is willful or negligent. The Bank will be under no obligation to
indemnify RP Financial hereunder if a court determines that RP Financial was
negligent or acted in bad faith with respect to any actions or omissions of RP
Financial related to a matter for which indemnification is sought hereunder. Any
time devoted by employees of RP Financial to situations for which
indemnifications is provided hereunder, shall be an indemnifiable cost payable
by the Bank at the normal hourly professional rate chargeable by such employee.
<PAGE>
Board of Directors
April 29, 1998
Page 4
(b) RP Financial shall give written notice to the Bank of such claim
or facts within thirty days of the assertion of any claim or discovery of
material facts upon which RP Financial intends to base a claim for
indemnification hereunder. In the event the Bank elects, within ten business
days of the receipt of the original notice thereof, to contest such claim by
written notice to RP Financial, RP Financial will be entitled to be paid any
amounts payable by the Bank hereunder within five days after the final
determination of such contest either by written acknowledgement of the Bank or a
final judgment (including all appeals therefrom) of a court of competent
jurisdiction. If the Bank does not so elect, RP Financial shall be paid
the promptly and in any event within thirty days after receipt by the Bank of
notice of the claim.
(c) The Bank shall pay for or reimburse the reasonable expenses,
including attorneys' fees, incurred by RP Financial in advance of the final
disposition of any proceeding within thirty days of the receipt of such request
if RP Financial furnishes the Bank: (1) a written statement of RP Financial's
good faith belief that it is entitled to indemnification hereunder; and (2) a
written undertaking to repay the advance if it ultimately is determined in a
final adjudication of such proceeding that it or he is not entitled to such
indemnification. The Bank may assume the defense of any claim (as to which
notice is given in accordance with 3(b)) with counsel reasonably satisfactory to
RP Financial, and after notice from the Bank to RP Financial of its election to
assume the defense thereof, the Bank will not be liable to RP Financial for any
legal or other expenses subsequently incurred by RP Financial (other than
reasonable costs of investigation and assistance in discovery and document
production matters). Notwithstanding the foregoing, RP Financial shall have the
right to employ their own counsel in any action or proceeding if RP Financial
shall have concluded that a conflict of interest exists between the Bank and RP
Financial which would materially impact the effective representation of RP
Financial. In the event that RP Financial concludes that a conflict of interest
exists, RP Financial shall the right to select counsel reasonably satisfactory
to the Bank which will represent RP Financial in any such action or proceeding
and the Bank shall reimburse RP Financial for the reasonable legal fees and
expenses of such counsel and other expenses reasonably incurred by RP Financial.
In no event shall the Bank be liable for the fees and expenses of more than one
counsel, separate from its own counsel, for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same allegations or circumstances. The Bank
will not be liable under the foregoing indemnification provision in respect of
any compromise or settlement of any action or proceeding made without its
consent, which consent shall not be unreasonably withheld.
(d) In the event the Bank does not pay any indemnified loss or make
advance reimbursements of expenses in accordance with the terms of this
agreement, RP Financial shall have all remedies available at law or in equity to
enforce such obligation.
It is understood that, in connection with RP Financial's above-mentioned
engagement, RP Financial may also be engaged to act for the Bank in one or more
additional capacities, and that the terms of the original engagement may be
incorporated by reference in one or more separate agreements. The provisions of
Paragraph 3 herein shall apply to the original engagement, any such additional
engagement, any modification of the original engagement or such additional
engagement and shall remain in full force and effect following the completion or
termination of
<PAGE>
Board of Directors
April 29, 1998
Page 5
RP Financial's engagement(s). This agreement constitutes the entire
understanding of the Bank and RP Financial concerning the subject matter
addressed herein, and such contract shall be governed and construed in
accordance with the laws of the State of Maryland. This agreement may not be
modified, supplemented or amended except by written agreement executed by both
parties.
Provident and RP Financial are not affiliated, and neither Provident nor
RP Financial has an economic interest in, or is held in common with, the other
and has not derived a significant portion of its gross revenues, receipts or net
income for any period from transactions with the other.
* * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as indicated
below and returning to RP Financial a signed copy of this letter, together with
the initial retainer fee of $10,000.
Sincerely,
/s/ Ronald S. Riggins
Ronald S. Riggins
President and Managing Director
Agreed To and Accepted By: George Strayton /s/ George Strayton
-------------------
President and Chief Executive Officer
Upon Authorization by the Board of Directors For: Provident Bank
Montebello, New York
Dated Executed: 5/27/98
------------------------
<PAGE>
EXHIBIT 99.2
[LETTERHEAD OF RP FINANCIAl APPEARS HERE]
April 29, 1998
Board of Directors
c/o Mr. George Strayton, President and CEO
Provident Bank
400 Rella Boulevard
Montebello, New York 10901
Dear Members of the Board:
This letter sets forth the agreement between Provident Bank, Montebello,
New York ("Provident" or the "Bank"), and RP Financial, LC. ("RP Financial"),
whereby the Bank has engaged RP Financial to prepare the regulatory business
plan and financial projections to be adopted by the Bank's Board of Directors in
conjunction with the concurrent mutual holding company reorganization and
minority stock offering. These services are described in greater detail below.
Description of Proposed Services
- --------------------------------
RP Financial's business planning services will include the following areas:
(1) evaluating Provident's current financial and operating condition, business
strategies and anticipated strategies in the future; (2) analyzing and
quantifying the impact of business strategies, incorporating the use of net
offering proceeds both in the short and long term; (3) preparing detailed
financial projections on a quarterly basis for a period of at least three fiscal
years to reflect the impact of Board approved business strategies and use of
proceeds; (4) preparing the written business plan document which conforms with
applicable regulatory guidelines including a description of the use of proceeds
and how the convenience and needs of the community will be addressed; and (5)
preparing the detailed schedules of the capitalization of the Bank and mutual
holding company and related cash flows.
Contents of the business plan will include: Philosophy/Goals; Economic
Environment and Background; Lending, Leasing and Investment Activities; Deposit,
Savings and Borrowing Activity; Asset and Liability Management; Operations;
Records, Systems and Controls; Growth, Profitability and Capital; Responsibility
for Monitoring this Plan.
RP Financial agrees to prepare the business plan and accompanying financial
projections in writing such that the business plan can be filed with the
appropriate regulatory agencies prior to filing the appropriate applications.
<PAGE>
Board of Directors
April 29, 1998
Page 2
Fee Structure and Payment Schedule
- ----------------------------------
The Bank agrees to compensate RP Financial for preparation of the business
plan on a fixed fee basis of $7,500. Payment of the professional fees shall be
made upon delivery of the completed business plan.
The Bank also agrees to reimburse RP Financial for those direct out-of-
pocket expenses necessary and incidental to providing the business planning
services. Reimbursable expenses will likely include shipping,
telephone/facsimile printing, computer and data services, and shall be paid to
RP Financial as incurred and billed. RP Financial will agree to limit
reimbursable expenses to a cap of $10,000 in conjunction with the appraisal
engagement, subject to written authorization from the Bank to exceed such level.
In the event the Bank shall, for any reason, discontinue this planning
engagement prior to delivery of the completed business plan and payment of the
progress payment fee, the Bank agrees to compensate RP Financial according to RP
Financial's standard billing rates for consulting services based on accumulated
and verifiable time expenses, not to exceed the fixed fee described above, plus
reimbursable expenses incurred.
If during the course of the planning engagement, unforeseen events occur so
as to materially change the nature or the work content of the business planning
services described in this contract, the terms of said contract shall be subject
to renegotiation by the Bank and RP Financial. Such unforeseen events may
include changes in regulatory requirements as it specifically relates to
Provident or potential transactions which will dramatically impact the Bank such
as a pending acquisition or branch transaction.
* * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as indicated
below and returning to RP Financial a signed copy of this letter.
Sincerely,
/s/ Ronald S. Riggins
Ronald S. Riggins
President and Managing Director
Agreed To and Accepted By: George Strayton /s/ George Strayton
-----------------------------
President and Chief Executive Officer
Upon Authorization by the Board of Directors For: Provident Bank
Montebello, New York
Date Executed:/s/ George Strayton 5/28/98
---------------------------
<PAGE>
EXHIBIT 99.4
PROVIDENT BANK
400 Rella Boulevard
Montebello, New York 10901
(914) 369-8040
----------------------------------------
NOTICE OF SPECIAL MEETING OF MEMBERS
----------------------------------------
Notice is hereby given that a Special Meeting of Members (the "Special
Meeting") of Provident Bank (the "Bank"), will be held at [THE MAIN OFFICE OF
THE BANK, LOCATED AT 400 RELLA BOULEVARD, MONTEBELLO, NEW YORK, ON ________,
DECEMBER __, 1998 AT _____ A.M.], New York time. The purpose of this Special
Meeting is to consider and vote upon:
The approval of a Plan of Reorganization from Mutual Savings Bank
to Mutual Holding Company and Stock Issuance Plan (the "Plan")
pursuant to which the Bank will be reorganized into the mutual
holding company structure. As part of the Plan, the Bank will
convert to a federally-chartered stock savings bank which will be
wholly-owned by Provident Bancorp, Inc., a to-be formed federal
corporation (the "Company"). Pursuant to the Plan, the Company
will issue 53.4% of its to-be outstanding shares of common stock
to Provident Bancorp, MHC, a federal mutual holding company that
will be formed pursuant to the Plan, and offer for sale to
certain depositors and borrowers 46.6% of its to-be outstanding
shares of common stock; and
such other business as may properly come before this Special Meeting or any
adjournment thereof. Management is not aware of any such other business.
The members who shall be entitled to notice of and to vote at the Special
Meeting and any adjournment thereof are depositors at the close of business on
_______, 1998 and borrowers of the Bank as of July 9, 1998 whose borrowings
remained outstanding as of ____, 1998. In the event there are insufficient
votes for approval of the Plan at the time of the Special Meeting, the Special
Meeting may be adjourned from time to time in order to permit further
solicitation of proxies.
BY ORDER OF THE BOARD OF DIRECTORS
George Strayton
President and Chief Executive Officer
Montebello, New York
November __, 1998
- --------------------------------------------------------------------------------
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR APPROVAL OF THE PLAN BY SIGNING AND RETURNING THE
ENCLOSED PROXY CARD OR CARDS AND RETURNING IT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
YOUR VOTE IS VERY IMPORTANT
- --------------------------------------------------------------------------------
<PAGE>
PROVIDENT BANK
PROXY STATEMENT
SPECIAL MEETING OF MEMBERS TO BE HELD ON DECEMBER __, 1998
PURPOSE OF MEETING
This Proxy Statement is being furnished to you in connection with the
solicitation on behalf of the Board of Directors of Provident Bank (the "Bank")
of proxies to be voted at the Special Meeting of Members (the "Special Meeting")
of the Bank to be held at [THE MAIN OFFICE OF THE BANK, LOCATED AT 400 RELLA
BOULEVARD, MONTEBELLO, NEW YORK ON DECEMBER __, 1998 AT ____ A.M.] New York time
and at any adjournments thereof. The Special Meeting is being held for the
purpose of considering and voting upon a Plan of Reorganization from Mutual
Savings Bank to Mutual Holding Company and Stock Issuance Plan (the "Plan")
under which the Bank would reorganize into the mutual holding company structure
(the "Reorganization"). In the Reorganization, the Bank would be converted from
its present mutual form of organization into a federally chartered savings bank
organized in stock form and all the common stock of the stock savings bank would
be issued concurrently to Provident Bancorp, Inc. (the "Company"), a federal
corporation. The Company would issue 53.4% of its Common Stock (the "Common
Stock") to Provident Bancorp, MHC, a to-be formed federal mutual holding company
(the "Mutual Holding Company") and offer and sell 46.6% of its to-be outstanding
shares of Common Stock in a subscription offering (the "Subscription Offering")
and, possibly, a community offering (the "Community Offering") and/or a
syndicated community offering (the "Syndicated Community Offering," together,
the "Offering"). References to the Bank include Provident Bank in stock form,
as indicated by the context. Capitalized terms that are not defined herein
shall have the definitions set forth in the accompanying prospectus (the
"Prospectus"). YOU MAY OBTAIN A COPY OF THE PLAN BY COMPLETING AND RETURNING
THE ENCLOSED POSTAGE PRE-PAID PLAN REQUEST CARD OR CALLING THE INFORMATION
CENTER, (800) ____-_______.
A detailed description of the Reorganization and Offering is set forth in
the section of the Prospectus entitled "The Reorganization and Offering," which
is incorporated herein by reference.
THE SUBSCRIPTION OFFERING HAS COMMENCED AS OF THE DATE OF MAILING OF THIS
PROXY STATEMENT. A PROSPECTUS EXPLAINING THE TERMS OF THE OFFERING, INCLUDING
HOW TO ORDER AND PAY FOR SHARES AND DESCRIBING THE BUSINESS OF THE BANK, THE
COMPANY AND THE MUTUAL HOLDING COMPANY, ACCOMPANIES THIS PROXY STATEMENT AND
SHOULD BE READ BY ALL PERSONS WHO WISH TO CONSIDER SUBSCRIBING FOR COMMON STOCK.
THE OFFERING EXPIRES AT 10:00 A.M., NEW YORK TIME ON DECEMBER __, 1998 UNLESS
EXTENDED BY THE BANK AND THE COMPANY.
SUMMARY OF PROPOSED REORGANIZATION
This summary does not purport to be complete and is qualified in its
entirety by the more detailed information contained in the remainder of this
Proxy Statement and the accompanying Prospectus.
Under its present mutual form of organization, the Bank has no
stockholders. Its deposit account holders and certain borrowers are members of
the Bank and have voting rights in that capacity. In the unlikely event of
liquidation, the Bank's deposit account holders would have the sole right to
receive any assets of the Bank remaining after payment of its liabilities
(including the claims of all deposit account holders to the withdrawal value of
their deposits). Under the Plan to be voted on at the Special Meeting, the Bank
would reorganize into the mutual holding company structure. In the
Reorganization, the Bank would be converted into a federally chartered savings
bank organized in stock form and all of the Bank's common stock would be issued
concurrently to the Company. The Company will issue 53.4% of its to-be
outstanding shares of Common Stock to the Mutual Holding Company and offer and
sell 46.6% of its to-be outstanding shares of Common Stock in a subscription
offering (1) to depositors with aggregate account balances of $50 or more as of
December 31, 1996 ("Eligible Account Holders"), (2) to tax-qualified employee
stock benefit plans of the Bank ("Tax-Qualified Employee Plans"), (3) to
depositors of the Bank with aggregate account balances of $50 or more as of
September 30, 1998 ("Supplemental Eligible Account Holders"), (4) to depositors
of the Bank as of ________, 1998 and borrowers of the Bank as of July 9, 1998
whose borrowings remained outstanding as of the Voting Record Date (the "Voting
Record Date") other than Eligible Account Holders
<PAGE>
or Supplemental Eligible Account Holders ("Other Members"), and (5) to the
Bank's employees, Officers and Directors ("Employees, Officers and Directors").
Notwithstanding the foregoing, to the extent there is an increase in the maximum
of the Estimated Valuation Range, which will result in an increase in the
maximum of the Offering Range (as defined in the Prospectus), Tax-Qualified
Employee Plans shall be given a first priority to purchase the additional
shares. It is anticipated that Tax-Qualified Employee Plans will purchase 10% of
the Common Stock sold in the Offering.
At any time following commencement of the Subscription Offering, to the
extent sufficient shares of Common Stock are not sold to the persons in the
foregoing categories, the Company may offer Common Stock in the Community
Offering to members of the general public to whom a Prospectus has been
delivered, with first preference to natural persons residing in the New York
County of Rockland. ALL DEPOSITORS AND BORROWERS WHO HAVE MEMBERSHIP, VOTING AND
LIQUIDATION RIGHTS WITH RESPECT TO THE BANK IMMEDIATELY PRIOR TO THE COMPLETION
OF THE REORGANIZATION WILL CONTINUE TO HAVE SUCH RIGHTS SOLELY WITH RESPECT TO
THE MUTUAL HOLDING COMPANY AS LONG AS THEY MAINTAIN DEPOSIT ACCOUNTS IN THE BANK
OR THEIR BORROWINGS WITH THE BANK REMAIN OUTSTANDING AFTER THE COMPLETION OF THE
REORGANIZATION.
THE REORGANIZATION WILL NOT AFFECT THE BALANCE, INTEREST RATE OR FEDERAL
INSURANCE PROTECTION OF ANY DEPOSIT ACCOUNT, AND NO PERSON WILL BE OBLIGATED TO
PURCHASE ANY STOCK IN THE OFFERING.
Business Purposes Net Offering proceeds will increase the capital
for the Reorganization of the Bank, which will support the expansion
and Offering of its financial services to the public.
The reoganization to stock form and the use of
a holding company structure are also expected to
enhance its ability to expand through possible
mergers and acquisitions (although no such
transactions are contemplated at this time) and
to diversify into other financial services and
will facilitate the future access of the Company
and the Bank to the capital markets.
Subscription and As part of the Reorganization, Common Stock is
Community Offering being offered for sale in the Subscription
Offering, in the priorities summarized below,
to the Bank's (1) Eligible Account Holders, (2)
Tax-Qualified Employee Plans, (3) Supplemental
Eligible Account Holders, (4) Other Members and
(5) Employees, Directors and Officers. In
addition, should a Community Offering be
conducted, members of the general public may
purchase Common Stock to the extent shares are
available after satisfaction of subscriptions
in the Subscription Offering, with a preference
first to natural persons residing in the New
York County of Rockland.
Subscription Rights Each Eligible Account Holder has been given
of Eligible Account non-transferable rights to subscribe for an
Holders amount of shares equal to the greater of (i)
$200,000 of the Common Stock sold in the
Offering; or (ii) 15 times the product (rounded
down to the whole next number) obtained by
multiplying the total number of shares to be
issued by a fraction of which the numerator is
the amount of Qualifying Deposits of such
subscriber and the denominator is the total
qualifying deposits of all account holders in
this category on the qualifying date.
Subscription Rights The Bank's Tax-Qualified Employee Plans have
of Tax-Qualified been given non-transferable rights to subscribe
Employee Plans for up to 10% of the total number of shares sold
in the Offering after satisfaction of
subscriptions of Eligible Account Holders.
Notwithstanding the foregoing, to the extent
there is an increase in the maximum of the
Estimated Valuation Range that results in an
increase in the maximum of the Offering Range (as
defined in the Prospectus), Tax-Qualified
Employee Plans shall be given a first priority
to purchase the additional shares. It is
anticipated that Tax-Qualified Employee Plans
will purchase 10% of the Common Stock sold in
the Offering.
Subscription Rights After satisfaction of subscriptions of Eligible
of Supplemental Account Holders and Tax-Qualified Employee
Eligible Account Plans, each Supplemental Eligible Account
Holders Holder has been given non-transferable rights
to subscribe for an amount of shares equal to
the greater of (i) $200,000 of the Common Stock
sold in the Offering; or (ii) 15 times the
product (rounded down to the whole next number)
2
<PAGE>
obtained by multiplying the total
number of shares to be issued by a
fraction of which the numerator is
the amount of Qualifying Deposits of
such subscriber and the denominator
is the total Qualifying Deposits of
all account holders in this category
on the qualifying date.
Subscription Rights of Other Each Other Member has been given
Members non-transferable rights to subscribe for
an amount of shares equal to $200,000 of
the Common Stock sold in the Offering;
after satisfaction of the subscriptions
of the Bank's Eligible Account Holders,
Tax-Qualified Employee Plans and
Supplemental Eligible Accounts Holders.
Subscription Rights of Employees, Each, Employee, Director and Officer has
Directors and Officers been given, non-transferable rights to
subscribe for $200,000 of Common Stock
in the Offering; after satisfaction of
the subscriptions of the Bank's Eligible
Account Holders, Tax-Qualified Employee
Plans, Supplemental Eligible Account
Holders and Other Members.
Additional Purchase Limitations No person or entity, together with
associates, and persons acting in
concert, may purchase more than
$400,000 of the Common Stock sold in
the Offering. The Boards of
Directors of the Company and the
Bank may, in their sole discretion,
increase the maximum purchase
limitation to up to 9.99% of the
shares sold, provided that orders
for shares exceeding 5% shall not
exceed, in the aggregate, 10% of the
shares sold in the Offering. Should
the Bank increase the maximum
purchase limitation above 5% of the
Common Stock offered, persons who
previously subscribed for the
maximum number of shares will be
given the opportunity to subscribe
for additional shares. The minimum
purchase is $250 of Common Stock.
The aggregate purchases of directors
and executive officers and their
associates may not exceed 25% of the
total number of shares sold in the
Offering. These purchase limitations
do not apply to the Bank's Tax-
Qualified Employee Plans.
Expiration Date All subscriptions for Common Stock
must be received by 10:00 a.m., New
York time on December __, 1998.
How to Subscribe for Shares For information on how to subscribe
for Common Stock being offered in the
Offering, please read the Prospectus
and the Stock Order Form accompanying
this Proxy Statement. Subscriptions
will not become effective until the
Plan has been approved by the Bank's
members and at least the minimum of
the Common Stock offered in the
Offering has been subscribed for or
sold in the Offering or through such
other means as may be approved by the
OTS.
Price of Common Stock All sales of Common Stock in the
Offering will be made at $10.00 per
share. See "The Reorganization and
Offering--Procedure for Purchasing
Shares" in the Prospectus.
Tax Consequences The Bank has received an opinion from
its special counsel, Luse Lehman
Gorman Pomerenk & Schick, P.C.,
stating that the Reorganization is a
nontaxable reorganization under
Section 368(a)(1)(F) of the Internal
Revenue Code of 1986, as amended (the
"Code"). The Bank also has received
an opinion from KPMG Peat Marwick,
LLP stating that the Offering will
not be a taxable transaction for New
York income tax purposes.
REQUIRED VOTE APPROVAL OF THE PLAN WILL REQUIRE THE
AFFIRMATIVE VOTE OF A MAJORITY OF ALL
VOTES ELIGIBLE TO BE CAST AT THE
SPECIAL MEETING.
3
<PAGE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE BANK RECOMMENDS THAT YOU VOTE TO APPROVE THE PLAN.
The Bank is currently organized in mutual rather than stock form, meaning
that it has no stockholders and no authority under its federal mutual charter to
issue capital stock. The Bank's Board of Directors has adopted the Plan
providing for the Reorganization. The sale of Common Stock of the Company,
which will be formed to become the holding company of the Bank, will
substantially increase the Bank's net worth. The Company will exchange a
portion of the net proceeds from the sale of the Common Stock for the common
stock of the Bank to be issued upon Reorganization. The Company expects to
retain the balance of the net proceeds (up to 50%), as its initial
capitalization and the Company intends to lend funds to the Employee Stock
Ownership Plan, a tax-qualified employee stock benefit plan of the Bank, to fund
its purchase of Common Stock in the Offering. This increased capital will
support the expansion of the Bank's financial services to the public. The Board
of Directors of the Bank also believes that the reorganization to stock form and
the use of a holding company structure will enhance the Bank's ability to expand
through possible mergers and acquisitions (although no such transactions are
contemplated at this time) and will facilitate its future access to the capital
markets.
The Board of Directors of the Bank believes that the Reorganization will
further benefit the Bank by enabling it to attract and retain key personnel
through prudent use of stock-related incentive compensation and benefit plans.
See "Management of the Bank--Benefit Plans" in the accompanying Prospectus.
Voting in favor of the Plan will not obligate any person to purchase Common
Stock.
DIRECTORS AND OFFICERS OF THE BANK
Set forth below are the names, ages and present occupations of the Bank's
directors and executive officers.
<TABLE>
<CAPTION>
AGE AT CURRENT
NAME JUNE 30, 1998 POSITION DIRECTOR SINCE TERM EXPIRES
- ------------------------------------------- ------------- ---------------------------- -------------- ------------
<S> <C> <C> <C> <C>
DIRECTORS:
William F. Helmer 64 Chairman of the Board 1974 1999
George Strayton 54 President, Chief Executive 1991 1999
Officer and Director
Dennis L. Coyle 62 Vice Chairman 1984 1999
Murray L. Korn 73 Director 1966 2000
Dr. Donald T. McNelis 65 Director 1987 2000
Richard A. Nozell 64 Director 1990 2000
William R. Sichol, Jr. 58 Director 1990 2001
Wilbur C. Ward 72 Director 1990 1999
F. Gary Zeh 60 Director 1979 2001
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS:
Daniel G. Rothstein 51 Executive Vice President,
Chief Credit Officer
and Regulatory Counsel
Robert J. Sansky 51 Executive Vice President and
Director of Human Resources
Katherine A. Dering 50 Senior Vice President and
Chief Financial Officer
Stephen G. Dormer 47 Senior Vice President and
Director of Business Activity
John F. Fitzpatrick 46 Senior Vice President and
Director of Support Services
</TABLE>
4
<PAGE>
The business experience for the past five years for each of the Bank's
directors and executive officers is as follows:
WILLIAM F. HELMER has served as the Chairman of the Board of Directors
since 1994, and is the President of Helmer-Cronin Construction, Inc., a
construction company.
GEORGE STRAYTON has been employed by the Bank since 1982, and was named
President and Chief Executive Officer of the Bank in 1986.
DENNIS L. COYLE has served as Vice Chairman of the Board of Directors since
1994. Mr. Coyle is the owner of the Coyle Insurance Agency, the owner and
President of Delco Realty and the owner of Dennis L. Coyle Rental Properties.
MURRAY L. KORN was the Senior and Managing Partner of Korn, Rosenbaum,
Phillips and Jauntig, an accounting firm, prior to his retirement in 1986. Mr.
Korn also served as Chairman of the Board of Directors of the Bank from 1984
until his retirement from that position in 1994.
DR. DONALD T. MCNELIS served as President of St. Thomas Aquinas College in
Sparkill, New York from 1974 until his retirement in 1995.
RICHARD A. NOZELL is the owner of Richard Nozell Building Construction, and
serves as a general building contractor.
WILLIAM R. SICHOL, JR. is a principal of Sichol & Hicks, P.C., a private
law firm.
WILBUR C. WARD is currently retired. Prior to his retirement, Mr. Ward was
the President of Ward Bulldozers.
F. GARY ZEH is the President of Haverstraw Transit Inc., a bus contracting
company, and President and Owner of Quality Bus Sales and Service.
DANIEL G. ROTHSTEIN has been employed by the Bank since 1983, and was named
Executive Vice President of the Bank in 1989. Mr. Rothstein has served as the
Bank's Chief Credit Officer and Regulatory Counsel since 1996.
ROBERT J. SANSKY has been employed by the Bank since 1985, and was named
Executive Vice President in 1989. Mr. Sansky has served as the Bank's Director
of Human Resources since 1995.
KATHERINE A. DERING has served as the Bank's Chief Financial Officer since
1994. Ms. Dering previously served as the Chief Financial Officer of a
community bank located in Connecticut.
STEPHEN G. DORMER has served as Senior Vice President and Director of
Business Development of the Bank since 1996, and was previously Senior Vice
President and Manager of the Bank's Commercial Loan Department from 1994 until
1996. Prior to joining the Bank in 1994, Mr. Dormer was Senior Vice President
of a commercial bank located in Connecticut.
JOHN F. FITZPATRICK has been employed by the Bank since 1986, and was named
Senior Vice President and Director of Support Services in 1997.
THE OTS HAS APPROVED THE PLAN SUBJECT TO THE APPROVAL OF THE BANK'S MEMBERS
AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. HOWEVER, SUCH APPROVAL DOES
NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY THE OTS.
5
<PAGE>
INFORMATION RELATING TO VOTING AT THE SPECIAL MEETING
The Board of Directors of the Bank has fixed ____________, 1998 as the
Voting Record Date for the determination of members entitled to notice of the
Special Meeting. All depositors of the Bank and certain borrowers of the Bank
are members of the Bank under its current charter. All Bank members of record
as of the close of business on the Voting Record Date will be entitled to vote
at the Special Meeting or any adjournment thereof.
Each depositor (including IRA account beneficiaries) will be entitled to
cast one vote at the Special Meeting for each $100, or fraction thereof, of the
aggregate withdrawal value of all of such depositor's accounts in the Bank as of
the Voting Record Date, up to a maximum of 1000 votes. Joint accounts shall be
entitled to no more than 1000 votes, and any owner may cast all the votes unless
notified in writing. In general, accounts held in different ownership
capacities will be treated as separate memberships for purposes of applying the
1000 vote limitation. For example, if two persons hold a $100,000 account in
their joint names and each of the persons also holds a separate account for
$100,000 in his own name, each person would be entitled to 1000 votes for each
separate account and they would together be entitled to cast 1000 votes on the
basis of the joint account. Where no proxies are received from IRA
beneficiaries, the Bank, as trustee of these accounts, is entitled to vote these
accounts in favor of the Plan. Each borrower as of July 9, 1998 whose
borrowings remain outstanding as of the Voting Record Date will be entitled to
cast one vote at the Special Meeting. A borrower member who is also a depositor
shall be entitled to no more than a total of 1000 votes.
Approval of the Plan requires the affirmative vote of a majority of the
total outstanding votes of the Bank's members eligible to be cast at the Special
Meeting. As of _______, 1998, the Bank had _____ members who were entitled to
cast a total of ___________ votes at the Special Meeting. Bank members may vote
at the Special Meeting or any adjournment thereof in person or by proxy. Any
member giving a proxy will have the right to revoke the proxy at any time before
it is voted by giving written notice to the Secretary of the Bank, provided that
such written notice is received by the Secretary prior to the Special Meeting or
any adjournment thereof, or upon request if the member is present and chooses to
vote in person. All properly executed proxies received by the Board of
Directors of the Bank will be voted in accordance with the instructions
indicated thereon by the members giving such proxies. If no instructions are
given, such proxies will be voted in favor of the Plan. If any other matters
are properly presented at the Special Meeting and may properly be voted on, the
proxies solicited hereby will be voted on such matters in accordance with the
best judgment of the proxy holders named thereon. Management is not aware of
any other business to be presented at the Special Meeting.
If an unsigned proxy is returned or the member does not vote in person, the
Bank is prohibited by OTS regulations from using a previously executed proxy to
vote for the Reorganization. As a result, not voting will have the same effect
as a vote against the Plan.
To the extent necessary to permit approval of the Plan, proxies may be
solicited by officers, directors or regular employees of the Bank, in person, by
telephone or through other forms of communication and, if necessary, the Special
Meeting may be adjourned to a later date. Such persons will be reimbursed by
the Bank for their expenses incurred in connection with such solicitation. The
Bank will bear all costs of this solicitation. The proxies solicited hereby
will be used only at the Special Meeting and at any adjournment thereof.
PRINCIPAL EFFECTS OF REORGANIZATION
Depositors. The Reorganization will not change the amount, interest rate,
withdrawal rights or federal insurance protection of deposit accounts, or affect
deposit accounts in any way other than with respect to voting and liquidation
rights as discussed below.
Borrowers. The rights and obligations of borrowers under their loan
agreements with the Bank will remain unchanged by the Reorganization. The
principal amount, interest rate and maturity date of loans will remain as they
were contractually fixed prior to the Reorganization.
Voting Rights of Members. Currently in the Bank's mutual form, members
have voting rights and may vote for the election of directors. Following the
Reorganization, members will cease to have voting rights in the Bank, but
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will have voting rights in the Mutual Holding Company. All voting rights in the
Bank will be vested in the Company as the Bank's sole shareholder. Voting rights
in the Company will be vested exclusively in its shareholders, with one vote for
each share of Common Stock. The Mutual Holding Company will at all times own a
majority of the Common Stock.
The Bank. Under federal law, the stock savings bank resulting from the
Reorganization will be deemed to be a continuation of the mutual savings bank
rather than a new entity and will continue to have all of the rights,
privileges, properties, assets and liabilities of the Bank prior to the
Reorganization. The Reorganization will enable the Bank to issue capital stock,
but will not change the general objectives, purposes or types of business
currently conducted by the Bank, and no assets of the Bank will be distributed
in order to effect the Reorganization, other than to pay the expenses incident
thereto. After the Reorganization, the Bank will remain subject to examination
and regulation by the OTS and will continue to be a member of the Federal Home
Loan Bank System. The Reorganization will not cause any change in the executive
officers or directors of the Bank.
Tax Consequences. The Bank intends to proceed with the Reorganization on
the basis of an opinion from Luse Lehman Gorman Pomerenk & Schick, P.C.,
Washington, D.C., as to certain tax matters that are material to the
Reorganization. The opinion is based, among other things, on certain
representations made by the Bank. See the section of the Prospectus entitled
"The Reorganization and Offering--Federal and State Tax Consequences of the
Reorganization" which is incorporated herein by reference.
With respect to New York taxation, the Bank has received an opinion from
KPMG Peat Marwick LLP to the effect that, assuming the Reorganization does not
result in any federal taxable income, gain or loss to the Bank in its mutual or
stock form, the Company, the account holders, borrowers, officers, directors and
employees and Tax-Qualified Employee Plans of the Bank, the Offering should not
result in any New York income tax liability to such entities or persons.
APPROVAL, INTERPRETATION, AMENDMENT AND TERMINATION
Under the Plan, the letter from the OTS giving approval thereto, and
applicable regulations, consummation of the Reorganization is subject to the
satisfaction of the following conditions: (a) approval of the Plan at least a
majority of the votes eligible to be cast at the Special Meeting; (b) sale of at
least the minimum of the Common Stock to be offered in the Offering; and (c)
receipt of favorable rulings or opinions of counsel as to the federal and New
York tax consequences of the Reorganization.
The Plan may be substantively amended by the Boards of Directors of the
Bank and the Company with the concurrence of the OTS. If the Plan is amended,
proxies which have been received prior to such amendment will not be resolicited
unless required by the OTS. Also, as required by the federal regulations, the
Plan provides that the transactions contemplated thereby may be terminated by
the Board of Directors of the Bank alone at any time prior to the Special
Meeting and may be terminated by the Board of Directors of the Bank at any time
thereafter with the concurrence of the OTS, notwithstanding approval of the Plan
by the members of the Bank at the Special Meeting. All interpretations by the
Bank and the Company of the Plan and of the Stock Order Forms and related
materials for the Offering will be final, except as regards or affects the OTS.
JUDICIAL REVIEW
Section 5(i)(2)(B) of the Home Owners' Loan Act, as amended, 12 U.S.C.
(S)1464(i)(2)(B) and Section 563b.8(u) of the Rules and Regulations promulgated
thereunder (12 C.F.R. Section 563b.8(u)) provide: (i) that persons aggrieved by
a final action of the OTS which approves, with or without conditions, or
disapproves a Plan, may obtain review of such final action only by filing a
written petition in the United States Court of Appeals for the circuit in which
the principal office or residence of such person is located, or in the United
States Court of Appeals for the District of Columbia, requesting that the final
action of the OTS be modified, terminated or set aside, and (ii) that such
petition must be filed within 30 days after publication of notice of such final
action in the Federal Register, or 30 days after the date of mailing of the
notice and proxy statement for the meeting of the converting institution's
members at which the conversion is to be voted on, whichever is later. The
notice of the Special Meeting of the
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Bank's members to vote on the Plan described herein is included at the beginning
of this Proxy Statement. The statute and regulation referred to above should be
consulted for further information.
ADDITIONAL INFORMATION
The information contained in the accompanying Prospectus, including a more
detailed description of the Plan, financial statements of the Bank and a
description of the capitalization and business of the Bank and the Company,
including the Bank's directors and executive officers and their compensation,
the anticipated use of the net proceeds from the sale of the Common Stock and a
description of the Common Stock, is intended to help you evaluate the
Reorganization and is incorporated herein by this reference.
You may obtain a copy of the Plan by completing and returning the enclosed
postage pre-paid Plan Request Card or by calling our Information Center at (800)
_____-______.
YOUR VOTE IS VERY IMPORTANT TO US. PLEASE TAKE A MOMENT NOW TO COMPLETE
AND RETURN YOUR PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED. YOU MAY STILL
ATTEND THE SPECIAL MEETING AND VOTE IN PERSON EVEN THOUGH YOU HAVE VOTED YOUR
PROXY. FAILURE TO SUBMIT A PROXY WILL HAVE THE SAME EFFECT AS VOTING AGAINST
THE REORGANIZATION.
If you have any questions or require a copy of the Plan, please call our
Information Center at (800) ____-____.
IMPORTANT: YOU MAY BE ENTITLED TO VOTE IN MORE THAN ONE CAPACITY. PLEASE
SIGN, DATE AND PROMPTLY RETURN EACH PROXY CARD YOU RECEIVE.
----
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
THE COMMON STOCK IS NOT A DEPOSIT ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
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REVOCABLE PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
PROVIDENT BANK
FOR A SPECIAL MEETING OF MEMBERS
TO BE HELD ON DECEMBER ___, 1998
The undersigned member of Provident Bank (the "Bank"), hereby appoints the
full Board of Directors, with full powers of substitution, as attorneys-in-fact
and agents for and in the name of the undersigned, to vote such votes as the
undersigned may be entitled to vote at the Special Meeting of Members of the
Bank, to be held at [THE MAIN OFFICE OF THE BANK, LOCATED AT 400 RELLA
BOULEVARD, MONTEBELLO, NEW YORK, ON ________, DECEMBER __, 1998 AT _____ A.M.],
New York time., and at any and all adjournments thereof. They are authorized to
cast all votes to which the undersigned is entitled as follows:
FOR AGAINST
--- -------
1. The approval of a Plan of Reorganization [_] [_]
from Mutual Savings Bank to Mutual
Holding Company and Stock Issuance Plan
(the "Plan") pursuant to which the Bank
will be reorganized into the mutual
holding company structure. As part of the
Plan, the Bank will convert to a
federally-chartered stock savings bank
which will be wholly-owned by Provident
Bancorp, Inc., a to-be formed federal
corporation (the "Company"). Pursuant to
the Plan, the Company will issue 53.4% of
its to-be outstanding shares of common
stock to Provident Bancorp, MHC, a
federal mutual holding company that will
be formed pursuant to the Plan, and offer
for sale to certain depositors and
borrowers 46.6% of its to-be outstanding
shares of common stock; and
such other business as may properly come before this Special Meeting or any
adjournment thereof.
NOTE: The Board of Directors is not aware of any other matter that may come
before the Special Meeting of Members.
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THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS IS
---
PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED BY THE BOARD OF DIRECTORS IN
THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
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Votes will be cast in accordance with the Proxy. Should the undersigned
be present and elect to vote at the Special Meeting or at any adjournment
thereof and after notification to the Secretary of the Bank at said Meeting of
the member's decision to terminate this Proxy, then the power of said attorney-
in-fact or agents shall be deemed terminated and of no further force and effect.
The undersigned acknowledges receipt of a Notice of Special Meeting of
Members and a Proxy Statement dated ________________________, prior to the
execution of this Proxy.
____________________________________
Date
____________________________________
Signature
NOTE: Only one signature is required
in the case of a joint account.
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PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN
THE ENCLOSED ENVELOPE.
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