<PAGE>
As filed with the Securities and Exchange Commission on November 10, 1998
Registration No. 333-63681
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT
NO. 2
TO
THE
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GREENE COUNTY BANCORP, INC.
(Name of Small Business Issuer in Its Charter)
Delaware (To be applied for)
(State or Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Code Identification No.)
Organization) Number)
425 Main Street
Catskill, New York 12414
(518) 943-3700
(Address and Telephone Number of Principal Executive Offices)
425 Main Street
Catskill, New York 12414
(518) 943-3700
(Address of Principal Place of Business or Intended Principal Place of Business)
J. Bruce Whittaker
425 Main Street
Catskill, New York 12414
(518) 943-3700
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Eric Luse, Esq.
Robert B. Pomerenk, Esq.
Luse Lehman Gorman Pomerenk & Schick, P.C.
5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If this form is filed to register additional shares 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: | |
<PAGE>
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,
please check the following box: | |
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Amount to be Proposed Proposed
registered maximum maximum
Title of each class of offering price aggregate Amount of
securities to be registered per unit offering registration fee
price (1)
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<S> <C> <C> <C> <C>
Common Stock, $.10 par value 1,096,958 $10.00 $10,969,580 (2)
per share shares
</TABLE>
- ------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) A Registration fee of $3,750 was previously paid with the filing of the
Form SB-2 Registration Statement on September 18, 1998.
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.
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<PAGE>
Prospectus Supplement
GREENE COUNTY BANCORP, INC.
THE BANK OF GREENE COUNTY
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN AND TRUST
This Prospectus Supplement is being provided to members (the
"Members") in The Bank of Greene County Employees' Savings & Profit Sharing Plan
and Trust (the "Plan"). Greene County Savings Bank (the "Bank") is reorganizing
from the mutual form of organization to the mutual holding company form of
organization and shares of common stock of Greene County Bancorp, Inc. (the
"Company") will be issued to certain depositors and the public (the "Offering").
As a Member, you may direct the trustee of the Plan to purchase Company common
stock ("Common Stock") in the Offering with amounts allocated to your account
under the Plan. The Plan would invest in Common Stock through the Greene County
Bancorp, Inc. Stock Fund ("Employer Stock Fund"). Since the Plan actually
purchases the Common Stock, you would acquire only a "membership interest" in
the shares and would not own the shares directly. This Prospectus Supplement
relates to your initial election to direct that all or a portion of your account
be invested in the Employer Stock Fund in the Offering. Your account will be
reinvested in the other funds available under the Plan in the event that the
Offering is oversubscribed and the total amount allocated to your account cannot
be used by the trustee to purchase Common Stock. You will be entitled to direct
the investment of your account in the Employer Stock Fund after the Offering is
completed.
The Prospectus of the Company dated November ___, 1998 (the
"Prospectus") which is attached to this Prospectus Supplement includes detailed
information with respect to the mutual holding company reorganization and
related stock offering, and the financial condition, results of operations and
business of the Bank. This Prospectus Supplement, which provides information
with respect to the Plan, should be read only in conjunction with the
Prospectus. Defined terms have the same meaning as is set forth in the
Prospectus.
--------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
MEMBER AS TO AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS"
BEGINNING ON PAGE __ OF THE PROSPECTUS
---------------------
THE INTERESTS IN THE PLAN AND THE OFFERING OF THE COMMON STOCK HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER FEDERAL OR STATE AGENCY.
NO OFFICE, CORPORATION, COMMISSION, BUREAU OR OTHER AGENCY HAS
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE MEMBERSHIP INTERESTS OFFERED HEREBY ARE NOT (1) SAVINGS ACCOUNTS
OR DEPOSITS, (2) FEDERALLY INSURED OR GUARANTEED, OR (3) GUARANTEED BY THE
COMPANY OR THE BANK. THE PLAN'S ENTIRE INVESTMENT IN COMMON STOCK IS SUBJECT TO
LOSS.
The date of this Prospectus Supplement is November ___, 1998.
<PAGE>
NOTICE TO MEMBERS IN
THE BANK OF GREENE COUNTY
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN AND TRUST
Attached to this Notice is a copy of the Prospectus and Prospectus
Supplement relating to the offer and sale of membership interests and shares of
common stock, par value $.10 per share (the "Common Stock") of Greene County
Bancorp, Inc. (the "Company").
Greene County Savings Bank (the "Bank") withdrew from the Financial
Institutions Thrift Plan and adopted the The Bank of Greene County Employees'
Savings & Profit Sharing Plan and Trust (the "Plan") effective October 1, 1998,
in connection with the reorganization of the Bank from the mutual form of
organization to the mutual holding company form of organization, in order to
establish an Employer Stock Fund as an additional investment option under the
Plan. The Prospectus Supplement has been prepared and distributed to you so that
you can make an informed decision regarding your opportunity to invest all or a
portion of your account balance in the Plan in the Employer Stock Fund. Your
account will be reinvested in the other funds available under the Plan in the
event the Offering is oversubscribed and the total amount allocated to your
account cannot be used by the trustee to purchase Common Stock. The other funds
selected by the trustee of the Plan in which you may invest include: A. S&P 500
Stock Fund, B. Stable Value Fund, C. S&P MidCap Stock Fund, D. Money Market
Fund, E. Government Bond Fund, F. Income Plus Fund, G. Growth & Income Fund, H.
Growth Fund and I. International Stock Fund.
The Plan's feature which allows members the opportunity to direct the
investment of their account balances is intended to satisfy the requirements of
Section 404(c) of the Employee Retirement Income Security Act of 1974 ("ERISA").
The effect of this is two-fold. First, you will not be deemed a 'fiduciary' by
virtue of your exercise of investment discretion. Second, no person who
otherwise is a fiduciary (for example, the employer, the Plan administrator, or
the Plan's trustee) is liable under the fiduciary responsibility provision of
ERISA for any loss which results from your exercise of control over the assets
in your Plan account.
Because you will be entitled to invest all or a portion of your
account balance in the Plan in the Employer Stock Fund which will be invested in
Common Stock, the regulations under Section 404(c) of ERISA require that the
Plan establish procedures that ensure the confidentiality of your decision to
purchase, hold, or sell employer securities, except to the extent that
disclosure of such information is necessary to comply with federal or state laws
not preempted by ERISA. These regulations also require that your exercise of
voting and similar rights with respect to the Employer Stock Fund be conducted
pursuant to procedures that ensure the confidentiality of your exercise of these
rights. Accordingly, the Plan committee designates Edmund L. Smith, Jr., Vice
President and Treasurer of the Bank, as the person to whom your investment
instructions should be returned. Mr. Smith will transfer your investment
instructions directly to Pentegra Group, the Plan's third-party administrator.
In the case of an event that involves a potential for undue employer influence,
you will be instructed to return your instructions directly to Pentegra Group.
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE OFFERING.........................................................................1
Securities Offered........................................................1
Election to Purchase Common Stock in the Offering; Priorities.............1
Value of Membership Interests.............................................2
Method of Director Transfer...............................................2
Time for Directing Transfer...............................................2
Irrevocability of Transfer Direction......................................2
Direction to Purchase Common Stock after the Offering.....................2
Purchase Price of Common Stock............................................3
Nature of a Member's Interest in Common Stock.............................3
Voting Rights of Common Stock.............................................3
DESCRIPTION OF THE PLAN..............................................................3
Introduction..............................................................3
Eligibility and Membership................................................4
Contributions under the Plan..............................................4
Limitations on Contributions..............................................5
Investment of Contributions and Account Balances..........................7
Benefits under the Plan..................................................10
Withdrawals and Distributions from the Plan..............................10
Trustee..................................................................11
Plan Administrator.......................................................12
Reports to Plan Members..................................................12
Amendment and Termination................................................12
Merger, Consolidation or Transfer........................................12
Federal Income Tax Consequences..........................................12
ERISA and Other Qualifications...........................................16
SEC Reporting and Short-Swing Profit Liability...........................16
Financial Information Regarding Plan Assets..............................17
LEGAL OPINION.......................................................................17
</TABLE>
ii
<PAGE>
THE OFFERING
Securities Offered
The securities offered hereby are participation interests in the
Plan. Up to 100,000 shares (assuming a purchase price of $10.00 per share) of
Common Stock may be acquired by the Plan to be held in the Employer Stock Fund.
The Company is the issuer of the Common Stock. Only employees of the Bank may
become Members in the Plan. The Common Stock to be issued hereby is conditioned
on the consummation of the Reorganization. A Member's investment in the Employer
Stock Fund in the Reorganization is subject to the priority set forth in the
Plan of Reorganization. Information with regard to the Plan is contained in this
Prospectus Supplement and information with regard to the Reorganization and the
financial condition, results of operation and business of the Bank is contained
in the attached Prospectus. The address of the principal executive office of the
Bank is 425 Main Street, Catskill, New York 12414-1317. The Bank's telephone
number is (518) 943-3700.
Election to Purchase Common Stock in the Offering; Priorities
The Plan permits each Member to direct that all or part of the funds
which represent his or her beneficial interest in the assets of the Plan may be
transferred to the Employer Stock Fund, an investment fund in the Plan, that
will invest in Common Stock and will be used to purchase Common Stock issued in
connection with the Offering. The Trustee (as defined herein) of the Employer
Stock Fund will purchase Common Stock offered for sale in connection with the
Offering in accordance with each Member's directions. Members will be provided
the opportunity to elect alternative investments from among the nine other funds
offered. In the event the Offering is oversubscribed and the Trustee is unable
to use the full amount allocated by a Member to purchase Common Stock in the
Offering, the amount that cannot be invested in Common Stock shall be reinvested
in the other investment funds of the Plan in accordance with the Member's
current investment election. If a Member fails to direct the investment of his
or her account balance, the Member's account balance will be remain in the other
investment funds of the Plan as previously directed by the Member. If a Member
has never made an investment election, the Member's account balance will be
invested in the Money Market Fund.
The shares of Common Stock to be sold in the Offering are being
offered in accordance with the following priorities: (i) holders of deposit
accounts of the Bank totaling $100 or more as of June 30, 1997 ("Eligible
Account Holders"); (ii) the Bank's tax-qualified employee benefit plans,
including the ESOP; (iii) holders of deposit accounts of the Bank totaling $100
or more as of September 30, 1998 ("Supplemental Eligible Account Holders"); (iv)
employees, officers and trustees of the Bank; (v) certain members of the general
public with preference given to natural persons residing in Greene County, New
York. To the extent that Members fall into one of these categories, they are
being permitted to use funds in their Plan account to subscribe or pay for the
Common Stock being acquired. Common Stock so purchased will be placed in the
Member's Employer Stock Fund within his Plan account.
1
<PAGE>
Value of Membership Interests
The aggregate market value of the Members' accounts in the Financial
Institutions Thrift Plan as adopted by Greene County Savings Bank ("Financial
Institutions Thrift Plan") were valued at approximately $939,104 as of June 30,
1998. Each Member was informed of the value of his or her beneficial interest in
the Financial Institutions Thrift Plan as of June 30, 1998.
Method of Directing Transfer
Each Member shall receive a form which provides for a Member to
direct that all or a portion of his beneficial interest in the Plan be
transferred to the Employer Stock Fund (the "Investment Allocation Form") or to
the other investment options established under the Plan. If a Member wishes to
invest all or part of his beneficial interest in the assets of the Plan to the
purchase of Common Stock issued in connection with the Offering, he should
indicate that decision on the Investment Allocation Form.
Time for Directing Transfer
Directions to transfer amounts to the Employer Stock Fund in order to
purchase Common Stock issued in connection with the Offering must be returned to
Edmund L. Smith, Jr., Vice President and Treasurer, Greene County Savings Bank,
425 Main Street, Catskill, New York 12414- 1317 no later than 12:00 p.m. on
December 4, 1998.
Irrevocability of Transfer Direction
A Member's direction to transfer amounts credited to such Member's
account in the Plan to the Employer Stock Fund in order to purchase shares of
Common Stock in connection with the Offering is irrevocable. Members, however,
will be able to direct the investment of their accounts under the Plan as
explained below.
Direction to Purchase Common Stock after the Offering
After the Offering, a Member will continue to be able to direct that
a certain percentage of his interest in the Plan be transferred to the Employer
Stock Fund and invested in Common Stock, or to the other investment funds
available under the Plan. The allocation of a Member's interest in a Plan Fund
may be changed on a daily basis. Special restrictions may apply to transfers
directed to and from the Employer Stock Fund by those Members who are officers,
directors and principal shareholders of the Company who are subject to the
provisions of Section 16(b) of the Securities and Exchange Act of 1934 as
amended (the "Exchange Act").
2
<PAGE>
Purchase Price of Common Stock
The funds transferred to the Employer Stock Fund for the purchase of
Common Stock in connection with the Offering will be used by the Trustee to
purchase shares of Common Stock, except in the event of an oversubscription, as
discussed above. The price paid for such shares of Common Stock will be the same
price as is paid by all other persons who purchase shares of Common Stock in the
Offering.
Subsequent to the Offering, Common Stock purchased by the Trustee
will be acquired in open market transactions. The prices paid by the Trustee for
shares of Common Stock will not exceed "adequate consideration" as defined in
Section 3(18) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
Nature of a Member's Interest in the Common Stock
The Common Stock will be held in the name of the Trustee for the
Plan, as Trustee. Shares of Common Stock acquired at the direction of a Member
will be allocated to the Member's account under the Plan. Therefore, earnings
with respect to a Member's account should not be affected by the investment
designations (including investments in Common Stock) of other Members. The
Trustee as record holder will vote such allocated shares, if any, as directed by
Members.
Voting Rights of Common Stock
The Trustee generally will exercise voting rights attributable to all
Common Stock held by the Employer Stock Fund as directed by Members with
interests in the Employer Stock Fund. With respect to each matter as to which
holders of Common Stock have a right to vote, each Member will be allocated
voting instruction rights reflecting such Member's proportionate interest in the
Employer Stock Fund. The number of shares of Common Stock held in the Employer
Stock Fund that are voted in the affirmative and negative on each matter shall
be proportionate to the number of voting instruction rights exercised by Members
in the affirmative and negative respectively.
DESCRIPTION OF THE PLAN
Introduction
The Bank adopted a multiple-employer defined contribution plan (the
"Financial Institutions Thrift Plan") effective September 1, 1995. The Bank
withdrew from the Financial Institutions Thrift Plan and adopted a
single-employer plan effective October 1, 1998 in order to permit the investment
of Plan assets in Common Stock. All Members, other than former Members, of the
Financial Institutions Thrift Plan, were given the opportunity to transfer their
accounts to the The Bank of Greene County Employees' Savings & Profit Sharing
Plan and Trust. The Plan is a tax-qualified plan with a cash or deferred
compensation feature established in accordance with the requirements
3
<PAGE>
under Section 401(a) and Section 401(k) or the Internal revenue Code of 1986, as
amended (the "Code").
The Bank intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code. The Bank will
adopt any amendments to the Plan that may be necessary to ensure the qualified
status of the Plan under the Code and applicable Treasury Regulations.
Employee Retirement Income Security Act. The Plan is an "individual
account plan" other than a "money purchase pension plan" within the meaning of
ERISA. As such, the Plan is subject to all of the provisions of Title I
(Protection of Employee Benefit Rights) and Title II (Amendments to the Internal
Revenue Code Relating to Retirement Plans) of ERISA, except the funding
requirements contained in Part 3 of Title I of ERISA which by their terms do not
apply to an individual account plan (other than a money purchase plan). The Plan
is not subject to Title IV (Plan Termination Insurance) of ERISA. The funding
requirements contained in Title IV of ERISA are not applicable to Members (as
defined below) or beneficiaries under the Plan.
Reference to full Text of Plan. The following statements are
summaries of certain provisions of the Plan. They are not complete and are
qualified in their entirety by the full text of the Plan. Words capitalized but
not defined in the following discussion have the same meaning as set forth in
the Plan. Copies of the Plan are available to all employees by filing a request
with the Plan Administrator, c/o Greene County Savings Bank, Attention: J. Bruce
Whittaker, President and Chief Executive Officer, 425 Main Street, Catskill, New
York 12414-1317. Each employee is urged to read carefully the full text of the
Plan.
Eligibility and Membership
Any employee of the Bank is eligible to become a Member in the Plan
on the first day of the month following completion of one year of employment
during which an employee completes at least 1000 hours of service with the Bank.
The plan year is January 1 to December 31 (the "Plan Year").
As of August 1, 1998, there were approximately 41 employees eligible
to participate in the Plan, and 40 employees participating by making elective
deferral contributions.
Contributions under the Plan
401(k) Plan Contributions. Each Member of the Plan is permitted to
elect to defer such Member's Salary (as defined below) on a pre-tax basis up to
15% of annual Salary (expressed in terms of whole percentages) and subject to
certain other restrictions imposed by the Code, and to have that amount
contributed to the Plan on such Member's behalf. For purposes of the Plan,
"Salary" means a Member's total compensation reported on Internal Revenue
Service Form W-2, exclusive of any compensation deferred from a prior year, plus
pre-tax contributions made to a
4
<PAGE>
Section 401(k) Plan or a Section 125 Cafeteria Plan. In 1998, the annual Salary
of each Member taken into account under the Plan was and is limited to $160,000.
(Limits established by the IRS are subject to increase pursuant to an annual
cost of living adjustment, as permitted by the Code). A Member may elect to
modify the amount contributed to the Plan by filing a new elective deferral
agreement with the Plan Administrator a maximum of four (4) times per year.
Employer Contributions. The Bank makes matching contributions to the
Plan equal to 50% of the elective deferral contributions, up to a maximum of 6%
of the Member's monthly Plan Salary. Such matching contributions are subject to
revision by the Bank at any time. The matching contributions are subject to the
applicable vesting schedule noted hereinafter.
Limitations on Contributions
Limitation on Employee Salary Deferrals. The annual amount of
deferred Salary of a Member (when aggregated with any elective deferrals of the
Member under a simplified employee pension plan or a tax-deferred annuity) may
not exceed the limitation contained in Section 402(g) of the Code, adjusted for
increases in the cost of living as permitted by the Code (the limitation for
1998 is $10,000). Contributions in excess of this limitation ("excess
deferrals") will be included in the Member's gross income for federal income tax
purposes in the year they are made. In addition, any such excess deferral will
again be subject to federal income tax when distributed by the Plan to the
Member, unless the excess deferral (together with any income allocable thereto)
is distributed to the Member not later than the first April 15th following the
close of the taxable year in which the excess deferral is made. Any income on
the excess deferral that is distributed not later than such date shall be
treated, for federal income tax purposes, as earned and received by the Member
in the taxable year in which the distribution is made.
Limitations on Annual Additions and Benefits. Pursuant to the
requirements of the Code, the Plan provides that the amount of contributions and
forfeitures allocated to each Member's account during any Plan Year may not
exceed the lesser of $30,000 or 25% of the Member's Compensation (as defined)
for the Plan Year. In addition, annual additions are limited to the extent
necessary to prevent contributions on behalf of any employee from exceeding the
employee's combined plan limit, i.e., a limit that takes into account the
contributions and benefits made on behalf of an employee to all plans of the
Bank. To the extent that these limitations have been exceeded with respect to a
Member, the Plan Administrator shall:
(i) return any elective deferral contributions, with earnings
thereon, to the extent that the return would reduce the excess amount in the
Member's accounts;
(ii) reduce Employer contributions made with respect to those
returned elective deferral contributions.
If, in addition to this Plan, the Member is covered under other
defined contribution plans and welfare benefit funds maintained by the Bank and
annual additions exceed the maximum permissible
5
<PAGE>
amount, the amount contributed or allocated under the other defined contribution
plans will be reduced so that the annual additions under all such plans and
funds equal the maximum permissible amount.
Limitation on Plan Contributions for Highly Compensated Employees.
Sections 401(k) and 401(m) of the Code limits the amount of elective deferral
contributions and matching contributions that may be made to the Plan in any
Plan Year on behalf of Highly Compensated Employees (defined below) in relation
to the amount of elective deferral contributions made by or on behalf of all
other employees eligible to participate in the Plan. Specifically, the "actual
deferral percentage" ("ADP") (i.e., the average of the actual deferral ratios,
expressed as a percentage, of each eligible employee's elective deferral
contribution if any, for the Plan Year over the employee's Salary), of the
Highly Compensated Employees must meet either of the following tests: (i) the
ADP of the eligible Highly Compensated Employees is not more than 125% of the
ADP of all other eligible employees, or (ii) the ADP of the eligible Highly
Compensated Employees is not more than 200% of the ADP of all other eligible
employees, and the excess of the ADP for the eligible Highly Compensated
Employees over the ADP of all other eligible employees is not more than two
percentage points. Similarly, the actual contribution percentage ("ACP") (i.e.,
the average of the actual contribution ratios, expressed as a percentage, of
each eligible employee's matching contributions, if any, for the Plan Year over
the employee's Salary) of the Highly Compensated Employees must meet either of
the following tests: (i) the ACP of the eligible Highly Compensated Employees is
not more than 125% of the ACP of all other eligible employees, or (ii) the ACP
of the eligible Highly Compensated Employees is not more than 200% of the ACP of
all other eligible employees, and the excess of the ACP for the eligible Highly
Compensated Employees over the ACP of all other employees is not more than two
percentage points. Effective January 1, 1998, the ADP and ACP tests are
performed by using the actual deferral percentage and the actual contribution
percentage of non-highly compensated employees for the Plan Year preceding the
Plan Year that is being tested.
In general, for Plan Years beginning in 1998, a Highly Compensated
Employee includes any employee who, (1) during the Plan Year or the preceding
Plan Year, was at any time a 5% owner (i.e., owns directly or indirectly more
than 5% of the stock of an employer, or stock possessing more than 5% of the
total combined voting power of all stock of an employer), or (2) for the
preceding Plan Year, received Salary from an employer in excess of $80,000 (in
1998), and (if the employer elects for a Plan Year) was in the group consisting
of the top 20% of employees when ranked on the basis of Salary paid during the
Plan Year. The dollar amounts set forth above are adjusted annually to reflect
increases in the cost of living.
In order to prevent the disqualification of the Plan, any amount
contributed by Highly Compensated Employees that exceed the ADP limitation in
any Plan Year ("excess contributions"), together with any income allocable
thereto, must be distributed first to Highly Compensated Employees with the
greatest dollar amount deferrals, and so on, until the Plan satisfies the ADP
test, before the close of the following Plan Year. Moreover, the Bank will be
subject to a 10% excise tax on any excess contributions unless such excess
contributions, together with any income allocable thereto, either are
re-characterized or are distributed before the close of the first 2-1/2 months
6
<PAGE>
following the Plan Year to which such excess contributions relate. In addition,
in order to avoid disqualification of the Plan, any contributions by Highly
Compensated Employees that exceed the average contribution limitation in any
Plan Year ("excess aggregate contributions") together with any income allocable
thereto, must be distributed to such Highly Compensated Employees before the
close of the following Plan Year. However, the 10% excise tax will be imposed on
the Bank with respect to any excess aggregate contributions, unless such
amounts, plus any income allocable thereto, are distributed within 2-1/2 months
following the close of the Plan Year in which they arose.
Investment of Contributions and Account Balances
All amounts credited to Members' accounts under the Plan are held in
the Plan Trust (the "Trust") which is administered by the Trustee appointed by
the Bank's Board of Directors.
Prior to the effective date of the Offering, Members have been
provided the opportunity to direct the investment of their accounts into one of
the following funds (the "Funds"):
A. S&P 500 Stock Fund
B. Stable Value Fund
C. S&P MidCap Stock Fund
D. Money Market Fund
E. Government Bond Fund
F. Income Plus Fund
G. Growth & Income Fund
H. Growth Fund
I. International Stock Fund
The Plan now provides that in addition to the Funds specified above,
a Member may direct the Trustee to invest all or a portion of his account in the
Employer Stock Fund.
A Member may elect to have both past contributions (and earnings), as
well as future contributions to the Member's account invested either in the
Employer Stock Fund or among the Funds listed above. Transfers of past
contributions (and the earnings thereon) do not affect the investment mix of
future contributions. Each Participant who makes an election to direct
investment of assets under the Employer Stock Fund may change such investment at
a future date, in whole, or in part, by filing a Change of Investment Allocation
form with the Plan's third-party administrator, Pentegra Group, or by using
Pentegra's voice response unit by calling (800)433-4422, in accordance with
established procedures to dispose of such Plan investment and reinvest the net
proceeds in an alternative investment under the Plan. The proceeds of such sale,
net of expenses, will be allocated to the Member's account and reinvested in
accordance with the Plan. Until an effective direction is made by a Member, a
Member's account will be invested in the Money Market Fund.
7
<PAGE>
A. Previous Funds.
Prior to the effective date of the Offering, contributions under the
Plan have been invested in the nine Funds specified above. The Income Plus,
Growth & Income, Growth and International Stock Funds were added July 2, 1997.
The following table provides performance data with respect to the investment
funds available under the Plan, based on information provided to the Company by
The Pentegra Group ("Pentegra"):
Net Investment Performance - Fund Returns through June 30, 1998
<TABLE>
<CAPTION>
5 Calendar 10 Calendar
Year-to- Last 12 Years Years
Date Months Annualized Annualized
---- ------ ---------- ----------
<S> <C> <C> <C> <C>
A. S&P 500 Stock Fund 17.4% 29.5% 19.7% 17.4%
B. Stable Value Fund 2.9 6.0 6.8 7.9
C. S&P MidCap Stock Fund 8.4 26.4 17.2 18.8
D. Money Market Fund 2.8 5.5 5.0 6.2
E. Government Bond Fund 6.4 20.1 9.8 10.7
F. Income Plus Fund 5.7 9.2 8.5 N/A
G. Growth & Income Fund 10.0 14.1 12.1 N/A
H. Growth Fund 16.0 20.3 16.3 N/A
I. International Stock Fund 15.5 7.3 13.0 9.3
</TABLE>
The following is a description of each of the Plan's nine investment
funds:
S&P 500 Stock Fund A fund designed to simulate the performance of the
Standard & Poor's Composite Index of 500 stocks.
Stable Value Fund An income portfolio with the objective of maximizing
income at minimum risk of capital with contributions invested in fixed income
instruments, including, but not limited to: (i) group annuity contracts
including fixed and variable rate contracts with insurance companies or other
financial institutions, (ii) bank time deposits or deposit agreements, (iii)
short term investment funds, (iv) U.S. Treasury Bills and (v) third party
agreements providing book value liquidity for investments in U. S. Government or
Agency securities or collateralized mortgage obligations backed by Agency
collateral.
S&P MidCap Stock Fund A diversified equity portfolio with the objective of
simulation the performance of the Standard & Poor's MidCap Index of 400 stocks.
8
<PAGE>
Money Market Fund A government instrument fund with the objective of
maximizing income at minimum risk of capital with underlying investments in
obligations issued or guaranteed by the United States government or agencies or
instrumentalities thereof.
Government Bond Fund A fund designed to maximize income at minimum risk
with underlying investments in U.S. Treasury bonds with a maturity of 20 years
or more.
Income Plus Fund A fund designed to invest in stable value securities to
reduce short-term risk and to offer some potential for growth.
Growth & Income Fund A fund that invests in U.S. and international stocks,
U. S. bonds and other stable value investments to pursue long-term appreciation
and short-term stability and has a small flexible component to take advantage of
market opportunities.
Growth Fund A fund that invests in a broad range of domestic and
international stocks with a large flexible component to take advantage of market
opportunities.
International Fund A fund that invests in over 1,000 foreign stocks in 21
countries and is designed to approximate the performance of the Morgan Stanley
Capital International EAFE (Europe, Australia, Far East) Index (with a 25%
investment limit in Japanese stocks).
B. The Employer Stock Fund.
The Employer Stock Fund will consist of investments in Common Stock made
on and after the effective date of the Offering. After the Offering, the Trustee
will, to the extent practicable, use all amounts held by it in the Employer
Stock Fund, including cash dividends paid on Common Stock held in the Employer
Stock Fund, to purchase shares of Common Stock of the Company. It is expected
that all purchases will be made at prevailing market prices. Under certain
circumstances, the Trustee may be required to limit the daily volume of shares
purchased. Pending investment in Common Stock, assets held in the Employer Stock
Fund will be placed in a short-term interest fund. Any earnings that result
therefrom will remain in the Employer Stock Fund in the event of an
oversubscription and will not be reinvested among the other nine Funds.
As of the date of this Prospectus Supplement, none of the shares of Common
Stock have been issued or are outstanding and there is no established market for
the Common Stock. Accordingly, there is no record of the historical performance
of the Employer Stock Fund. Performance will be dependent upon a number of
factors, including the financial condition and profitability of the Company and
the Bank and market conditions for the Common Stock generally.
INVESTMENT IN THE EMPLOYER STOCK FUND MAY INVOLVE CERTAIN RISKS
IN INVESTMENT IN COMMON STOCK OF THE COMPANY. FOR A DISCUSSION OF
THESE RISK FACTORS, SEE THE PROSPECTUS.
9
<PAGE>
Benefits Under the Plan
Vesting. A Member, at all times, has a fully vested, nonforfeitable
interest in his monthly salary contribution and the earnings thereon under the
Plan. A Member is vested in any employer contributions (matching and
supplemental) in accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Service Vesting Percentage
---------------- ------------------
<S> <C>
0-1 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
</TABLE>
A Member will also be 100% vested in employer contributions regardless of
his or her years of employment, upon attainment of normal retirement age under
the Plan, death or approved disability. Any non-vested contributions which are
forfeited shall be used at the option of the Bank to (i) reduce administrative
expenses, (ii) offset any contribution to be made for the Plan Year, or (iii) be
allocated to all eligible Members at the end of the Plan Year in the same ratio
as each Member's Salary bears to the total of the Salary of all Members.
Withdrawals and Distributions from the Plan
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL
RESTRICTIONS ON THE RIGHT OF A PLAN MEMBER TO WITHDRAW AMOUNTS HELD FOR HIS
BENEFIT UNDER THE PLAN PRIOR TO THE MEMBER'S TERMINATION OF EMPLOYMENT WITH THE
BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON WITHDRAWALS MADE
PRIOR TO THE MEMBER'S ATTAINMENT OF AGE 59-1/2, REGARDLESS OF WHETHER SUCH A
WITHDRAWAL OCCURS DURING HIS EMPLOYMENT WITH THE BANK OR AFTER TERMINATION OF
EMPLOYMENT.
Withdrawals Prior to Termination of Employment or Age 59-1/2. A Member may
make a withdrawal from his 401(k) Account (comprised of employee contributions
and supplemental employer contributions) prior to termination of employment or
age 59-1/2 only in the event of financial hardship, subject to the hardship
distribution rules under the Plan. These requirements insure that Members have a
true financial need before a withdrawal may be made. A Member may make a
withdrawal of employer matching contributions credited to his Regular Account if
the Member has completed 60 months of participation in the Plan, the employer
contributions have been in the Plan for at least 24 months, or the Member has
attained age 59-1/2. A Member may make a withdrawal from his Regular Account and
Rollover Account once per calendar year.
10
<PAGE>
Members are entitled to borrow between $1,000 and $50,000 from the Plan,
subject to the limitation of no more than 50% of the combined vested balance of
their Regular Account , 401(K) Account and Rollover Account.
Distribution upon Termination of Employment or Disability. Payment of
benefits to a Member who retires, incurs a disability, or otherwise terminates
employment shall be made in a lump sum payment or in installments, over a period
of 2-10, 15 or 20 years, which period can not exceed the life expectancy of the
Member, or may be transferred to another qualified employee benefit plan or
individual retirement account ("IRA"). Benefit payments may be deferred until
April 1 following the calendar year in which the Member attains age 70-1/2 or,
alternatively, the Member may make one withdrawal per account each calendar
year.
Distribution upon Death. A Member who dies prior to the benefit
commencement date for retirement, disability or termination of employment shall
have his benefits paid to the surviving spouse or beneficiary in a lump sum,
unless the payment would exceed $500, and the Member elected prior to death that
the payment be made in annual installments over a period not to exceed 5 years
(10 years if the spouse is the beneficiary). If no election is in effect at the
time of the Member's death, the beneficiary may elect to receive the benefit in
the form of annual installments over a period not to exceed 5 years (10 years if
the spouse is the beneficiary) or make withdrawals as often as once per year,
except that any balance remaining must be withdrawn by the fifth anniversary
(tenth anniversary if the spouse is the beneficiary) of the Member's death. If a
Member dies after distribution of his interest has begun, the remaining portion
of such interests will continue to be distributed as rapidly as under the method
of distribution being used prior to the Member's death.
Nonalienation of Benefits. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.
Trustee
The Trustee with respect to the Plan is the named fiduciary of the Plan
for purposes of Section 402 of ERISA. The Trustee is appointed by the Board of
Directors of the Bank to serve at its pleasure. The Bank of New York has been
appointed as trustee of the Plan. Until the Offering is concluded, J. Bruce
Whittaker, President and Chief Executive Officer of the Bank, will serve as
trustee of the Employer Stock Fund. The trustees are referred to collectively
herein as the Trustee.
The Trustee receives, holds and invests the contributions to the Plan in
trust and distributes them to Members and beneficiaries in accordance with the
terms of the Plan and the directions of the Plan Administrator. The Trustee is
responsible for investment of the assets of the Trust.
11
<PAGE>
Plan Administrator
Pursuant to the terms of the Plan, the Plan is administered by the plan
administrator (the "Plan Administrator"). The Bank is the Plan Administrator and
has designated J. Bruce Whittaker, the Bank's President and Chief Executive
Officer, to supervise its responsibilities as such. The address of the Plan
Administrator is 425 Main Street, Catskill, New York 12414-1317, telephone
number (518) 943-3700. The Plan Administrator is responsible for the
administration of the Plan, interpretation of the provisions of the Plan,
prescribing procedures for filing applications for benefits, preparation and
distribution of information explaining the Plan, maintenance of Plan records,
books of account and all other data necessary for the proper administration of
the Plan, and preparation and filing of all returns and reports relating to the
Plan which are required to be filed with the U.S. Department of Labor and the
IRS, and for all disclosures required to be made to Members, beneficiaries, and
others under Sections 104 and 105 of ERISA.
Reports to Plan Members
The Plan Administrator will furnish to each Member a statement quarterly
showing (i) the number of units in each of the Funds, (ii) the unit value of
each Fund as of the end of the quarter, and (iii) the amount of contributions
allocated to such Member's account for that period.
Amendment and Termination
It is the intention of the Bank to continue the Plan indefinitely.
Nevertheless, the Bank may terminate the Plan at any time. If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each Member affected by such termination shall have a fully vested interest in
his accounts. The Bank reserves the right to make, from time to time, any
amendment or amendments to the Plan which do not cause any part of the Trust to
be used for, or diverted to, any purpose other than the exclusive benefit of
Members or their beneficiaries; provided, however, that the Bank may make any
amendment it determines necessary or desirable, with or without retroactive
effect, to comply with ERISA.
Merger, Consolidation or Transfer
In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust assets to another plan, the Plan requires that each
Member would (if either the Plan or the other plan then terminated) receive a
benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
Federal Income Tax Consequences
The following is only a brief summary of certain federal income tax
aspects of the Plan which are of general application under the Code and is not
intended to be a complete or definitive
12
<PAGE>
description of the federal income tax consequences of participating in or
receiving distributions from the Plan. The summary is necessarily general in
nature and does not purport to be complete. Moreover, statutory provisions are
subject to change, as are their interpretations, and their application may vary
in individual circumstances. Finally, the consequences under applicable state
and local income tax laws may not be the same as under the federal income tax
laws. Members are urged to consult their tax advisors with respect to any
distribution from the Plan and transactions involving the Plan.
The Plan is qualified under Section 401(a) and 401(k) of the Code and the
related Trust is exempt from tax under Section 501(a) of the Code. A plan that
is qualified under these sections of the Code is afforded special tax treatment
which include the following: (1) the employer is allowed an immediate tax
deduction for the amount contributed to the plan each year; (2) participants pay
no current income tax on amounts contributed by the employer on their behalf;
and (3) earnings of the plan are tax-exempt thereby permitting the tax-free
accumulation of income and gains on investments. The Plan will be administered
to comply in operation with the requirements of the Code as of the applicable
effective date of any change in the law. The Bank expects to timely adopt any
amendments to the Plan that may be necessary to maintain the qualified status of
the Plan under the Code.
Assuming that the Plan is administered in accordance with the requirements
of the Code, membership in the Plan under existing federal income tax laws will
have the following effects:
(a) Amounts contributed to a Member's account and the investment earnings
on the account are not includable in a Member's federal taxable income until
such contributions or earnings are actually distributed or withdrawn from the
Plan. Special tax treatment may apply to the taxable portion of any distribution
that includes Common Stock or qualifies as a Lump Sum Distribution (as described
below).
(b) Income earned on assets held by the Trust will not be taxable to the
Trust.
Lump Sum Distribution. A distribution from the Plan to a Member or the
beneficiary of a Member will qualify as a lump sum distribution ("Lump Sum
Distribution") if it is made: (i) within one taxable year of the Member or
beneficiary; (ii) on account of the Member's death, disability or separation
from service, or after the Member attains age 59-1/2; and (iii) consists of the
balance to the credit of the Member under this Plan and all other profit sharing
plans, if any, maintained by the Bank. The portion of any Lump Sum Distribution
that is required to be included in the Member's or beneficiary's taxable income
for federal income tax purposes (the"total taxable amount") consists of the
entire amount of such Lump Sum Distribution less the amount of after-tax
contributions, if any, made by the Member to any other profit sharing plan
maintained by the Bank which is included in such distribution.
Averaging Rules. The portion of the total taxable amount of a Lump Sum
Distribution that is attributable to participation after 1973 in the Plan or in
any other profit-sharing plan maintained by
13
<PAGE>
the Bank (the "ordinary income portion") will be taxable generally as ordinary
income for federal income tax purposes. However, a Member who has completed at
least five years of participation in the Plan before the taxable year in which
the distribution is made, or a beneficiary who receives a Lump Sum Distribution
on account of the Member's death (regardless of the period of the Member's
participation in the Plan or any other profit-sharing plan maintained by the
Bank), may elect to have the ordinary income portion of such Lump Sum
Distribution taxed according to a special averaging rule ("five-year
averaging"). The election of the special averaging rules may apply only to one
Lump Sum Distribution received by the Member or beneficiary, provided such
amount is received on or after the Member turns 59-1/2 and the recipient elects
to have any other Lump Sum Distribution from a qualified plan received in the
same taxable year taxed under the special averaging rule. Under a special
grandfather rule, individuals who turned 50 by 1985 may elect to have their Lump
Sum Distribution taxed under either the five-year averaging rule or under the
prior law ten-year averaging rule. Such individuals also may elect to have that
portion of the Lump Sum Distribution attributable to the Member's pre-1974
participation in the Plan taxed at a flat 20% rate as gain from the sale of a
capital asset.
Common Stock Included in Lump Sum Distribution. If a Lump Sum Distribution
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of the
distribution over the cost or other basis to the Trust. The tax basis of such
Common Stock to the Member or beneficiary for purposes of computing gain or loss
on its subsequent sale will be the value of the Common Stock at the time of
distribution less the amount of net unrealized appreciation. Any gain on a
subsequent sale or other taxable disposition of such Common Stock, to the extent
of the amount of net unrealized appreciation at the time of distribution, will
be considered long-term capital gain regardless of the holding period of such
Common Stock. Any gain on a subsequent sale or other taxable disposition of the
Common Stock in excess of the amount of net unrealized appreciation at the time
of distribution will be considered short-term, mid-term or long-term capital
gain depending upon the length of the holding period of the Common Stock. The
recipient of a distribution may elect to include the amount of any net
unrealized appreciation in the total taxable amount of such distribution to the
extent allowed by the regulations to be issued by the IRS.
Contribution to Another Qualified Plan or to an IRA. A Member may defer
federal income taxation of all or any portion of the total taxable amount of a
Lump Sum Distribution (including the proceeds from the sale of any Common Stock
included in the Lump Sum Distribution) to the extent that such amount, or a
portion thereof, is contributed, within 60 days after the date of its receipt by
the Member, to another qualified plan or to an IRA. If less than the total
taxable amount of a Lump Sum Distribution is contributed to another qualified
plan or to an IRA within the applicable 60-day period, the amount not so
contributed must be included in the Member's income for federal income tax
purposes and will not be eligible for the special averaging rules or for capital
gains treatment. Additionally, a Member may defer the federal income taxation of
any portion of an amount distributed from the Plan on account of the Member's
disability or separation from service, generally, if the amount is distributed
within one taxable year of the Member, and such amount is contributed,
14
<PAGE>
within 60 days after the date of its receipt by the Member, to an IRA. Prior to
1993, following the partial distribution of a Member's account, any remaining
balance under the Plan (and the balance to the credit of the Member under any
other profit sharing plan sponsored by the Bank) would not be eligible for the
special averaging rules or for capital gains treatment. For these purposes, a
"partial distribution" is a distribution within one taxable year of the Member
equal to at least 50% of the balance of a Member's account ("Partial
Distribution").
Pursuant to a change in the law, effective January 1, 1993, virtually all
distributions from the Plan may be rolled over to another qualified Plan or to
an IRA without regard to whether the distribution is a Lump Sum Distribution or
a Partial Distribution. Effective January 1, 1993, Members have the right to
elect to have the Trustee transfer all or any portion of an "eligible rollover
distribution" directly to another plan qualified under Section 401(a) of the
Code or to an IRA. If the Member does not elect to have an "eligible rollover
distribution" transferred directly to another qualified plan or to an IRA, the
distribution will be subject to a mandatory federal withholding tax equal to 20%
of the taxable distribution. An "eligible rollover distribution" means any
amount distributed from the Plan except: (1) a distribution that is (a) one of a
series of substantially equal periodic payments made (not less frequently than
annually ) over the Member's life or the joint life of the Member and the
Member's designated beneficiary, or (b) for a specified period of ten years or
more; (2) any amount that is required to be distributed under the minimum
distribution rules; and (3) any other distributions excepted under applicable
federal law.
The beneficiary of a Member who is the Member's surviving spouse also may
defer federal income taxation of all or any portion of a distribution from the
Plan to the extent that such amount, or a portion thereof, is contributed within
60 days after the date of its receipt by the surviving spouse, to an IRA. If all
or any portion of the total taxable amount of a Lump Sum Distribution is
contributed by the surviving spouse of a Member to an IRA within the applicable
60-day period, any subsequent distribution from the IRA will not be eligible for
the special averaging rules or for capital gains treatment. Any amount received
by the Member's surviving spouse that is not contributed to another qualified
plan or to an IRA within the applicable 60-day period, and any amount received
by a nonspouse beneficiary will be included in such beneficiary's income for
federal tax purposes in the year in which it is received.
Additional Tax on Early Distributions. A Member who receives a
distribution from the Plan prior to attaining age 59-1/2 will be subject to an
additional income tax equal to 10% of the taxable amount of the distribution.
The 10% additional income tax will not apply, however, to the extent the
distribution is rolled over into an IRA or another qualified plan or the
distribution is (i) made to a beneficiary (or to the estate or a Member) on or
after the death of the Member, (ii) attributable to the Member's being disabled
within the meaning of Section 72(m)(7) of the Code, (iii) part of a series of
substantially equal periodic payments (not less frequently than annually) made
for the life (or life expectancy) of the Member or the joint lives (or joint
life expectancies) of the Member and his beneficiary, (iv) made to the Member
after separation from service on account of early retirement under the Plan
after attainment of age 55, (v) made to pay medical expenses to the extent
deductible for federal income tax purposes, (vi) made to an alternate payee
pursuant to a qualified domestic relations order, or (vii) made to effect the
distribution of excess contributions or excess deferrals.
15
<PAGE>
ERISA and Other Qualifications
As noted above, the Plan is subject to certain provisions of ERISA and has
applied for a favorable determination that it is qualified under Section 401(a)
of the Code.
The foregoing is only a brief summary of certain federal income tax
aspects of the Plan which are of general application under the Code and is not
intended to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan.
Accordingly, each Member is urged to consult a tax advisor concerning the
federal, state and local tax consequences of participating in and receiving
distributions from the Plan.
SEC Reporting and Short-Swing Profit Liability
Section 16 of the Exchange Act imposes reporting and liability
requirements on officers, directors, and persons beneficially owning more than
10% of public companies such as the Company. Section 16(a) of the Exchange Act
requires the filing of reports of beneficial ownership. Within 10 days of
becoming a person subject to the reporting requirements of Section 16(a), a Form
3 reporting initial beneficial ownership must be filed with the Securities and
Exchange Commission ("SEC") . Certain changes in beneficial ownership, such as
purchases, sales and gifts must be reported periodically, either on a Form 4
within 10 days after the end of the month in which a change occurs, or annually
on a Form 5 within 45 days after the close of the Company's fiscal year. Certain
discretionary transactions in and beneficial ownership of the Common Stock
through the Employer Stock Fund of the Plan by officers, directors and persons
beneficially owning more than 10% of the Common Stock of the Company must be
reported to the SEC by such individuals.
In addition to the reporting requirements described above, Section 16(b)
of the Exchange Act provides for the recovery by the Company of profits realized
by an officer, director or any person beneficially owning more than 10% of the
Company's Common Stock ("Section 16(b) Persons") resulting from non-exempt
purchases and sales of the Company's Common Stock within any six-month period.
The SEC has adopted rules that provide exemption from the profit recovery
provisions of Section 16(b) for all transactions in employer securities within
an employee benefit plan, such as the Plan, provided certain requirements are
met. These requirements generally involve restrictions upon the timing of
elections to acquire or dispose of employer securities for the accounts of
Section 16(b) Persons.
Except for distributions of Common Stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, Section 16(b) Persons are required to hold
shares of Common Stock distributed from the Plan for six months following such
distribution and are prohibited from directing additional purchases of units
within the Employer Stock Fund for six months after receiving such a
distribution.
16
<PAGE>
Financial Information Regarding Plan Assets
Financial statements representing the net assets available for Plan
benefits at June 30, 1998 are attached to this Prospectus Supplement.
LEGAL OPINION
The validity of the issuance of the Common Stock will be passed upon by
Luse Lehman Gorman Pomerenk & Schick, A Professional Corporation, Washington,
D.C., which firm acted as special counsel to the Bank in connection with the
Bank's Reorganization into the mutual holding company form of ownership.
17
<PAGE>
FINANCIAL INSTITUTIONS THRIFT PLAN
As Adopted By
GREENE COUNTY SAVINGS BANK
Statement of Net Assets Available for Plan Benefits
with Fund Information
June 30, 1998
<TABLE>
<CAPTION>
S&P Stable S&P Money Government Income Growth & International
500 Value MidCap Market Bond Plus Income Growth Stock
Stock Fund Fund Stock Fund Fund Fund Fund Fund Fund Fund
---------- ---- ---------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments $339,361 122,967 202,084 159,744 83,032 6,417 9,543 11,570 4,386
</TABLE>
<TABLE>
<S> <C>
Total Value of Accounts $939,104
Outstanding Loans Receivable $ 0
--------
Total Assets $939,104
Liabilities $ 0
--------
Net Assets Available for Plan Benefits $939,104
--------
--------
</TABLE>
18
<PAGE>
PROSPECTUS
Up to 1,096,958 shares of common stock GREENE COUNTY BANCORP, INC.
425 Main Street
Catskill, New York 12414-1300
(518) 943-3700
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Greene County Savings Bank, a New York chartered savings bank (the "Bank"),
is reorganizing from the mutual form of ownership to the mutual holding company
form of organization (the "Reorganization"). As part of the Reorganization, the
Bank will convert to stock form, change its name to "The Bank of Greene County",
and become a wholly-owned subsidiary of Greene County Bancorp, Inc., a Delaware
corporation (the "Company"). The Company will become the majority owned
subsidiary of Greene County Bancorp, MHC, a New York chartered mutual holding
company (the "Mutual Company"). Concurrent with the Reorganization, the Company
is offering for sale shares of its common stock, par value $.10 per share (the
"Common Stock") to depositors (pursuant to subscription rights), the Bank's
tax-qualified employee benefit plans including its employee stock ownership
plan, and to employees, officers and trustees of the Bank. Any unsubscribed
shares of Common Stock may be offered for sale to the public in a community
offering or syndicated community offering (the subscription and community
offerings are referred to collectively as the "Offering"). The Reorganization
and Offering are being made pursuant to the terms of a plan of reorganization
which must be approved by the depositors of the Bank and by federal and state
banking regulators. The Reorganization will not go forward if the Bank does not
receive these approvals, or if the Company does not sell at least a minimum
number of the shares of Common Stock offered.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TERMS OF OFFERING
An independent appraiser has estimated the pro forma market value of the
Company to be between $15.5 million and $21.0 million. Based on this estimate,
the Company will issue between 1,584,010 and 2,143,072 shares of Common Stock.
The Company is selling between 705,039 and 953,877 shares, to depositors and the
public, and is issuing between 847,878 and 1,147,128 shares, to the Mutual
Company. The Company may increase the shares it issues in the Reorganization to
up to 2,464,532 shares and increase the shares sold in the Offering to up to
1,096,958 shares, subject to regulatory approvals. As part of the
Reorganization, 2.0% of the shares issued in the Reorganization (36,579
shares at the mid-point of the estimated valuation range) are being issued to
a Charitable Foundation. Consequently, following completion of the
Reorganization and Offering, the Mutual Company will own 53.53% of the
outstanding Common Stock, stockholders who purchase Common Stock in the
Offering will own 44.51% of the Common Stock outstanding and the Charitable
Foundation will own 2.0% of the outstanding Common Stock. 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................................ 705,039 829,458 953,877 1,096,958
- - Reorganization expenses......................... $560,000 $560,000 $560,000 $560,000
- - Net Proceeds.................................... $6,490,390 $7,734,580 $8,978,770 $10,409,580
- - Net Proceeds per share.......................... $9.21 $9.32 $9.41 $9.49
</TABLE>
Please refer to Risk Factors beginning on page __ of this Prospectus.
These securities are not deposits or accounts, are not insured or
guaranteed by the Federal Deposit Insurance Corporation (the "FDIC") or any
other government agency and are subject to investment risk, including loss
of principal.
Neither the Securities and Exchange Commission (the "SEC"), the New York
State Banking Department (the "Department"), the FDIC, 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.
<PAGE>
Friedman, Billings, Ramsey & Co., Inc. will use its best efforts to assist
the Company 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 Reorganization. The Company has received
conditional approval to list the Common Stock on the Nasdaq SmallCap Market
under the symbol "GRNB."
For information on how to subscribe, call the Stock Center at (518)
943-7515.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
Prospectus dated November___, 1998
<PAGE>
MAP
<PAGE>
TABLE OF CONTENTS
Page
----
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.
Please see the Glossary beginning on page G-l for the meaning of capitalized
terms that are used in this Prospectus.
(i)
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
Q: What is the Mutual Company?
A: Greene County Bancorp, MHC (the "Mutual Company") is a New York-chartered
mutual corporation that is being established in connection with the mutual
holding company reorganization (the "Reorganization") of Greene County
Savings Bank (the "Bank"). The Mutual Company will be chartered under the
laws of the State of New York and will be regulated by the New York Banking
Department (the "Department") and the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"). The Mutual Company will own
53.5% of the outstanding Common Stock of Greene County Bancorp, Inc. (the
"Company"), or 997,503 shares at the midpoint of the valuation
range established by the independent appraisal. The remaining 46.5% of the
Common Stock of the Company will be owned by persons who purchase Common
Stock in the Offering, and The Bank of Greene County Charitable Foundation
(the "Charitable Foundation").
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 ("ESOP") of the Bank as well as the
Charitable Foundation, will be the minority stockholders (the "Minority
Stockholders") of the Bank, and will own 46.5% of its Common Stock upon
completion of the Offering. The Mutual Company will own 53.5% of the
Common Stock of the Company, and will remain its majority stockholder as
long as the Mutual Company remains in existence.
Q: What is the purpose of the Reorganization and Offering?
A: The primary purpose of the Reorganization and Offering is to raise
additional equity capital to support the growth and expansion of the Bank.
The increased capital also will be used to expand the Bank's lending and
investment activities. The Reorganization will create a holding company and
a stock charter, which is the corporate form used by all commercial banks
and an increasing number of savings institutions. The holding company
structure will expand the investment and operating authority currently
available to the Bank. The Offering also will provide depositors with the
opportunity to become stockholders of the Company. We are also establishing
the Charitable Foundation that will be dedicated exclusively to supporting
charitable causes and community development activities in our market area.
Q: Why is the Bank conducting a minority stock offering instead of undergoing
a full conversion to stock form?
A: At the present time, the Bank does not need all of the capital that would
be raised in a full stock conversion. A savings institution that converts
to stock form using the mutual holding company structure sells only a
minority of its shares to the public. By doing so, the converting
institution raises less than half the capital that would be raised in a
full conversion. However, with the mutual holding company structure the
Bank will have the flexibility to raise additional capital in the future.
Moreover, the Bank's Board of Directors intends to maintain the
independence and community control of the Bank. Because the Mutual Company
will control a majority of the Company's Common Stock, the Reorganization
will permit the Bank to achieve the benefits of being a stock company
without the loss of control by the Bank's Board of Directors.
Q: How do I order the Common Stock?
A: You must complete and return the Stock Order Form and certification form
(together, the "Order Form") to the Bank, together with your payment,
before 12:00 noon New York time on or before December 17, 1998.
Please review the Order Form and Stock Order Form Instructions when filling
out the Order Form and before sending any payment to the Bank.
<PAGE>
Q: How much stock may I order?
A: The minimum order is 25 shares (or $250). The maximum order for any
individual person or persons ordering through a single account is 10,000
shares (or $100,000). In certain instances, your order may be grouped
together with orders by other persons who are associated with you (such as
your spouse, child or relatives living in your home or corporations,
partnership and trusts of which you are an officer, director or trustee),
or with whom you are acting in concert, and, in that event, the aggregate
order may not exceed 20,000 shares (or $200,000). The maximum purchase
limitation may be decreased or increased without notifying you. However, if
the maximum purchase limitation is increased, and you previously subscribed
for the maximum number of shares, you will be notified of the increase, as
well as the opportunity to subscribe for additional shares.
Q: Who has subscription rights and what are the subscription priorities?
A: Subscription orders to purchase Common Stock will be filled on a priority
basis as follows:
- First, to persons who had one or more deposit accounts with the Bank
aggregating at least $100 on June 30, 1997.
- Second, up to 10% of the Minority Ownership Interest may be purchased
by the Bank's tax-qualified employee benefit plans, including the
Bank's ESOP (which is expected to purchase up to 8% of the Minority
Ownership Interest). In addition, participants in the Bank's Savings
and Profit Sharing Plan will be given the opportunity to subscribe for
shares of Common Stock through the Plan.
- Third, to persons who had one or more deposit accounts with the Bank
aggregating at least $100 on September 30, 1998.
- Fourth, to employees, officers and trustees of the Bank.
Q: What will happen to my subscription funds if the Offering is not completed?
A: If the minimum number of shares to be sold in the Offering (705,039
shares) is not sold by December 17, 1998, the Bank may (i) terminate the
Offering and promptly refund all payments for Common Stock, including
interest on such payments at the Bank's passbook rate of ____%; or
(ii) extend the Offering for an additional 45 days or, if approved
by the Superintendent, for an additional period after such 45-day
extension.
Q: What happens if there are not enough shares to fill all orders?
A: If the Offering is oversubscribed, shares will be allocated based upon a
deposit formula set forth in the Plan of Reorganization. There can be no
assurance that a subscriber in the Offering will have his or her
subscription filled. If insufficient shares of Common Stock are
available in the first category, the Bank will allocate shares in such a
manner that will allow Eligible Account Holders to purchase at least the
lesser of 100 shares or the amount subscribed for. Likewise, if
insufficient shares of Common Stock are available in the third category,
the Company will allocate shares in such a manner that will allow
Supplemental Eligible Account Holders to purchase at least the lesser of
100 shares or the amount of stock subscribed for. All orders must be
received by 12:00 noon, New York time on December 17, 1998.
Q: Will shares be offered to anyone other than persons with subscription
rights?
A: If persons with subscription rights do not subscribe for all of the shares
offered, the remaining shares will be offered to certain members of the
general public in a community offering, with a preference for natural
persons residing in the Bank's community of Greene County, New York.
Q: May I transfer my subscription rights?
A: No. Transferring subscription rights or entering into an agreement or
understanding for the transfer of subscription rights is prohibited.
2
<PAGE>
Q: What particular factors should I consider when deciding whether or not to
buy Common Stock?
A: Before you decide to purchase Common Stock, you should read this entire
Prospectus, including the Risk Factors section on pages _____ of this
Prospectus.
Q: Who can help answer any other questions I may have about the Offering?
A: In order to make an informed investment decision, you should read this
entire Prospectus. This question and answer section highlights selected
information and may not contain all of the information that is important to
you. In addition, you may contact:
Stock Center
430 Main Street
Catskill, New York 12414-1303
P.O. Box 546
Catskill, New York 12414-0546
(518) 943-7515
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 Bank intends
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
New York Banking Department and/or Federal Deposit Insurance Corporation.
3
<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 this
entire Prospectus carefully, including the financial statements and the notes to
the financial statements of the Bank. Certain financial information contained in
this Prospectus has been derived from the audited financial statements of the
Bank.
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 44.5% of the Company's Common Stock
is referred to as the Offering. References to the "Bank" refer to Greene County
Savings Bank, which is changing its name to "The Bank of Greene County"
concurrently with the Reorganization and the Offering. References to "Company"
refer to Greene County Bancorp, Inc., and references to the "Mutual Company"
refer to Greene County Bancorp, MHC. 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 this Prospectus.
The Company
Greene County Bancorp, Inc.
425 Main Street
Catskill, New York 12414-1317
(518) 943-3700
The Company is a Delaware corporation that was formed recently to become
the holding company of the Bank. Accordingly, the Company has no results of
operations. After the Reorganization, the Company will own all of the Bank's
common stock. Purchasers in the Offering will own 44.5% of the Company's Common
Stock, the Charitable Foundation will own 2.0% of the shares of the Company
Common Stock, and the Mutual Company will own 53.5% of the shares of the
Company Common Stock. Although these percentages may change in the future, the
Mutual Company must always own a majority of the Company's Common Stock.
The Bank
Greene County Savings Bank
425 Main Street
Catskill, New York 12414-1317
(518) 943-3700
The Bank was organized in 1889 as The Building and Loan Association of
Catskill, a New York-chartered savings and loan association. In 1974, the Bank
converted to a New York mutual savings bank under the name Greene County Savings
Bank. In conjunction with the Reorganization and the Offering, the Bank is
changing its name to The Bank of Greene County. At June 30, 1998, the Bank had
total assets of $140.3 million, total deposits of $122.3 million, and retained
earnings of $15.7 million. The Bank is a community- and customer-oriented bank
that operates from its main office and three branch locations in Catskill, West
Coxsackie, Cairo and Greenville, New York. Historically, the Bank has emphasized
the origination of loans secured by real estate. At June 30, 1998, the Bank's
loan portfolio consisted of $64.7 million, or 79.7%, of loans secured by one-to
four- family residential mortgage loans, $9.4 million, or 11.6%, of consumer
loans, $4.5 million, or 5.6% of commercial real estate loans and $1.3 million,
or 1.7% of commercial business loans. The Bank also invests in investment
securities-mortgage-backed securities and asset-backed securities. At June 30,
1998, investment securities totaled $36.3 million, mortgage-backed securities
totaled $5.2
4
<PAGE>
million, and asset-backed securities totaled $6.3 million. At June 30, 1998,
such securities comprised 34.1% of total assets.
The following are highlights of the Bank's operating strategy:
B: Community Banking. Since its establishment in 1889, the Bank has been
committed to meeting the financial needs of the communities in which
it operates and to providing quality service for its customers.
This has enabled the Bank to maintain a high level of core deposits,
which comprised 54.5% of total deposits at June 30, 1998 and
generally represent lower-cost funds than certificates of deposits.
Additional, the Bank intends to use the mutual holding company
structure and the establishment of the Charitable Foundation to
maintain the Bank as an independent community bank.
C: Emphasis on Residential Real Estate Lending. Historically, the Bank
has emphasized the origination of one-to four- family residential
loans, which typically are considered lower risk than other types of
loans. At June 30, 1998 one- to four-family residential mortgage
loans comprised 79.69% of the loan portfolio, substantially all of
which were secured by real estate located in Greene County.
D: Maintaining High Levels of Liquid Investments. In order to position
the Bank to be able to deploy assets profitably in a rising rate
environment, management has decided to invest a significant portion
of its assets in short term U.S. Government and agency securities and
other interest earning assets. At June 30, 1998, 26.8% of the Bank's
total assets were U.S. Government and agency securities, municipal
bonds due in five years of less, federal funds sold, and cash and due
from banks.
E: Maintaining Asset Quality. The Bank's high asset quality results from
its conservative underwriting and investing standards, the diligence
of its loan personnel and the stability of the local economy. At June
30, 1998, the Banks' ratio of nonperforming assets to total assets
was 0.72% (compared to the average ratio of the Bank's peer group
of ___%) and its ratio of non- performing loans to total loans was
1.09% (compared to the average ratio of the Bank's peer group
of ___%).
The Reorganization
The Reorganization involves a number of steps, including the following:
- The Bank will establish the Company and the Mutual 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 1,584,009 and 2,143,071 shares of
Common Stock in the Reorganization (or 2,464,532 shares at the
adjusted maximum): 53.5% of these shares (or between 847,878 and
1,147,128 shares, or 1,319,264 shares at the adjusted maximum) will
be issued to the Mutual Company, 44.5% (or between 705,039 and
953,877 shares, or 1,096,958 shares at the adjusted maximum) will be
sold to depositors and the public, and 2.0% of these shares (or
between 31,092 shares and 42,066 shares, or 48,376 shares at the
adjusted maximum) will be issued to a newly formed Charitable
Foundation.
- Interests that depositors had in the Bank will become interests in
the Mutual Company, which will own 53.5% of the shares of Common
Stock of the Company and indirectly of the Bank.
5
<PAGE>
The Mutual Holding Company Structure
The mutual holding company structure differs in significant respects from
the bank holding company structure that is used in a standard mutual-to-stock
conversion. A savings bank that converts to the stock form using the mutual
holding company structure sells only a minority of its shares and raises less
proceeds than would be raised in a standard mutual- to-stock conversion in which
100% of the shares are sold to depositors and the public. If capital
is needed in the future, the shares that are issued to the Mutual Company may be
subsequently sold to depositors. See "Regulation--Holding Company
Regulation--Mutual Holding Company Regulation." In addition, because the Mutual
Company controls a majority of the Company's Common Stock, the structure will
permit the Bank to achieve the benefits of a stock company without a loss of
control that often follows a complete conversion from mutual to stock form.
In making business decisions, the Mutual Company's Board of Trustees will
consider a variety of constituencies, including the depositors and employees of
the Bank, and the communities in which the Bank operates. As the majority
stockholder of the Company, the Mutual Company is also in the
continued success and profitability of the Bank and the Company. Consequently,
the Mutual Company will act in a manner which furthers the general interest of
all of its constituencies, including, but not limited to, the interest of the
stockholders of the Company. The Mutual Company believes that the interests of
the stockholders of the Company, and those of the Mutual Company's other
constituencies, are in many same, as the increased
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 705,039 and 953,877 shares of its
Common Stock, for a price per share of $10.00. The Offering may be increased to
up to 1,096,958 shares. If the minimum number of shares to be sold in the
Offering (705,039 shares) is not sold by December 17, 1998, the Bank may
(i) terminate the Offering and promptly refund all payments for Common Stock,
including interest on such payments at the Bank's passbook rate of _____%; or
(ii) extend the Offering for an additional 45 days or, if approved by the
Superintendent, for an additional period after such 45-day extension.
Stock Purchase Priorities
The Common Stock is being offered for sale in the following order of
priority in a Subscription Offering:
(i) the Bank's Eligible Account Holders (holders of deposit accounts
totaling $100 or more as of June 30, 1997);
(ii) the Bank's tax-qualified employee benefit plans, including the Bank's
ESOP (which is expected to purchase up to 8% of the Minority
Ownership Interest);
(iii) the Bank's Supplemental Eligible Account Holders (holders of deposit
accounts totaling $100 or more as of September 30, 1998); and
(iv) employees, officers and trustees of the Bank.
Any shares not subscribed for will be offered to certain members of the
general public in a community offering, with preference given first to natural
persons residing in Greene County, New York. The Company has engaged Friedman,
Billings, Ramsey & Co., Inc. to assist it on a best efforts basis in selling the
Common Stock in the Offering. See pages __ to __.
6
<PAGE>
Stock Pricing and Number of Shares to be Issued
The Company's Board of Directors has set the purchase price per share
of Common Stock at $10.00, the price most commonly used in stock offerings
involving mutual-to-stock conversions of mutual savings institutions. The
number of shares of Common Stock issued in the Offering is based on the
independent valuation prepared by FinPro, Inc. ("FinPro"), an appraisal firm
experienced in appraisals of savings institutions. The independent valuation
states that as of October 7, 1998, the estimated pro forma market value of
the Company ranged from a minimum of $15.5 million to a maximum of $21.0
million, with a midpoint of $18.3 million. Based on this valuation and the
$10.00 per share price, the number of shares of Common Stock that the Company
will issue will range from 1,584,010 to 2,143,072 shares. The Company and the
Bank have decided to offer 44.5% of such shares, or between 705,039 shares
and 953,877 shares, to depositors and the public. In addition, the Company
will issue between 31,902 shares and 42,066 shares (together with $100,000 in
cash) to the Charitable Foundation. The Board of Directors determined to sell
44.5% of the Common Stock to depositors and the public in order to raise the
maximum amount of proceeds while permitting the Company to issue additional
shares to the Charitable Foundation and additional shares of Common Stock in
the future pursuant to a stock award plan and stock option plan that the
Company intends to adopt after the Reorganization and Offering. The 53.5% of
the shares of the Common Stock that are not sold in the Offering or issued to
the Charitable Foundation will be issued to the Mutual Company. The
establishment of the Charitable Foundation had the effect of reducing the
valuation of the Company. See "Comparison of Valuation and Pro Forma
Information without the Charitable Foundation."
Changes in market and financial conditions and demand for the Common Stock
may cause the estimated valuation range to increase by up to 15%, to up to $24.2
million. If this occurs, the maximum number of shares that can be sold to
depositors and the public can increase to up to 1,096,958 shares, and the number
of shares to be issued to the Charitable Foundation can increase to 48,376. The
Company will not notify subscribers if the maximum number of shares to be sold
increases by 15% or less. The Company will, however, notify subscribers if the
estimated valuation range and the maximum number of shares to be sold is
increased by more than 15% or if the minimum of the estimated valuation range is
decreased. The independent valuation is not a recommendation as to the
advisability of purchasing shares, and you should not buy Common Stock based on
the independent valuation.
Payment for shares may be made by (i) check or money order, or (ii)
authorization of withdrawal from a deposit account maintained with the Bank.
Payments made by check or money order will be placed in a segregated escrow
account and will be paid interest at the Bank's passbook rate from the date
payment is received until the Offering is completed or terminated.
Deadline of the Offering
The offering to depositors will end at 12:00 noon, New York time, on
December 17, 1998. The community offering may end on or after December 17,
1998, but in any event, no later than January 29, 1999, without regulatory
approvals. If the Reorganization and Offering are not completed by January 29,
1999, all subscribers will be notified and will be given the opportunity to
cancel or modify their order.
Benefits to Management from the Offering
The Company intends to implement for the benefit of the employees,
directors/trustees and officers of the Company and the Bank, the ESOP, a stock
option plan ("Stock Option Plan") and a stock award plan ("Stock Award Plan").
These benefit plans would result in employees, officers and directors being
eligible to receive in the aggregate up to 190,528 shares of Common Stock (at
the midpoint of the Offering Range). Assuming that the Stock Option Plan and
Stock Award Plan were funded from shares purchased in the open market,
employees, directors and officers would own 22% of the outstanding Minority
Ownership Interest, inclusive of ESOP shares but exclusive of other shares such
persons may have acquired individually.
7
<PAGE>
ESOP. Full-time employees of the Bank will participate in an ESOP, which is
a form of retirement plan, that will purchase shares of Common Stock. The ESOP
intends to purchase up to 8% of the Minority Ownership Interest. The estimated
cost to fund the ESOP is $588,900 at the minimum of the Offering Range and
$796,750 at the maximum of the Offering Range. A portion of the net proceeds of
the Offering will be used to fund the purchase of shares for the ESOP. For
further information, see "Executive Compensation and Related Transactions of the
Bank--Employee Stock Ownership Plan and Trust."
Stock Option Plan. The Stock Option Plan will provide for the grant of
options to purchase Common Stock equal to 10% of the Minority Ownership
Interest. The exercise price of each option will be equal to the closing price
of the Common Stock on the date the option is granted. No options will be
granted until after stockholders approve the Stock Option Plan. For further
information, see "Executive Compensation and Related Transactions of the
Bank--Stock Option Plan." The Board of Directors has not yet determined how many
options each individual officer, director or employee will receive.
Stock Award Plan. The Stock Award Plan will provide for the award of
shares of Common Stock equal to up to 3% of the Minority Ownership Interest
to officers, employees and directors of the Bank, if the Stock Award Plan is
implemented within one year after the completion of the Offering. If the
Stock Award Plan is implemented later than one year after the completion of
the Offering, up to 5% of the Minority Ownership Interest may be granted,
subject to stockholder approval. Shares of Common Stock awarded under the
Stock Award Plan will be at no cost to the recipient, and in the aggregate
will have a value of $294,452 at the minimum of the Offering Range and
$398,377 at the maximum of the Offering Range, assuming a value of $10.00 per
share and assuming a 4% plan. For further information, see "Executive
Compensation and Related Transactions of the Bank--Stock Award Plan." The
Board of Directors has not yet determined how many shares of Common Stock
will be awarded to officers, directors or employees of the Bank.
In addition, the Bank intends to enter into an employment agreement with
J. Bruce Whittaker, its President and Chief Executive Officer. The agreement
provides that if Mr. Whittaker resigns from the Bank upon certain events,
including a change in control of the Bank or the Company, then Mr. Whittaker
will be entitled to severance pay equal to three times the highest base
salary and high bonus paid during the prior three years (or $375,000, based
upon Mr. Whittaker's current level of compensation). See "Executive
Compensation--Employment Agreement."
The Stock Award Plan and Stock Option Plan may not be adopted until at least
six months after the completion of the Reorganization, and are subject to
shareholder approval. See pages ___ to ___.
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 (3)
----------------- ----------------
<S> <C> <C>
Benefit Plan:
ESOP...................................... $ 692,830 3.72%
Stock Option Plan......................... -- (2) 4.65
Stock Award Plan.......................... 346,415 1.86
----------------- ----------------
$ 1,039,245 10.23%
----------------- ----------------
----------------- ----------------
</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 86,604 shares at the midpoint of
the Offering Range may be granted if the Stock Option Plan is approved by
stockholders.
(3) Assumes shares for the Stock Award Plan and Stock Option Plan are funded by
open-market repurchases, and not from authorized-but-unissued shares.
The Charitable Foundation
To further its commitment to the local community, the Bank intends to
establish the Charitable Foundation as part of the Reorganization. The Company
will contribute to the Charitable Foundation 2.0% of the shares of Common
8
<PAGE>
Stock issued in the Reorganization plus $100,000 in cash. The Charitable
Foundation will be dedicated exclusively to supporting charitable causes and
community development activities in the Bank's market area. Due to the issuance
of additional shares of Common Stock to the Charitable Foundation, the ownership
and voting interests of all stockholders of the Company will be diluted by
1.96%. The Company will incur an expense equal to the full amount of the
contribution to the Charitable Foundation, offset in part by a corresponding tax
benefit, during the quarter in which the contribution is made. Such expense will
reduce the Company's earnings. See "Risk Factors--The Expense and Dilutive
Effect of the Contribution of Shares and Cash to the Charitable Foundation,"
"Pro Forma Data," and "The Reorganization and Offering--Establishment of the
Charitable Foundation." As a condition to issuing their non- objection to the
Reorganization, the FDIC and the Department have required the Charitable
Foundation to commit that all shares of Common Stock held by the Charitable
Foundation will be voted in the same ratio as all other shares of the Company's
Common Stock (other than shares held by the Mutual Company) on all proposals
considered by stockholders of the Company, subject to certain waivers of this
commitment.
Use of the Proceeds Raised from the Sale of Common Stock
The Company will use the proceeds from the Offering as follows. The
percentages we use are estimates:
- 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 as a possible source of funds for the payment of
dividends to stockholders, the repurchase of Common Stock, and for
other general corporate purposes.
The proceeds to be received by the Bank will be available for general
corporate purposes, the opening of new branches, renovation of existing
facilities, branch or whole bank acquisitions, new loan originations, and the
purchase of investment and mortgage related securities.
See pages ___ to ___ for a fuller description of the use of proceeds.
Prospectus Delivery and Procedure for Purchasing Common Stock
To ensure proper identification of stock purchases priorities, Eligible
Account Holders and Supplemental Eligible Account Holders must list all deposit
accounts on their Order Form, giving all names on each deposit account and the
account numbers at the applicable date. The failure to provide accurate and
complete account information on the Order Form, including adding individuals
with a lower, or no, stock purchase priority as subscribers on an Order Form,
may eliminate your ability to purchase stock.
Full payment by check, cash (except by mail), money order, bank draft or
withdrawal authorization (payment by wire transfer will not be accepted) must
accompany an original Order Form. The Company is not obligated to accept an
order submitted on photocopied or telecopied Order Forms. The Company will not
accept Order Forms if the certification appearing on the reverse side of the
Order Form is not executed. The Company is not required to deliver a Prospectus
and Order Form by any means other than the U.S. Postal Service.
See pages __ to __ for procedures for purchasing shares of common stock.
Dividends
The Company does not initially intend to pay a dividend, although it may
consider the payment of such dividend in the future. Future decisions as to the
declaration of dividends by the Company will depend upon a number of factors
including investment opportunities available to the Company or the Bank and the
Company's financial condition and results of operations. See pages ____ and
______.
9
<PAGE>
Market for the Common Stock
The Company has received conditional approval to have the Common Stock
quoted on the Nasdaq SmallCap Market under the symbol "GRNB." Friedman,
Billings, Ramsey & Co., Inc. intends to make a market in the Common Stock, and
the Company expects that additional market makers will be identified.
Important Risks in Purchasing and Owning the Company's Common Stock
Before deciding to purchase Common Stock in the Offering, please carefully
read the Risk Factors section on pages __ to __ of this Prospectus, in addition
to the other sections of this Prospectus.
The shares of Common Stock offered hereby:
- Are not deposit accounts and are subject to investment risk;
- Are not insured or guaranteed by the FDIC, or any other government
agency; and
- Are not guaranteed by the Company, the Mutual Company, or the Bank.
The Common Stock is subject to investment risk, including the possible loss
of principal invested.
10
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected data presented below under the captions "Selected Financial
Condition Data" and "Selected Operations Data" for, and as of the end of, each
of the years in the two-year period ended June 30, 1998, are derived from the
audited financial statements of the Bank. The financial statements as of June
30, 1998 and 1997 and for each of the years in the two-year period ended June
30, 1998 are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
June 30,
-------------------------------
1998 1997
--------------- ---------------
(In thousands)
<S> <C> <C>
Selected Financial Condition Data:
Total assets....................................... $ 140,253 $ 132,506
Loans receivable, net.............................. 80,260 75,648
Mortgage-backed securities (all available for sale) 5,189 5,221
Investment securities (all available for sale)..... 36,265 37,581
Asset-backed securities (all available for sale).. 6,324 784
Deposits........................................... 122,324 115,855
Total borrowings................................... -- --
Retained earnings-substantially restricted......... 15,730 14,406
</TABLE>
<TABLE>
<CAPTION>
Years Ended
June 30,
-------------------------------
1998 1997
--------------- ---------------
(In thousands)
<S> <C> <C>
Selected Operations Data:
Total interest income.............................. $ 9,503 $ 9,297
Total interest expense............................. 4,967 4,780
------------- -------------
Net interest income............................. 4,536 4,517
Provision for loan losses.......................... 120 125
------------- -------------
Net interest income after provision for
loan losses..................................... 4,416 4,392
Total non-interest income.......................... 436 520
Total non-interest expense......................... 3,149 2,773
------------- -------------
Income (loss) before taxes and extraordinary item.. 1,703 2,139
Income tax provision............................... 553 692
------------- -------------
Net income (loss).................................. $ 1,150 $ 1,447
------------- -------------
------------- -------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
At or for the Year Ended
June 30,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on average assets (ratio of net income to average total assets) .84% 1.09%
Return on average retained earnings (ratio of net income to average
equity)............................................................. 7.63% 10.59%
Ratio of operating expense to average total assets.................. 2.31% 2.08%
Ratio of average interest-earning assets to average
interest-bearing liabilities...................................... 109.58% 109.16%
Net interest rate spread (1)........................................ 3.15% 3.26%
Net interest margin (2)............................................. 3.52% 3.61%
Efficiency ratio (3)................................................ 64.90% 56.45%
Asset Quality Ratios:
Non-performing assets to total assets at end of period.............. .72% .61%
Non-performing loans to total loans at end of period ............... 1.10% .97%
Allowance for loan losses to non-performing loans................... 82.17% 90.04%
Allowance for loan losses to loans receivable, net.................. 0.91% 0.96%
Capital Ratios:
Retained earnings to total assets at end of period.................. 11.22% 10.87%
Average retained earnings to average assets......................... 11.05% 10.27%
Other Data:
Number of full-service offices...................................... 4 3
</TABLE>
- ----------
(1) The difference between the weighted average yield on average
interest-earning assets and the weighted average cost of average
interest-bearing liabilities.
(2) Net interest income as a percentage of average interest-earning assets.
(3) The ratio of non-interest expense dividend by the sum of net interest
income and non-interest income.
12
<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.
Recent Market Volatility and Risk of Investment Loss
In recent months, stock markets in both the United States and worldwide
have been volatile. The securities of individual companies have, in many
instances, experienced significant fluctuations in price for reasons in many
cases unrelated to the specific company's financial condition, results of
operations or business prospects. In particular, the value of securities of
financial institutions has been adversely affected by weakening economics
worldwide and exposure to highly leveraged hedge funds, even though local
community-based financial institutions may have no credit exposure outside
the United States or loans to hedge funds. Therefore, 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.
Reduced Return on Equity after the Reorganization and Potential Negative Effect
on Trading Price of Common Stock
Return on equity (net income for a given period divided by average equity
during that period) is a ratio used by many investors to compare the performance
of a particular financial institution to its peers. The Bank's equity as a
percentage of assets will significantly increase as a result of the net proceeds
received in the Offering. The Bank anticipates that it will take time to
prudently reinvest the capital raised in the Offering. Consequently, the
Company's return on equity in the period following the Reorganization is
expected to be less than the average return on equity for publicly traded
savings institutions and their holding companies and, during such time, the
Company's Common Stock may trade at a discount to the market. See "Selected
Financial Information" for numerical information regarding the Bank's historical
return on equity and "Capitalization" for a discussion of the Company's
estimated pro forma consolidated capitalization as a result of the
Reorganization and Offering.
In addition, the expenses associated with the ESOP and the Stock Award Plan
(see "Pro Forma Data"), along with other ongoing post-Reorganization expenses,
are expected to contribute initially to reduced earnings. In the short
13
<PAGE>
term, the Bank will have difficulty in improving its interest rate spread and
thus the return on equity to stockholders. Consequently, for the foreseeable
future, investors should not expect a return on equity that will meet or exceed
the average return on equity for publicly traded financial institutions, and no
assurances can be given that this goal can be attained.
Potential Effects of Changes in Interest Rates and the Current Interest Rate
Environment
The Bank's financial condition and results of operations are significantly
affected by changes in interest rates. The Bank's results of operations depend
substantially on its net interest income, which is the difference between the
interest income earned on interest-earning assets and the interest expense paid
on interest-bearing liabilities. Based on certain repricing assumptions, the
Bank's interest-bearing liabilities repricing or maturing within one year
exceeded its interest-earning assets with similar characteristics by $10.5
million, or 7.78% of total interest-earning assets at June 30, 1998.
Accordingly, an increase in interest rates generally would result in a decrease
in the Bank's average interest rate spread and net interest income. The Bank has
sought to reduce the exposure of its net interest income to increases in market
interest rates by investing in readily marketable, liquid U.S. government and
agency securities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-- Market Risk--Management of Interest Rate
Risk."
Changes in interest rates also affect the value of the Bank's
interest-earning assets, and in particular the Bank's investment securities
portfolio. Generally, the value of investment , mortgage-backed securities, and
asset-backed securities portfolios fluctuates inversely with changes in interest
rates. At June 30, 1998, the Bank's investment securities portfolio,
mortgage-backed securities portfolio and asset-backed securities portfolio
totaled $36.3 million, $5.2 million, and $6.3 million, respectively, all of
which were classified as available for sale. 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 affect on stockholders' equity. See "Business of the
Bank--Securities Investment Activities."
The Bank is also subject to reinvestment risk relating to changes in
interest rates which can affect the average life of loans and mortgage related
securities. Decreases in interest rates can result in increased prepayments of
loans and mortgage related 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.
The Expense and Dilutive Effect of the Contribution of Shares and Cash to the
Charitable Foundation
The Bank intends to establish the Charitable Foundation in connection with
the Reorganization. The Company will make a contribution to the Charitable
Foundation in the form of shares of Common Stock equal to 2.0% of shares
outstanding after the completion of the Offering, or 36,579 shares at the
midpoint of the Offering Range, and $100,000 in cash. Due to the issuance of
additional shares of Common Stock to the Charitable Foundation, persons
purchasing shares in the Offering will have their ownership and voting interests
in the Company diluted by 2.0%. The contribution of Common Stock to the
Charitable Foundation will be dilutive to the interests of stockholders and the
aggregate contribution will have an adverse impact on the reported earnings of
the Company in the fiscal year in which the Charitable Foundation is established
and the contribution is made. If the Charitable Foundation had been established
and the contribution made at June 30, 1998, and assuming the sale of the Common
Stock at the midpoint of the estimated valuation range, the Bank would have
reported net income of $870,000 rather than reporting net income of $1,150,000
for the year ended June 30, 1998. In addition, the establishment and funding of
a Charitable Foundation as part of a mutual holding company reorganization and
stock offering have only recently occurred. There can be no assurance that
challenges to the Charitable Foundation from regulators or others may not arise,
the resolution of which may result in delay in the consummation of the
Reorganization and the Offering. See "The Reorganization and
Offering--Establishment of the Charitable Foundation."
14
<PAGE>
Minority Public Ownership and Provisions that May Discourage Attempts to
Acquire the Company
Voting Control of the Mutual Company. Under New York law, the Bank's Plan of
Reorganization from a Mutual Savings Bank to a Mutual Holding Company and Stock
Issuance Plan (the "Plan of Reorganization"), and the Company's governing
corporate instruments, at least 51% of the Company's voting shares must be owned
by the Mutual Company. The Mutual Company will be controlled by its board of
trustees, who will consist of persons who are members of the board of directors
of the Company and the Bank. The Mutual Company will elect all members of the
board of directors of the Company, and as a general matter, will 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 Company, acting through its board of trustees, will be able
to control the business and operations of the Company and the Bank and will be
able to prevent any challenge to the ownership or control of the Company by
stockholders other than the Mutual Company ("Minority Stockholders").
Accordingly, a change in control of the Company and the Bank cannot occur unless
the Mutual Company first converts to the stock form of organization. Although
New York law, applicable regulations and the Plan of Reorganization permit the
Mutual Company to convert from the mutual to the capital stock form of
organization, it is not anticipated that a conversion of the Mutual Company will
occur in the foreseeable future and there can be no assurance when, if ever,
such a conversion would occur.
Provisions in the Company's and the Bank's Governing Instruments. In
addition, certain provisions of the Company's Certificate of Incorporation and
Bylaws, particularly a provision limiting voting rights, as well as certain
federal and state regulations, assist the Company in maintaining its status as
an independent publicly owned corporation. These provisions provide for, among
other things, supermajority voting, staggered boards of directors, noncumulative
voting for directors, advance notice requirements for stockholder nominations to
the Board of Directors, discretion in the Board of Directors to consider
non-financial aspects of an acquisition of the Company, ability of the Board to
expand the size of the Board and fill such seats, limits on the calling of
special meetings of stockholders, and limits on the ability of Minority
Stockholders to vote Common Stock in excess of 5% of the issued and outstanding
shares (inclusive of shares issued to the Mutual Company). The regulations of
the New York State Banking Department (the "Department") prohibit, except with
the prior approval of the Superintendent of Banks of the State of New York (the
"Superintendent"), for a period of one year following the date of the
Reorganization, offers to acquire or the acquisition of beneficial ownership of
more than 10% of the equity securities of the Bank or the Company. The Bank's
Restated Organization Certificate also prohibits, for three years, the
acquisition, directly or indirectly, of the beneficial ownership of more than
10% of the Bank's or the Company's equity securities.
Dividend Waivers by the Mutual Company
It has been the policy of many mutual holding companies to waive the receipt
of dividends declared by its subsidiary. In connection with its approval of the
Reorganization, however, the Federal Reserve Board is expected to impose certain
conditions on the waiver by the Mutual Company of dividends paid on the Common
Stock. In particular, it is expected that the Mutual Company will be required to
obtain prior Federal Reserve Board approval before it may waive any dividends.
As of the date hereof, management does not believe that the Federal Reserve
Board has given its approval to any waiver of dividends by any mutual holding
company that has requested its approval. The cumulative amount of waived
dividends, if any, must be maintained in a restricted capital account which
would be added to any liquidation account of the Bank, and would not be
available for distribution to Minority Stockholders. The Plan of Reorganization
also provides that if the Mutual Company converts to stock form in the future,
any waived dividends would reduce the percentage of the converted company's
shares of Common Stock issued to Minority Stockholders in connection with any
such transaction. See "Regulation--Holding Company Regulation--Mutual Holding
Company Regulation." It is not currently intended that the Mutual Company will
waive dividends declared by the Company.
15
<PAGE>
Lending Risks Associated with Consumer, Commercial Business Lending and
Commercial Real Estate
At June 30, 1998, the Bank's consumer loans totaled $9.4 million, or
11.6% of total loans, commercial business loans totaled $1.3 million, or 1.7%
of total loans and commercial real estate loans totaled $4.5 million, or 5.6%
of total loans. Consumer, commercial business and commercial real estate
loans are generally considered to involve a greater risk of loss than
residential mortgage loans.
Strong Competition within the Bank's Market Area
Competition in the banking and financial services industry is intense. The
Bank competes with commercial banks, savings institutions, mortgage banking
firms, credit unions, finance companies, mutual funds, insurance companies, and
brokerage and investment banking firms operating locally and elsewhere. Many of
these competitors have substantially greater resources and lending limits than
the Bank and may offer certain services that the Bank does not or cannot
provide. Trends toward the consolidation of the financial services industry, and
the removal of restrictions on interstate branching and bank powers may make it
more difficult for smaller institutions such as the Bank to compete effectively
with large national and regional banking institutions. The Bank's profitability
depends upon its continued ability to successfully compete in its market area.
Intent to Remain Independent
The Bank operates as an independent community bank and intends to continue
to do so following the Reorganization. The Bank and the Company will be
controlled by the Mutual Company, and control of the Mutual Company may not be
sold to a third party. Accordingly, persons should not subscribe for shares of
Common Stock with an expectation that a sale of control of the Bank or the
Company is imminent. In the sale of control of a public company, an acquiror
often will pay a significant premium over the then trading price of such public
company's common stock. See "Business of the Bank."
Regulatory Oversight and Legislation
The Bank is subject to extensive regulation, supervision and examination by
the Department and by the FDIC. The Bank is also a member of the Federal Home
Loan Bank System and is subject to certain limited regulations promulgated by
the Federal Home Loan Bank of New York. As bank holding companies, the Company
and the Mutual Company also will be subject to regulation and oversight by the
Federal Reserve Board. Such regulation and supervision govern the activities in
which an institution and its holding company may engage and are intended
primarily for the protection of the insurance fund and depositors. Regulatory
authorities have extensive discretion in connection with their supervisory and
enforcement activities which are intended to strengthen the financial condition
of the banking industry, including the imposition of restrictions on the
operation of an institution, the classification of assets and the adequacy of an
institution's allowance for loan losses. Any change in such regulation and
oversight whether in the form of regulatory policy, regulations, or legislation,
could have a material impact on the Bank, the Company, and the Mutual Company.
See "Regulation."
Uncertainty as to Future Growth Opportunities
In an effort to fully deploy the capital raised in the Offering and to
increase loan and deposit growth, the Bank may seek to acquire other financial
institutions or branches in its market area. The Bank's ability to grow through
selective acquisitions of other financial institutions or branches of such
institutions will depend on successfully identifying, acquiring and integrating
such institutions or branches. The Company and the Bank cannot assure
prospective purchasers of Common Stock that they will be able to generate
internal growth or identify attractive acquisition candidates, make acquisitions
on favorable terms or successfully integrate any acquired institutions or
branches into the Bank. The Bank currently has no specific plans, arrangements
or understandings regarding any such expansions or acquisitions, nor has
management established criteria to identify potential candidates for
acquisition.
16
<PAGE>
Absence of Active, Liquid Trading Market for Common Stock
The Company, as a newly organized company, has never issued capital stock
and, consequently, there is no established market for the Common Stock at this
time. The Company has received conditional approval to have its Common Stock
quoted on the Nasdaq SmallCap Market under the symbol "GRNB." Freidman,
Billings, Ramsey & Co., Inc. intends to make a market in the Common Stock but is
under no obligation to do so, and the Company expects that additional market
makers will be identified. A public trading market having the desirable
characteristics of depth, liquidity and orderliness depends upon the existence
of willing buyers and sellers at any given time, the presence of which is
dependent upon the individual decisions of buyers and sellers over which neither
the Company nor any market maker has control. Accordingly, there can be no
assurance that an active and liquid trading market for the Common Stock will
develop or that, if developed, will continue, nor is there any assurance that
purchasers of the Common Stock will be able to sell their shares at or above the
purchase price. In the event a liquid market for the Common Stock does not
develop or market makers for the Common Stock discontinue their activities, such
occurrences may have an adverse impact on liquidity of the Common Stock and the
market value of the Common Stock.
Irrevocability of Orders; Potential Delay in Completion of Offerings
Orders submitted in the Offering are irrevocable. Funds submitted in
connection with any purchase of Common Stock in the Offering will be held by the
Company until the completion or termination of the Reorganization, including any
extension of the expiration date. Because completion of the Reorganization will
be subject to an update of the independent appraisal prepared by FinPro, among
other factors, there may be one or more delays in the completion of the
Reorganization. Subscribers will have no access to subscription funds and/or
shares of Common Stock until the Reorganization is completed or terminated.
Increased Compensation Expenses Associated with the ESOP and Stock Award Plan
The Bank will recognize material employee compensation and benefit expenses
assuming the ESOP and the Stock Award 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 Stock Award 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--Benefits--Employee Stock Ownership Plan and Trust" and
"--Benefits--Stock Award Plan."
Dilutive Effect of Stock Award Plan and Stock Option Plan
If the Reorganization and Offering are completed and stockholders approve
the Stock Award Plan and Stock Option Plan, the Company intends to issue shares
of Common Stock to officers and directors of the Bank through these plans. If
the shares for these plans are issued from the Company's authorized but unissued
Common Stock, the book value and earnings per share of minority stockholders
would be diluted, and the trading price of the Company's Common Stock may be
reduced. It is expected that earnings per share would be reduced by
approximately $.02 and stockholders' equity per share would be reduced by
approximately $.20 as a result of the implementation of the Stock Award Plan.
The issuance of authorized-but-unissued shares of common stock to fund the Stock
Award Plan in an amount equal to 4% of the Minority Ownership Interest would
dilute the voting interests of existing stockholders by approximately 1.9%. The
issuance of authorized-but-unissued shares of common stock pursuant to the Stock
Option Plan in an amount equal to 10% of the Minority Ownership Interest would
dilute the voting interests of existing stockholders by approximately 4.8%. See
"Pro Forma Data" and "Executive Compensation and Related Transactions of the
Bank."
17
<PAGE>
Year 2000 Compliance
Like many financial institutions, the Bank relies upon computers for the
daily conduct of its business and for data processing generally. There is
concern that on January 1, 2000 computers will be unable to "read" the new year
and as a consequence, there may be widespread computer malfunctions. The Bank's
loan portfolio primarily consists of loans secured by real estate. Consequently,
the Bank does not believe that its lending operations are dependent on
borrowers' compliance with the year 2000 issue. However, the Bank relies on
independent third parties to provide data processing services associated with
its deposit and loan activities. Moreover, in the event the Bank's significant
suppliers do not successfully and timely achieve Year 2000 compliance , the
Bank's business or operations could be adversely affected. The Bank is in the
process of testing its computer applications and hardware to ensure that they
will be able to read the year 2000, and intends to complete testing by the end
of the first calendar quarter in 1999. 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."
Role of the Financial Advisors/Best Efforts Offering
The Bank and the Company have engaged Freidman, Billings, Ramsey & Co., Inc.
as their financial and marketing advisor, and this firm has agreed to use its
best efforts to solicit subscriptions and purchase orders for Common Stock in
the Offering. The financial advisor has not prepared any report or opinion
constituting a recommendation or advice to the Bank or the Company, nor has it
prepared an opinion as to the fairness of the purchase price or the terms of the
Offering. Freidman, Billings, Ramsey & Co., Inc. has not verified the accuracy
or completeness of the information contained in this Prospectus. See "The
Reorganization and Offering--Plan of Distribution and Selling Commissions."
Possible Adverse Income Tax Consequences of the Distribution of Subscription
Rights
The Bank has received an opinion of FinPro that, pursuant to FinPro's
valuation, subscription rights granted to Eligible Account Holders and
Supplemental Eligible Account Holders have no value. However, such valuation is
not binding on the IRS. If the subscription rights granted to Eligible Account
Holders and Supplemental Eligible Account Holders are deemed to have an
ascertainable value, receipt of such rights could result in taxable gain to
those Eligible Account Holders and Supplemental Eligible Account Holders who
receive and/or exercise the subscription rights in an amount equal to such
value. Additionally, the Bank could recognize a gain for tax purposes on such
distribution. Whether subscription rights are considered to have ascertainable
value is an inherently factual determination. See "The Reorganization and
Offering - Tax Aspects of Reorganization".
RECENT DEVELOPMENTS
The following tables set forth certain financial and other information of
the Bank for the periods and as of the dates indicated. The financial data as of
June 30, 1998 have been derived in part from the audited financial statements of
the Bank and notes thereto presented elsewhere in this Prospectus. The financial
data as of September 30, 1998 and 1997 and for the three-month periods then
ended have been derived in part from unaudited financial statements of the Bank
which, in the opinion of the management, include all adjustments (consisting of
normal recurring accruals) necessary for the fair presentation of such
information. The results of operations for the three months ended September 30,
1998 are not necessarily indicative of the results of operations that may be
expected for the year ending June 30, 1999.
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
--------------- --------------
(In thousands)
<S> <C> <C>
Selected Financial Condition Data:
Total assets....................................... $ 141,763 $ 140,253
Loans receivable, net.............................. 82,742 80,260
Mortgage-backed securities (all available for sale) 4,651 5,189
Investment securities (all available for sale)..... 37,410 36,265
Asset-backed securities (all available for sale)... 7,121 6,324
Deposits........................................... 123,821 122,324
Total borrowings................................... -- --
Retained earnings-substantially restricted......... 16,305 15,730
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------------
1998 1997
------------- -------------
(In thousands)
<S> <C> <C>
Selected Operations Data:
Total interest income.............................. $ 2,472 $ 2,400
Total interest expense............................. 1,299 1,232
Net interest income............................. 1,173 1,168
Provision for loan losses.......................... 45 15
Net interest income after provision for
loan losses..................................... 1,128 1,153
Total non-interest income.......................... 81 75
Total non-interest expense......................... 807 695
Income (loss) before taxes and extraordinary item.. 402 533
Income tax provision............................... 153 192
Net income (loss).................................. $ 249 $ 341
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
At or for the Three Months Ended
--------------------------------
September 30,
1998 1997
-------------- ------------
<S> <C> <C>
Selected Financial Ratios and Other Data:
Performance Ratios(1):
Return on average assets (ratio of net income to average total assets) 0.18% 0.26%
Return on average retained earnings (ratio of net income to average
equity)............................................................. 1.55% 2.34%
Ratio of operating expense to average total assets.................. 0.57% 0.52%
Ratio of average interest-earning assets to average
interest-bearing liabilities...................................... 110.16% 109.37%
Net interest rate spread (2)........................................ 3.18% 3.35%
Net interest margin (3)............................................. 3.58% 3.72%
Efficiency ratio (4)................................................ 65.88% 55.91%
Asset Quality Ratios:
Non-performing assets to total assets at end of period.............. 0.44% 0.71%
Non-performing loans to total loans at end of period ............... 0.61% 1.12%
Allowance for loan losses to non-performing loans................... 132.36% 81.03%
Allowance for loan losses to loans receivable, net.................. 0.80% 0.90%
Capital Ratios:
Retained earnings to total assets at end of period.................. 11.50% 11.22%
Average retained earnings to average assets......................... 11.30% 10.87%
Other Data:
Number of full-service offices...................................... 4 3
</TABLE>
- ----------
(1) Where applicable, ratios for the three-month periods were annualized and
computed based on the monthly average balances.
(2) The difference between the weighted average yield on average
interest-earning assets and the weighted average cost of average
interest-bearing liabilities.
(3) Net interest income as a percentage of average interest-earning assets.
(4) The ratio of non-interest expense dividend by the sum of net interest
income and non-interest income.
19
<PAGE>
Comparison of Financial Condition at September 30, 1998 and June 30, 1998
Assets. Total assets increased to $141.8 million at September 30, 1998 from
$140.3 million at June 30, 1998, an increase of $1.5 million, or 1.1%. This
increase resulted primarily from a $2.5 million, or 3.1%, increase in loans
receivable, net as well as increases of $1.1 million, or 3.2%, in investment
securities and $797,000, or 12.6%, in asset- backed securities. The growth in
total assets reflected the Bank's strategy of investing in fixed-rate
residential mortgage loans, as well as increased demand for such loans in the
current low interest rate environment. Asset growth was funded by deposits,
which increased by $1.5 million, or 1.2%, as well as principal paydowns of
mortgage-backed securities, which decreased by $538,000, or 10.4%, at September
30, 1998 as compared to June 30, 1998.
Liabilities. Total deposits increased by $1.5 million, or 1.2% to $123.8
million at September 30, 1998 compared to $122.3 million at June 30, 1998. The
growth in total deposits reflected an increase of $306,000, or 0.6% in
certificate accounts and an increase of $1.2 million, or 1.8%, in passbook and
other accounts. At September 30, 1998, the Bank had no borrowings outstanding.
Retained Earnings. Total retained earnings increased by $575,000, or 3.7%,
to $16.3 million at September 30, 1998 from $15.7 million at June 30, 1998. The
increase in total retained earnings resulted from after tax net income of
$249,000 for the three months ended September 30, 1998 as well as an increase of
$326,000 in net unrealized gain on securities available for sale.
Comparison of Operating Results for the Three Months Ended September 30, 1998
and 1997
General. Net income for the three months ended September 30, 1998 was
$249,000, a decrease of $92,000, or 27.0%, from net income of $341,000 for the
three months ended September 30, 1997. The decrease in net income was due
primarily to an increase of $112,000, or 16.1%, in non-interest expense and an
increase of $30,000, or 200.0% in the provision for loan losses to $45,000 for
the three months ended September 30, 1998, compared to $15,000 for the three
months ended September 30, 1997.
Interest Income. Interest income increased by $72,000, or 3.0%, to $2.5
million for the three months ended September 30, 1998 from $2.4 million for the
three months ended September 30, 1997. The increase was primarily due to a
$62,000, or 3.9%, increase in interest income received on loans and a $29,000,
or 4.2%, increase in interest and dividends on investment securities for the
three months ended September 30, 1998 as compared to the three months ended
September 30, 1997. The increase in interest from loans was attributable to a
$3.8 million, or 5.1%, increase in the average balance of loans receivable,
partially offset by a ten basis point decrease in the average yield on loans
receivable to 8.42% for the three months ended September 30, 1998 from 8.52% for
the three months ended September 30, 1997. The growth in the average balance of
loans receivable reflected both growth in the Bank's primary market area as well
as demand for the Bank's fixed-rate one-to-four family real estate loan product
in the current low market interest rate environment. The increase in interest
and dividends from investment securities reflected a $3.5 million, or 8.4%,
increase in the average balance of investment securities, which more than offset
a decrease in the yield on such investment securities to 6.38% for the three
months ended September 30, 1998 from 6.64% for the three months ended September
30, 1997. The increase in the average balance of investment securities reflected
the deployment of liquidity pending investments in higher-yielding mortgage
loans.
Interest Expense. Interest expense increased by $65,000, or 5.3%, to $1.3
million for the three months ended September 30, 1998 from $1.2 million for the
three months ended September 30, 1997. The increase in interest expense
reflected an increase of $85,000, or 11.8%, in interest expense on certificate
accounts, as the average balance of such accounts increased by $3.5 million, or
7.0%, to $53.5 million for the three months ended September 30, 1998 from $50.0
million for the three months ended September 30, 1997, and the average rate paid
on such accounts increased 25 basis points to 6.03% for the three months ended
September 30, 1998. The increase in the average balance of certificate accounts
reflected investor demand for such accounts given the higher rates paid by the
Bank on such accounts as compared to the rates paid on savings deposits.
20
<PAGE>
Provision for Loan Losses. The Bank's provision for loan losses increased to
$45,000 for the three months ended September 30, 1998 compared to $15,000 for
the three months ended September 30, 1997. The higher provision was due, in
part, to the continued growth in the loan portfolio and management's ongoing
assessment of the inherent risk in the portfolio. Management regularly reviews
the Bank's loan portfolio and makes provisions for loan losses in order to
maintain the adequacy of the allowance. At September 30, 1998, the allowance for
loan losses as a percentage of total nonperforming loans was 132.36%, compared
to 68.76% at September 30, 1997.
Noninterest Income. Noninterest income increased by $6,000, or 8.0%, for the
three months ended September 30, 1998 as compared to the three months ended
September 30, 1997.
Noninterest Expense. Noninterest expense increased by $112,000, or 16.1%, to
$807,000 for the three months ended September 30, 1998 from $695,000 for the
three months ended September 30, 1997. The increase reflected an increase of
$44,000, or 11.7%, in employee compensation and benefits, an increase of
$36,000, or 101.5%, in occupancy expense, an increase of $6,000, or 29.0%, in
advertising expense, and an increase of $11,000, or 90.8% in office supplies.
Much of the foregoing increases was attributed to the Bank's new branch office
in Greenville, which opened in December 1997.
Income Taxes. Income tax expense was $153,000 for the three months ended
September 30, 1998 compared to $192,000 for the three months ended September
30, 1997. The effective tax rate increased to 38.0% for the three months
ended September 30, 1998 from 36.0% for the three months ended September 30,
1997.
21
<PAGE>
GREENE COUNTY BANCORP, INC.
The Company was organized for the purpose of acquiring all of the capital
stock of the Bank upon completion of the Reorganization and the Offering. The
Company has applied to the Federal Reserve Board to become a bank holding
company and, upon completion of the Reorganization, will be subject to
regulation by the Federal Reserve Board. See "The Reorganization and
Offering--Description of and Reasons for the Reorganization" and
"Regulation--Holding Company Regulation." Final approval from the Federal
Reserve Board has not been received as of the date of this Prospectus. Upon
completion of the Reorganization, the Company will have no significant assets
other than the shares of the Bank's common stock and an amount equal to 50% of
the net proceeds of the Offering, including the loan to the ESOP, and will have
no significant liabilities. The Company intends to use a portion of the net
proceeds that it retains to loan to the ESOP funds to enable the ESOP to
purchase up to 8% of the Minority Ownership Interest. See "Use of Proceeds." The
management of the Company is set forth under "Management of the Company."
Initially, the Company will neither own nor lease any property, but will instead
use the premises, equipment and furniture of the Bank. At the present time, the
Company does not intend to employ any persons other than certain officers who
are currently officers of the Bank and will utilize the support staff of the
Bank from time to time. Additional employees will be hired as appropriate to the
extent the Company expands its business in the future.
Management believes that the holding company structure will provide the
Company additional flexibility to diversify its business activities through
existing or newly formed subsidiaries, or through acquisitions of, or mergers
with, other financial institutions and financial services related companies.
There are no current arrangements, understandings or agreements regarding any
such opportunities. However, subsequent to the Reorganization, the Company will
be in a position, subject to regulatory limitations and the Company's financial
position, to take advantage of any such acquisition and expansion opportunities
that may arise. The initial activities of the Company are anticipated to be
funded by the proceeds to be retained by the Company, income thereon and through
dividends from the Bank.
The Company's executive office is located at the main office of the Bank, at
425 Main Street, Catskill, New York 12414-1317. The Company's telephone number
is (518) 943-3700.
GREENE COUNTY SAVINGS BANK
The Bank was organized in 1889 as The Building and Loan Association of
Catskill, a New York-chartered savings and loan association. In 1974, the Bank
converted to a New York mutual savings bank under the name Greene County Savings
Bank. In conjunction with the Reorganization and the Offering, the Bank is
changing its name to The Bank of Greene County. The Bank's deposits are insured
by the Bank Insurance Fund ("BIF"), as administered by the FDIC, up to the
maximum amount permitted by law. The Bank is a community-oriented financial
institution engaged primarily in the business of accepting deposits from
customers through its main office and three full service branch 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, commercial business loans, consumer loans, and to invest and mortgage
related securities.
At June 30, 1998, the Bank had total assets of $140.3 million, total
deposits of $122.3 million and retained earnings of $15.7 million. At June 30,
1998, $70.4 million, or 86.7% of the Bank's loans were secured by real estate
and $64.7 million, or 79.7%, of the Bank's loans were secured by one-to four-
family residential real estate, $4.5 million, or 5.6%, of the Bank's loans at
June 30, 1998 were commercial real estate loans. Consumer loans totaled $9.4
million, or 11.6% of the Bank's total loans, at June 30, 1998. The Bank also
originates commercial business loans which totaled $1.3 million, or 1.7% of
total loans. The Bank's investment securities, mortgage-backed securities and
asset-backed securities portfolios totaled $36.3 million, $5.2 million and $6.3
million, respectively, at June 30, 1998.
The Bank's main office is located at 425 Main Street, Catskill, New York
12414-1317. The Bank's telephone number is (518) 943-3700.
22
<PAGE>
MARKET AREA
The Bank is a community bank that offers a variety of financial products and
services. The Bank's primary lending area is in Greene County, New York.
Likewise, most of the Bank's deposit customers reside in Greene County, New
York. The Bank's market area is characterized as rural.
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
FDIC capital standards as of June 30, 1998, on a historical and pro forma basis
assuming that the indicated number of shares were sold as of such date and the
Bank received 50% of the net proceeds. For purposes of the table below, the
amount expected to be borrowed by the ESOP and the cost of the shares expected
to be acquired by the Stock Award Plan are deducted from pro forma regulatory
capital. The Federal Reserve Board has adopted capital adequacy guidelines for
bank holding companies (on a consolidated basis) substantially similar to the
FDIC capital requirements for the Bank. On a pro forma consolidated basis after
the Reorganization and Offering, the Company's pro forma stockholders' equity
will exceed these requirements. See "Regulation--Holding Company Regulation."
<TABLE>
<CAPTION>
Pro Forma at June 30, 1998, Based upon the Sale at $10.00 per share of
---------------------------------------------------------------------------
Historical at 705,039 829,458 953,877 1,096,958
June 30, 1998 Shares Shares Shares Shares(1)
---------------- -------- -------- ------- ----------
Percent Percent Percent Percent Percent
of of of of of
Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2)
------- --------- ------ ---------- ------ --------- ------ --------- ------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP capital.......... $ 15,730 11.22% $ 18,042 12.66% $ 18,508 12.94% $ 18,974 13.22% $ 19,511 13.55%
Leverage capital:
Capital level(3).... $ 15,488 11.09% $ 17,800 12.53% $ 18,266 12.82% $ 18,732 13.10% $ 19,269 13.43%
Requirement(4)...... 5,588 4.00 5,680 4.00 5,699 4.00 5,718 4.00 5,739 4.00
Excess............ $ 9,900 7.09% $ 12,120 8.53% $ 12,567 8.82% $ 13,014 9.10% $ 13,530 9.43%
Risk-based capital:
Tier 1 capital
level(3)(5) $ 15,488 20.32% $ 17,800 23.00% $ 18,266 23.53% $ 18,732 24.06% $ 19,269 24.67%
Requirement......... 3,049 4.00 3,095 4.00 3,105 4.00 3,114 4.00 3,125 4.00
Excess............ $ 12,439 16.32% $ 14,705 19.00% $ 15,161 19.53% $ 15,618 20.06% $ 16,144 20.67%
Total capital level
(3)(5) $ 16,216 21.27% $ 18,528 23.94% $ 18,994 24.47% $ 19,460 25.00% $ 19,997 25.60%
Requirement......... 6,098 8.00 6,191 8.00 6,209 8.00 6,228 8.00 6,249 8.00
Excess.............. $ 10,118 13.27% $ 12,337 15.94% $ 12,785 16.47% $ 13,232 17.00% $ 13,748 17.60%
</TABLE>
- ----------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation 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) Leverage capital levels are shown as a percentage of average assets.
Risk-based capital levels are calculated on the basis of a percentage of
risk-weighted assets.
(3) Pro forma capital levels assume: funding by the Bank of the Stock Award
Plan to enable the plan to acquire in the open market a number of shares
equal to 4% of the Minority Ownership Interest; the purchase by the ESOP of
8% of the Minority Ownership Interest; and the capitalization of the Mutual
Company by the Bank with $1,000. See "Management of the Bank--Benefit
Plans" for a discussion of the Stock Award Plan and ESOP.
(4) The current leverage capital requirement is 3% of total adjusted assets for
banks that receive the highest supervisory rating for safety and soundness
and that are not experiencing or anticipating significant growth. The
current leverage capital ratio applicable to all other banks is 4% to 5%.
See "Regulation--Regulatory Capital Requirements.
(5) Assumes net proceeds are invested in assets that carry a risk-weighting
equal to the average risk weighting of the Bank's risk-weighted assets as
of June 30, 1998.
23
<PAGE>
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock cannot be
determined until the Offering is completed, it is presently anticipated that the
net proceeds from the sale of the Common Stock will be between $6.5 million and
$9.0 million (or $10.3 million if the Estimated Valuation Range is increased by
15%). See "Pro Forma Data" and "The Reorganization and Offering--Stock Pricing
and Number of Shares to Be Issued" as to the assumptions used to arrive at such
amounts. The Company will be unable to utilize any of the net proceeds of the
Offering until the consummation of the Reorganization.
The Company will contribute 50% of the net proceeds of the Offering to the
Bank, or $3.2 million to $5.2 million at the minimum and adjusted maximum of the
Estimated Valuation Range, respectively. Such portion of net proceeds received
by the Bank from the Company will be used by the Bank for general corporate
purposes, including investments in short- and medium-term investment grade debt
securities, and mortgage- related securities, and to increase the origination of
mortgage, consumer and commercial business loans. The Bank may also use such
funds to expand operations through acquisitions of other financial institutions,
branch offices or other financial services companies, although the Bank and the
Company have no current arrangements, understandings or agreements regarding any
such transactions. 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--Benefit Plans--Stock
Option Plan" and "--Stock Award 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 Common Stock
equal to 8% of the Minority Ownership Interest. Based upon the sale of
705,039 shares or 953,877 shares at the minimum and maximum of the Estimated
Valuation Range, the amount of the loan to the ESOP would be $588,905 or
$796,754, respectively (or $916,000 if the Estimated Valuation Range is
increased by 15%). See "Management of the Bank--Benefit Plans--Employee Stock
Ownership Plan and Trust." The remaining net proceeds retained by the Company
will initially be invested in U.S. government and agency securities, short-
and medium-term debt obligations, mortgage related securities and other
marketable securities.
The net proceeds retained by the Company may also be used to support the
future expansion of operations through the acquisition of financial institutions
or their assets, including those located within the Bank's market area, 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 a bank holding company, and will be permitted to engage only in those
activities that are permissible for bank holding companies under the Bank
Holding Company Act, as administered by the Federal Reserve Board. See
"Regulation -- Holding Company Regulation" for a description of certain
regulations applicable to the Company.
Upon completion of the Reorganization, the board of directors of the Company
will have the authority to adopt stock repurchase plans, subject to statutory
and regulatory requirements. Pursuant to New York regulations, and without the
prior approval of the Department, the Company may not repurchase any Common
Stock, in the first year after the Reorganization, and during each of the next
two following years, may not repurchase more than 5% of its shares outstanding.
In addition, the FDIC prohibits an insured savings bank which has converted from
the mutual to stock form of ownership from repurchasing its capital stock within
one year following the date of completion of its stock offering, except that
stock repurchases of no greater than 5% of a bank's outstanding capital stock
may be repurchased during this one-year period where compelling and valid
business reasons are established to the satisfaction of the FDIC. Based upon
facts and circumstances following completion of 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, the ability to increase the book value and/or earnings per
share of the remaining outstanding
24
<PAGE>
shares, and the opportunity to improve the Company's return on equity; (ii) the
avoidance of dilution to stockholders by not having to issue additional shares
to cover the exercise of stock options or 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 stockholders. In the event the Company
determines to repurchase stock, such repurchases may be made at market prices
which may be in excess of the $10.00 per share purchase price in the Offering
(the "Subscription Price"). Any stock repurchases will be subject to the
determination of the Company's board of directors that both the Company and the
Bank will be capitalized in excess of all applicable regulatory requirements
after any repurchases and that such capital will be adequate, taking into
account, among other things, the level of non-performing and other risk assets,
the Company's and the Bank's current and projected results of operations and
asset/liability structure, the economic environment, tax and other
considerations.
DIVIDEND POLICY
The Company has no present plans to pay dividends on the Common Stock,
although it may consider the payment of such dividend in the future. Dividends
will be subject to determination and declaration by the Company's Board of
Directors in its discretion, after taking into account the Company's
consolidated financial condition, capital levels, general business practices and
other factors.
Under Delaware law, the Company is permitted to pay cash dividends,
provided that the amount of cash dividends paid may not exceed that amount by
which the net assets of the Company (the amount by which total assets exceed
total liabilities) exceeds its statutory capital, or if there is no such
excess, the net profits for the current and/or immediately preceding fiscal
year. The Company's source for the payment of cash dividends may in the
future depend on the receipt of cash dividends from the Bank. The Bank will
not be permitted to pay dividends on its Common Stock or repurchase shares of
its Common Stock if its stockholders' equity would be reduced below the
amount required for the liquidation account. The liquidation account is
expected initially to total $15.7 million. See "The Reorganization and
Offering--Liquidation Rights." Under New York Banking Law, dividends paid by
the Bank may be declared and paid only out of the net profits of the Bank.
The approval of the Superintendent is required if the total of all dividends
declared in any calendar year will exceed net profits for that year plus the
retained net profits of the preceding two years, less any required transfer
to surplus or a fund for the retirement of any preferred stock. In addition,
no dividends may be declared, credited or paid if the effect thereof would
cause the Bank's capital to be reduced below the amount required by the
Superintendent or the FDIC. See "Regulation." Subsequent to the Offering, the
availability of the Bank's funds for the payment of dividends may be limited
by the liquidation account. See "The Reorganization and Offering--Liquidation
Rights." Dividends in excess of the Bank's current and accumulated earnings
could result in the realization by the Bank of taxable income. Management of
the Bank has no current plans to pay dividends in excess of the Bank's
current and accumulated earnings. See "Federal and State Taxation--Federal
Taxation."
MARKET FOR COMMON STOCK
The Company was recently formed and has never issued capital stock. The
Bank, as a mutual institution, has never issued capital stock. The Company has
received conditional approval to have its Common Stock quoted on the Nasdaq
SmallCap Market under the symbol "GRNB" subject to the completion of the
Offering and compliance with certain conditions including the presence of a
minimum number of registered and active market makers, and a minimum number of
record holders. Freidman, Billings, Ramsey & Co., Inc. intends to make a market
in the Common Stock but is under no obligation to do so. The Company expects
that additional market makers will be identified. If the Company is unable, for
any reason, to list the Common Stock on the Nasdaq SmallCap Market, or to
continue to be eligible for listing, the Common Stock will be listed on the
over-the-counter market with quotations available on the OTC Bulletin Board
(assuming the shares qualify under its listing conditions).
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 Common Stock.
Purchasers should consider the potentially illiquid and long-term nature of
their investment in the Common Stock.
25
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Bank at
June 30, 1998, and the pro forma consolidated capitalization of the Company
after giving effect to the Offering and the Reorganization, including the
issuance of shares to the Charitable Foundation, based upon the sale of the
number of shares indicated in the table and the other assumptions set forth
under "Pro Forma Data."
<TABLE>
<CAPTION>
Company Pro Forma Based upon the Sale at $10 Per Share
------------------------------------------------------
1,096,958
705,039 829,458 953,877 Shares
Bank Shares Shares Shares (Adjusted
Historical (Minimum) (Midpoint) (Maximum) Maximum)(1)
---------- ---------- ---------- ---------- -----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2)................................. $ 122,324 $ 122,324 $ 122,324 $ 122,324 $ 122,324
Other borrowings............................ -- -- -- -- --
Total deposits and other borrowed funds..... $ 122,324 $ 122,324 $ 122,324 $ 122,324 $ 122,324
Stockholders' equity:
Common Stock, $.10 par value, 4,000,000 shares
authorized; shares to be issued as
reflected(3)............................ $ -- $ 162 $ 190 $ 219 $ 251
Additional paid-in capital(4)............. -- 6,228 7,445 8,660 10,059
Retained earnings(5)...................... 15,488 15,487 15,487 15,487 15,487
Less:
After-tax cost of Charitable
Foundation(6)............................ -- 247 280 313 350
Plus:
Expenses of contribution to Charitable
Foundation............................... -- 411 466 521 584
Net unrealized gain on securities available
for sale, net of taxes.................. 242 242 242 242 242
Less:
Common Stock acquired by the ESOP(7)...... -- 589 693 797 916
Common Stock acquired by the Stock Award
Plan(8).................................. -- 294 346 398 458
---------- ---------- ---------- ---------- -----------
Total stockholders' equity.................. $ 15,730 $ 21,400 $ 22,511 $ 23,621 $ 24,899
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
</TABLE>
- ----------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% as a result of regulatory considerations, demand for the shares, or
changes in market or general financial and economic conditions following
the commencement of the Offering.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock, which would reduce pro forma deposits by the amount of such
withdrawals.
(3) Includes shares to be issued to depositors and the public in the Offering,
as indicated herein, and 878,970, 1,034,082, 1,189,194 and 1,376,574 shares
to be issued to the Mutual Company and the Charitable Foundation at the
minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation
Range, respectively.
(4) Reflects the sale of shares in the Offering. No effect has been given to
the issuance of additional shares of Common Stock pursuant to the Stock
Option Plan to be adopted by the Company and presented for approval of
stockholders following the Offering. The Stock Option Plan would provide
for the grant of stock options to purchase a number of shares of Common
Stock equal to 10% of the shares of Common Stock sold in the Offering. See
"Management of the Bank--Benefit Plans."
(5) The retained earnings of the Bank will be substantially restricted after
the Offering. See "The Reorganization and Offering--Liquidation Rights."
Assumes that the Mutual Company will be capitalized by the Bank with
$1,000.
(6) Represents the tax effect of the contribution to the Charitable Foundation
based on a 40% tax rate. The realization of the deferred tax benefit is
limited annually to 10% of the Company's annual taxable income, subject to
the ability of the Company to carry forward any unused portion of the
deduction for five years following the year in which the contribution is
made.
(7) 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. See "Management of the Bank--Benefit
Plans--Employee Stock Ownership Plan and Trust."
(8) Assumes that, subsequent to the Offering, an amount equal to 4% of the
Minority Ownership Interest is purchased by the Stock Award Plan through
open market purchases. In the event the Stock Award Plan is implemented
more than one year after the Reorganization an amount equal to 5% of the
Minority Ownership Interest may be implemented. The actual purchase price
per share may be more or less than $10.00. The Common Stock to be purchased
by the restricted stock plan is reflected as a reduction to stockholders'
equity. See "Risk Factors-Possible Dilutive Effect of Issuance of
Additional Shares," footnote 3 to the tables under "Pro Forma Data," and
"Management of the Bank--Benefit Plans--Stock Award Plan."
26
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Offering is completed. However, net proceeds are
currently estimated to be between $6.3 million and $8.9 million (or up to
$10.3 million) based upon the following assumptions: (i) Friedman, Billings,
Ramsey & Co., Inc. will receive a fixed fee of $110,000; (ii) the Charitable
Foundation will be funded with a total contribution equal to 2.0% of the
shares of Common Stock issued in the Reorganization and $100,000 in cash;
(iii) Reorganization expenses, excluding the fees payable to Friedman,
Billings, Ramsey & Co., Inc., will be approximately $450,000; and (iv) the
Mutual Company will be capitalized by the Bank with $1,000. Actual expenses
may vary from those estimated.
Pro forma consolidated net income of the Company for the year ended June 30,
1998 have been calculated as if the Common Stock had been sold at the beginning
of the period and the net proceeds had been invested at 5.41% (the one year U.S.
Treasury bill rate as of June 30, 1998). The tables do not reflect the effect of
withdrawals from deposit accounts for the purchase of Common Stock. The pro
forma after-tax yield for the Company and the Bank is assumed to be 3.25% for
the year ended June 30, 1998 (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 from the Offering.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amount of assets and liabilities of the
Company. The pro forma stockholders' equity is not intended to represent the
fair market value of the Common Stock and may be greater than amounts that would
be available for distribution to stockholders in the event of liquidation.
27
<PAGE>
<TABLE>
<CAPTION>
At or for the Year Ended June 30, 1998
----------------------------------------------
1,096,958
705,039 829,458 953,877 Shares Sold at
Shares Sold at Shares Sold at Shares Sold at $10.00 per Share
$10.00 per Share $10.00 per Share $10.00 per Share (Adjusted
(Minimum) (Midpoint) (Maximum) Maximum)(7)
---------------- ---------------- ---------------- ---------------
(Dollars in Thousands, Except per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds................................... $ 7,050 $ 8,295 $ 9,539 $ 10,970
Plus: Value issued to Charitable Foundation... 311 366 421 484
--------- -------- --------- ---------
Pro forma market capitalization.................. $ 7,361 $ 8,661 $ 9,960 $ 11,454
--------- -------- --------- ---------
--------- -------- --------- ---------
Gross proceeds................................... 7,050 8,295 9,539 10,970
Less: Capital to MHC............................. 1 1 1 1
Less: Cash contribution to Charitable Foundation 100 100 100 100
Expenses.................................... 560 560 560 560
--------- -------- --------- ---------
Estimated net proceeds........................... 6,389 7,634 8,878 10,309
Less: Common Stock purchased by ESOP............. 589 693 797 916
Common Stock purchased by Stock Award Plan.. 294 346 398 458
--------- -------- --------- ---------
Estimated net proceeds, as adjusted.............. $ 5,506 $ 6,595 $ 7,683 $ 8,935
--------- -------- --------- ---------
--------- -------- --------- ---------
Net income(1):
Historical.................................... 1,150 1,150 1,150 1,150
Pro forma income on net proceeds, as adjusted. 179 214 249 290
Pro forma ESOP adjustment (2)................. 35 42 48 55
Pro forma Stock Award Plan adjustment (3)..... 35 42 48 55
--------- -------- --------- ---------
Pro forma net income (1)......................... $ 1,259 $ 1,280 $ 1,303 $ 1,330
--------- -------- --------- ---------
--------- -------- --------- ---------
Per share net income (1):
Historical.................................... $ 0.75 $ 0.64 $ 0.56 $ 0.48
Pro forma income on net proceeds, as adjusted.... 0.12 0.12 0.12 0.12
Pro forma ESOP adjustment (2).................... (0.02) (0.02) (0.02) (0.02)
Pro forma Stock Award Plan adjustment (3)........ (0.02) (0.02) (0.02) (0.02)
--------- -------- --------- ---------
Pro forma net income per share (1)............... $ 0.83 $ 0.72 $ 0.64 $ 0.56
--------- -------- --------- ---------
--------- -------- --------- ---------
Number of shares used in calculating pro forma net
income per share.............................. 1,531,008 1,801,185 2,071,363 2,382,068
--------- -------- --------- ---------
--------- -------- --------- ---------
Stockholders' equity:
Historical.................................... 15,730 15,730 15,730 15,730
Estimated net proceeds........................ 6,389 7,634 8,878 10,309
Plus: Value issued to Charitable Foundation...... 411 466 521 584
Less: After tax cost of Charitable Foundation.... (247) (280) (313) (350)
Less: Common Stock acquired by ESOP (2)........ (589) (693) (797) (916)
Less: Common Stock acquired by Stock Award Plan(3) (294) (346) (398) (458)
--------- -------- --------- ---------
Pro forma stockholders' equity (3)(4)(5)......... $ 21,400 $ 22,511 $ 23,621 $ 24,899
--------- -------- --------- ---------
--------- -------- --------- ---------
Stockholders' equity per share (6):
Historical.................................... 9.93 8.44 7.34 6.38
Estimated net proceeds........................... 4.03 4.10 4.14 4.18
Capitalization of the Mutual Company
Plus: Shares issued to Charitable Foundation... 0.26 0.25 0.24 0.24
Less: Contributions to Charitable Foundation... (0.16) (0.15) (0.15) (0.14)
Plus: Tax benefit of contribution to Charitable
Foundation Less: Common Stock acquired by
ESOP (2)...................................... (0.37) (0.37) (0.37) (0.37)
Common Stock acquired by Stock Award Plan (3) (0.19) (0.19) (0.19) (0.19)
--------- -------- --------- ---------
Pro forma stockholders' equity per share (3)(4)(5) $ 13.50 $ 12.08 $ 11.01 $ 10.10
--------- -------- --------- ---------
--------- -------- --------- ---------
Number of shares used in calculating pro forma
stockholders' equity per share................ 1,584,009 1,863,540 2,143,071 2,464,532
--------- -------- --------- ---------
--------- -------- --------- ---------
Offering price to pro forma net income per share. 12.05x 13.89x 15.63x 17.86x
Offering price as a percentage of pro forma
stockholders' equity per share (6).............. 74.07% 82.78% 90.83% 99.01%
</TABLE>
28
<PAGE>
- ----------
(1) Does not give effect to the non-recurring expense that will be recognized
in 1998 as a result of the establishment of the Charitable Foundation. The
Company will recognize an after-tax expense for the amount of the
contribution to the Charitable Foundation which is expected to be $247,000,
$280,000, $313,000 and $350,000 at the minimum, midpoint, maximum and
adjusted maximum of the Estimated Valuation Range, respectively. Assuming
the contribution to the Charitable Foundation was incurred during the year
ended June 30, 1998, pro forma net income per share would be $0.67, $0.56,
$0.49 and $0.41 at the minimum, midpoint, maximum and adjusted maximum,
respectively. Per share net income data is based on 1,531,008, 1,801,185,
2,071,363 and 2,382,068 shares outstanding, which represents shares issued
in the Reorganization, shares contributed to the Charitable Foundation and
shares to be allocated or distributed under the ESOP and Stock Award Plan
for the period presented.
(2) It is assumed that 8% of the shares sold in the Offering will be purchased
by the ESOP. 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 total annual
payment of the ESOP debt is based upon ten equal annual installments of
principal, with an assumed interest rate at 8.5%. The pro forma net income
assumes: (i) that the Bank's contribution to the ESOP is equivalent to the
debt service requirement for the year ended June 30, 1998, and was made at
the end of the period; (ii) that 5,889, 6,928, 7,968 and 9,163 shares at
the minimum, midpoint, maximum and adjusted maximum of the Estimated
Valuation Range, respectively, were committed to be released during the
year ended June 30, 1998, at an average fair value of $10.00 per share in
accordance with Statement of Position ("SOP") 93-6; and (iii) only the ESOP
shares committed to be released were considered outstanding for purposes of
the net income per share calculations. See "Management of the Bank--Benefit
Plans--Employee Stock Ownership Plan and Trust."
(3) Gives effect to the restricted stock 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 of Common Stock sold in
the Offering, or 29,445, 34,641, 39,838 and 45,813 shares of Common Stock
at the minimum, midpoint, maximum and adjusted maximum of the Estimated
Valuation Range, respectively, either through open market purchases, if
permissible, or from authorized but unissued shares of Common Stock or
treasury stock of the Company, if any. Funds used by the restricted stock
plan to purchase the shares will be contributed to the plan by the Bank. In
calculating the pro forma effect of the restricted stock plan, it is
assumed that the shares were acquired by the restricted stock plan at the
beginning of the period presented in open market purchases at the
Subscription Price and that 20% of the amount contributed was an amortized
expense during such period. The issuance of authorized but unissued shares
of Common Stock to the Stock Award Plan instead of open market purchases
would dilute the voting interests of existing stockholders by approximately
1.9% and pro forma net income per share would be $0.81, $0.70, $0.62 and
$0.55 at the minimum, midpoint, maximum and adjusted maximum of the
Estimated Valuation Range, respectively, and pro forma stockholders' equity
per share would be $13.26, $11.86, $10.82 and $9.92 at the minimum,
midpoint, maximum and adjusted maximum of the Estimated Valuation Range,
respectively. There can be no assurance that the actual purchase price of
the shares granted under the restricted stock plan will be equal to the
Subscription Price. See "Management of the Bank--Benefit Plans--Recognition
and Retention Plan."
(4) 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. Under the Stock Option Plan, an amount
equal to 10% of the Common Stock sold in the Offering, or 73,613, 86,604,
99,594 and 114,533 shares at the minimum, midpoint, maximum and adjusted
maximum of the Estimated Valuation 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 of $10.00 per share, the pro forma net
income per share would be $0.78, $0.68, $0.60 and $0.53, respectively, and
the pro forma stockholders' equity per share would be $13.35, $11.99,
$10.98 and $10.10 respectively. See "Management of the Bank--Benefit
Plans--Stock Option Plan."
(5) The retained earnings of the Bank will continue to be substantially
restricted after the Offering. See "Dividend Policy," "The Reorganization
and Offering--Liquidation Rights" and "Regulation--New York Bank
Regulation."
(6) Stockholders' equity per share data is based upon 1,584,009, 1,863,540,
2,143,071 and 2,464,532 shares outstanding representing shares issued in
the Reorganization, shares purchased by the ESOP and restricted stock plan,
and shares contributed to the Charitable Foundation.
(7) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% as a result of regulatory considerations, demand for the shares, or
changes in market or general financial and economic conditions following
the commencement of the Offering.
29
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITHOUT FOUNDATION
In the event that the Charitable Foundation was not established as part of
the Reorganization, FinPro has estimated that the pro forma aggregate market
capitalization of the Company would be approximately $8.6 million at the
midpoint, which is approximately $35,000 less than the pro forma aggregate
market capitalization of the Company if the Charitable Foundation is included,
and would result in an approximately $331,000 decrease in the amount of Common
Stock offered for sale in the Reorganization. The pro forma price to book ratio
and pro forma price to earnings ratio would be approximately the same under both
the current appraisal and the estimate of the value of the Company without the
Charitable Foundation. Further, assuming the midpoint of the Estimated Valuation
Range, pro forma stockholders' equity per share and pro forma net income per
share would be substantially the same at $12.08 and $11.98, respectively, and
$0.72 and $0.71, respectively, with or without the Charitable Foundation. The
pro forma price to book ratio and the pro forma price to earnings ratio are
substantially the same with and without the Charitable Foundation at the
midpoint at 82.78% and 83.47%, respectively, and 13.89x and 14.08x,
respectively. There is no assurance that in the event the Charitable Foundation
was not formed that the appraisal prepared at the time would have concluded that
the pro forma market value of the Company would be the same as that estimated
herein. Any appraisals prepared at that time would be based on the facts and
circumstances existing at that time, including, among other things, market and
economic conditions.
For comparative purposes only, set forth below are certain pricing ratios
and financial data and ratios, at the minimum, midpoint, maximum and adjusted
maximum of the Estimated Valuation Range, assuming the Reorganization was
completed at June 30, 1998. The valuation amounts referred to in the table below
relate to the value of the shares sold to the depositors and the public,
excluding shares issued to the Mutual Company.
<TABLE>
<CAPTION>
Minimum Midpoint
-------------- --------------
With Without With Without
Foundation Foundation Foundation Foundation
---------- ---------- ------------ -----------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Estimated offering amount................................... $ 7,050 $ 7,332 $ 8,295 $ 8,626
Pro forma market capitalization............................. 7,361 7,332 8,661 8,626
Total assets................................................ 145,924 146,145 147,035 147,284
Total liabilities........................................... 124,523 124,523 124,523 124,523
Pro forma stockholders' equity.............................. 21,400 21,621 22,511 22,760
Pro forma net income........................................ 1,259 1,271 1,280 1,296
Pro forma stockholders' equity per share.................... 13.50 13.39 12.08 11.98
Pro forma net income per share.............................. 0.83 0.82 0.72 0.71
Pro forma pricing ratios:
Offering price as a percentage of pro forma stockholders'
equity per share........................................... 74.07% 74.68% 82.78% 83.47%
Offering price to pro forma net income per share (1)........ 12.05 12.20 13.89 14.08
Pro forma market capitalization to assets................... 10.85 11.05 12.68 12.90
Pro forma financial ratios:
Return on assets ........................................... 0.86 0.87 0.87 0.88
Return on equity............................................ 5.88 5.88 5.69 5.69
Equity to assets............................................ 14.67 14.79 15.31 15.45
</TABLE>
<TABLE>
<CAPTION>
Maximum Adjusted Maximum
------------- --------------------
With Without With Without
Foundation Foundation Foundation Foundation
----------- ----------- ---------- -----------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Estimated offering amount................................... $ 9,539 $ 9,920 $ 10,970 $ 11,408
Pro forma market capitalization............................. 9,960 9,920 11,454 11,408
Total assets................................................ 148,145 148,422 149,423 149,732
Total liabilities........................................... 124,523 124,523 124,523 124,523
Pro forma stockholders' equity.............................. 23,621 23,898 24,899 25,208
Pro forma net income........................................ 1,303 1,319 1,330 1,348
Pro forma stockholders' equity per share.................... 11.01 10.94 10.10 10.04
Pro forma net income per share.............................. 0.64 0.63 0.56 0.56
Pro forma pricing ratios:
Offering price as a percentage of pro forma stockholders'
equity per share........................................... 90.83% 91.41% 99.01% 99.60%
Offering price to pro forma net income per share (1)........ 15.63 15.87 17.86 17.86
Pro forma market capitalization to assets................... 14.47 14.72 16.50 16.78
Pro forma financial ratios:
Return on assets ........................................... 0.88 0.89 0.89 0.90
Return on equity............................................ 5.52 5.52 5.34 5.35
Equity to assets............................................ 15.94 16.10 16.66 16.84
</TABLE>
- ----------
(1) If the contribution to the Charitable Foundation had been incurred during
the year ended June 30, 1998, pro forma net income per share would have
been $0.67, $0.56, $0.49 and $0.41, and the offering price to pro forma net
income per share would have been 14.95 x, 17.70 x, 20.45 x, and 24.22 x at
the minimum, midpoint, maximum and adjusted maximum, respectively.
30
<PAGE>
PARTICIPATION BY MANAGEMENT
The following table sets forth information regarding intended Common Stock
purchases by each of the trustees and executive officers of the Bank and their
associates, and by all trustees and executive officers as a group. In the event
the individual maximum purchase limitation is increased, persons subscribing for
the maximum amount may increase their purchase order. This table excludes shares
to be purchased by the ESOP, as well as any Stock Award Plan awards or Stock
Option Plan grants that may be made no earlier than six months after the
completion of the Offering. See "Management of the Bank--Benefit
Plans--Recognition and Retention Plan" and "--Stock Option Plan." The trustees
and officers of the Bank have indicated their intention to purchase in the
Offering an aggregate of $ 1,092,000 of Common Stock, equal to 15.4%, 13.2%,
11.4%, and 10.0% of the number of shares to be issued in the Offering, at the
minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation
Range, respectively.
<TABLE>
<CAPTION>
Aggregate Number Percent of
Purchase of Shares Sold at
Name Position Price(1) Shares(1) Midpoint
- ------- ------------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Walter H. Ingalls Chairman of the Board $ 10,000 1,000 .12%
J. Bruce Whittaker President, Chief Executive 100,000 10,000 1.21
Officer and Director
Bruce P. Egger Vice President and Secretary 20,000 2,000 .24
Edmund L. Smith, Jr. Vice President and Treasurer 40,000 4,000 .48
Daniel T. Sager Vice President--Lending 5,000 500 .06
Richard J. Buck Trustee 50,000 5,000 .60
Anthony Camera, Jr. Trustee 50,000 5,000 .60
David H. Jenkins, DVM Trustee 100,000 10,000 1.21
Raphael Klein Trustee 200,000 20,000 2.42
Dennis R. O'Grady Trustee 200,000 20,000 2.42
Paul Slutzky Trustee 117,000 11,700 1.41
Martin C. Smith Trustee 200,000 20,000 2.42
All trustees and executive officers
as a group (12 persons) $ 1,092,000 109,200 13.17%
</TABLE>
- ----------
(1) Includes purchases by associates.
THE REORGANIZATION AND OFFERING
The Superintendent has approved the Plan of Reorganization and the Offering
of the Common Stock subject to the approval of the Bank's depositors and the
satisfaction of certain conditions imposed by the Superintendent. However, such
approval does not constitute a recommendation or endorsement of the Offering or
the Plan by the Superintendent.
Description of and Reasons for the Reorganization
The Board of Trustees unanimously adopted the Plan of Reorganization and the
Superintendent has approved the Plan of Reorganization. Pursuant to the Plan of
Reorganization, the Bank will reorganize into a "two-tier" mutual holding
company structure. The two-tier structure has two levels of holding companies--a
"mid-tier" stock holding company and a "top-tier" mutual holding company. Under
the terms of the Plan of Reorganization (i) the Bank will form the Company as a
Delaware corporation; (ii) the Bank will form the Mutual Company as a New York
mutual holding company; (iii) the Bank will reorganize into a capital stock form
of organization and issue its common stock to the Mutual Company; (iv) the
Mutual Company will contribute the common stock of the Bank to the Company; and
(v) the Company will issue shares of Common Stock to the public and the Mutual
Company. The number of shares of Common Stock sold to depositors and the public
pursuant to this Prospectus will be equal to 44.5% of the shares issued in the
Offering, and the number of shares issued to the Mutual Company will be equal to
53.5% of the shares issued in the Offering. In addition, the Company will issue
2.0% of the shares to be outstanding to a newly established
31
<PAGE>
Charitable Foundation. The two-tier mutual holding company structure is most
easily understood by considering the following schematic:
-------------------------------------------------
The Mutual Company Public
(a New York mutual Stockholders
holding company) (including the
Charitable
Foundation)
-------------------------------------------------
53.5% of the 46.5% of the
Common Common
Stock Stock
-------------------------------------------------
The Company (a Delaware corporation)
-------------------------------------------------
100% of the
Common Stock
-------------------------------------------------
The Bank
(a New York stock savings bank)
-------------------------------------------------
In adopting the Plan of Reorganization, the Board of Trustees 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, employees, management and trustees to
obtain an 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 a mutual savings bank. Since the Company is not offering all of its Common
Stock for sale to depositors and the public in the Offering (but is issuing a
majority of its stock to the Mutual Company), 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 the stock held by the Mutual Company will be available
for sale in the future in the event the Mutual Company converts to the capital
stock form of organization or the Company undertakes an incremental stock
offering. See "Regulation-Holding Company Regulation-Mutual Company Regulation."
The Reorganization will also give the Company 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 management 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 offering it broader
investment opportunities through the holding company structure, and by enabling
the Company to distribute capital to stockholders in the form of dividends.
Because only a minority of the Common Stock will be offered for sale in the
Offering, the Bank's current mutual form of ownership and its ability to remain
an independent bank and to provide community-oriented financial services will be
preserved through the mutual holding company structure.
The Board of Trustees believes that these advantages outweigh the potential
disadvantages of the mutual holding company structure, which may include: (i)
the inability of stockholders other than the Mutual Company to obtain majority
ownership of the Company and the Bank, which may result in the perpetuation of
the management and board of directors of the Bank and the Company; and (ii) that
the mutual holding company structure is a relatively new form
32
<PAGE>
of corporate ownership, and new regulatory policies relating to the mutual
interest in the Mutual Company that may be adopted from time-to-time may have an
adverse impact on Minority Stockholders. A majority of the voting stock of the
Company will be owned by the Mutual Company, which is a mutual institution that
will be controlled by the existing Board of Trustees of the Bank. While this
structure will better permit management to focus on the Company's and the Bank's
long-term business strategy for growth and capital redeployment without
short-term pressure from stockholders, it will also serve to perpetuate the
existing management and trustees of the Bank. The Mutual Company will be able to
elect all members of the board of directors of the Company, and will be able to
control the outcome of all matters presented to the stockholders of the Company
for resolution by vote, except for certain matters 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. For example, the Company could revise the dividend policy or
defeat a candidate for the board of directors of the Bank or other proposals put
forth by the Minority Stockholders.
The Reorganization does not preclude the conversion of the Mutual Company
from the mutual to stock form of organization which would be effected through a
merger of the Mutual Company into the Company or the Bank and the concurrent
sale of the shares held by the Mutual Company in a subscription offering. A
conversion of the Mutual Company from the mutual to stock form of organization
is not anticipated for the foreseeable future.
Following the completion of the Reorganization, all depositors who had
liquidation rights with respect to the Bank as of the effective date of the
Reorganization will continue to have such rights solely with respect to the
Mutual Company so long as they continue to hold deposit accounts with the Bank.
In addition, all persons who become depositors of the Bank subsequent to the
Reorganization will have such liquidation rights with respect to the Mutual
Company. Borrowers currently do not have ownership or voting rights in the Bank
and will not receive ownership or voting rights with respect to the Mutual
Company.
All insured deposit accounts of the Bank will continue to be federally
insured by the FDIC and the BIF 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 New York law. As
long as the Mutual Company is in existence, the Mutual Company will be required
to own at least 51% of the voting stock of the Company, and the Company will own
100% of the voting stock of the Bank. The Bank and the Company may issue any
amount of non-voting stock or debt to persons other than the Mutual Company.
The Offering
The Company is offering shares of Common Stock to persons other than the
Mutual Company. An offering of between 705,039 and 953,877 shares of the
Common Stock (subject to adjustment to up to 1,096,958) pursuant to this
Prospectus will be conducted concurrently with the Reorganization. The shares
of Common Stock that will be sold in the Offering will constitute no more
than 44.5% of the shares that will be outstanding after 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 Company, without prior approval of the holders of the
Common Stock.
The shares of Common Stock are being offered for sale at a fixed
Subscription Price of $10.00 per share in the subscription offering pursuant to
subscription rights (the "Subscription Offering") in the following order of
priority to: (i) holders of deposit accounts with a balance of $100 or more on
June 30, 1997 ("Eligible Account Holders"); (ii) the Bank's tax-qualified
employee plans, including the ESOP; (iii) depositors whose accounts in the Bank
totaled $100 or more on September 30, 1998 ("Supplemental Eligible Account
Holders"); and (iv) employees, officers and trustees of the Bank. Concurrently,
and subject to the prior rights of holders of subscription rights, any shares of
Common Stock not subscribed for in the Subscription Offering are being offered
in the Community Offering at $10.00 per share to certain members of the general
public, with a preference first given to natural persons residing in Greene
County, New York (the "Community Offering"). Subscription rights will expire if
not exercised by 12:00 noon, New York time, on December 17, 1998 unless extended
by the Bank and the Company.
33
<PAGE>
Stock Pricing and Number of Shares to be Issued
The Plan of Reorganization and federal and state regulations require
that the aggregate purchase price of the Common Stock sold in the Offering
must be based on the appraised pro forma market value of the Common Stock, as
determined by an independent valuation (the "Independent Valuation"). The
Bank has retained FinPro to make such valuation and FinPro will receive a fee
of $25,000 for its services. The Bank and the Company have agreed to
indemnify FinPro 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 FinPro's
liability results from its negligence or bad faith.
The Independent Valuation was prepared by FinPro in reliance upon the
information contained in this Prospectus, including the Financial Statements.
FinPro 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 market 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 subsidiaries of mutual holding companies;
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 Independent Valuation states that as of October 7, 1998, the
estimated pro forma market value of the Common Stock ranged from a minimum of
$15.8 million to a maximum of $21.4 million, with a midpoint of $18.6 million
(the "Estimated Valuation Range"). The board determined to offer the shares
in the Offering at the Subscription Price of $10.00 per share, the price most
commonly used in stock offerings involving mutual-to-stock conversions. Based
on the Estimated Valuation Range and the Subscription Price of $10.00 per
share, the number of shares of Common Stock that the Company will issue will
range from 1,584,009 shares to 2,143,072 shares, with a midpoint of 1,863,540
shares. The board determined to offer 44.5% of such shares, or between
705,039 shares and 953,877 shares with a midpoint of 829,458 shares (the
"Offering Range"), to depositors and the public pursuant to this Prospectus.
In addition, up to 42,066 shares are being issued to the Charitable
Foundation as part of the Reorganization, which will result in Minority
Stockholders owning 46.5% of the shares of the Common Stock outstanding at
the conclusion of the Reorganization. The 53.5% of the shares of the
Company's Common Stock that are not sold in the Offering or contributed to
the Charitable Foundation will be issued to the Mutual Company.
The board reviewed the Independent Valuation and, in particular,
considered (i) the Bank's financial condition and results of operations for
the year ended June 30, 1998, (ii) financial comparisons of the Bank in
relation to other financial institutions primarily including other publicly
traded subsidiaries of mutual holding companies, 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 FinPro in preparing the
Independent Valuation. The Estimated Valuation Range may be amended with the
approval of the Superintendent and the FDIC (if required), if necessitated by
subsequent developments in the financial condition of the Bank or market
conditions generally.
Following commencement of the Subscription Offering, the maximum of the
Estimated Valuation Range may be increased by up to 15%, to up to $24.6
million, which will result in a corresponding increase in the maximum of the
Offering Range to up to 1,096,958 shares to reflect changes in market and
financial conditions, without the resolicitation of subscribers (in which
event up to 48,376 shares may be issued to the Charitable Foundation). 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.
The Independent Valuation, however, is not intended, and must not be
construed, as a recommendation of any kind as to the advisability of
purchasing shares. FinPro did not independently verify the Financial
Statements and other information provided by the Bank, nor did FinPro 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
34
<PAGE>
time, no assurance can be given that persons purchasing 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 $24.6 million and a corresponding increase in
the Offering Range to more than 1,096,958 shares, or a decrease in the
minimum of the Estimated Valuation Range to less than $15.8 million and a
corresponding decrease in the Offering Range to fewer than 705,039 shares,
then the Company, after consulting with the Superintendent and the FDIC, may
terminate the Plan of Reorganization and return all funds promptly, with
interest on payments made by check, certified or teller's check, bank draft
or money order, extend or hold a new Subscription Offering, Community
Offering, or both, establish a new Offering Range, commence a resolicitation
of subscribers or take such other actions as permitted by the Superintendent
and the FDIC in order to complete the Reorganization and the Offering. In the
event that a resolicitation is commenced, unless an affirmative response is
received within a reasonable period of time, all funds will be promptly
returned to investors 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 Superintendent and the FDIC for
periods of up to 90 days not to extend beyond 24 months following approval
of the Plan of Reorganization by the Superintendent. If the minimum number of
shares to be sold in the Offering ( 705,039 shares) is not sold by December
17, 1998, the Bank may (i) terminate the Offering and promptly refund all
payments for Common Stock, including interest on such payments, at the Bank's
passbook rate of ___%; or (ii) extend the Offering for an additional 45 days
or, if approved by the Superintendent, for an additional period after such
45-day extension.
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 stockholder's
equity on a per share basis while decreasing pro forma net income and
stockholder's equity on an aggregate basis. For a presentation of the effects
of such changes, see "Pro Forma Data."
Copies of the appraisal report of FinPro and the detailed memorandum of
the appraiser setting forth the method and assumptions for such appraisal are
available for inspection at each 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, FinPro confirms to the Bank and the Superintendent that,
to the best of its knowledge, nothing of a material nature has occurred that,
taking into account all relevant factors, would cause FinPro to conclude that
the Independent Valuation is incompatible with its estimate of 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 Superintendent's approval. If such confirmation is not
received, the Bank may extend the Offering, reopen or commence a new
offering, establish a new Estimated Valuation Range and commence a
resolicitation of all purchasers with the approval of the Superintendent or
take such other actions as permitted by the Superintendent in order to
complete the Offering.
Purchase Priorities and Method of Offering Shares
The Bank shall have the right, in its sole discretion, to determine
whether prospective purchasers are "residents," "associates," or "acting in
concert" as defined by the Plan of Reorganization and in interpreting any and
all other provisions of the Plan of Reorganization. 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.
Subject to the preceding paragraph and 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 Eligible Account Holder shall
be given the opportunity to purchase up to 10,000 shares, or $100,000, of
Common Stock; provided that the Company may, in its sole discretion and
without further notice to or solicitation of subscribers or other prospective
purchasers, increase such maximum purchase limitation to up to 5% of the
maximum number of shares issued in the Offering, subject to the overall
purchase limitation set forth in the section herein titled "Limitations upon
Purchases of Common Stock." If there are insufficient
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shares available to satisfy all subscriptions of Eligible Account Holders,
shares will be allocated to Eligible Account Holders so as to permit each
subscribing Eligible Account Holder to purchase a number of shares sufficient
to make his total allocation equal to 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 subscriber's
aggregate deposit account balances as of the Eligibility Record Date
("Qualifying Deposits") bears to the total amount of Qualifying Deposits of
all subscribing Eligible Account Holders whose subscriptions remain unfilled.
Subscription rights to purchase Common Stock received by executive officers
and trustees of the Bank, including associates of executive officers and
trustees, based on their increased deposits in the Bank in the one year
preceding the Eligibility Record Date, shall be subordinated to the
subscription rights of other Eligible Account Holders. To ensure proper
allocation of stock, each Eligible Account Holder must list on their
subscription order form all deposit accounts in which they had an ownership
interest as of the Eligibility Record Date.
Priority 2: Tax-Qualified Employee Plans. The Tax-Qualified Employee
Plans, including the ESOP and the Bank's Employees' Savings & Profit Sharing
Plan and Trust, shall be given the opportunity to purchase in the aggregate
up to 10% of the Common Stock issued in the Offering. The ESOP intends to
purchase up to 8% of the Minority Ownership Interest. In the event of an
oversubscription in the Offering, subscriptions for shares by the
Tax-Qualified Employee Plans may be satisfied, in whole or in part, through
open market purchases by the Tax-Qualified Employee Plans subsequent to the
closing of the Offering.
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 10,000 shares, or $100,000, of Common Stock; provided that the Company
may, in its sole discretion and without further notice to or solicitation of
subscribers or other prospective purchasers, increase such maximum purchase
limitation to up to 5% of the maximum number of shares issued in the
Offering, subject to the overall purchase limitations set forth in the
section herein titled "Limitations Upon Purchases of Common Stock." In the
event Supplemental Eligible Account Holders subscribe for a number of shares
which, when added to the shares subscribed for by Eligible Account Holders
and the Tax-Qualified Employee Plans, exceed available shares, the shares of
Common Stock will be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each subscribing Supplemental Eligible
Account Holder to purchase a number of shares sufficient to make their total
allocation equal to the lesser of 100 shares or the number of shares
subscribed for. Thereafter, unallocated shares will be allocated to each
subscribing Supplemental Eligible Account Holder whose subscription remains
unfilled in the same proportion that such subscriber's aggregate deposit
account balances as of the Supplemental Eligibility Record Date
("Supplemental Qualifying Deposits") bear to the total amount of Supplemental
Qualifying Deposits of all subscribing Supplemental Eligible Account Holders
whose subscriptions remain unfilled.
Priority 4: Employees, Officers and Trustees. Employees, officers and
trustees of the Bank will receive, without cost to them, nontransferable
subscription rights to subscribe for up to 10,000 shares or $100,000 of the
Common Stock; provided, that the Company may, in its sole discretion and
without further notice to or solicitation of subscribers or other prospective
purchasers, increase such purchase limitation to 5% of the maximum number of
shares issued in the Offering, subject to the overall purchase limitations
set forth in the section herein titled "Limitations upon Purchases of Stock."
If sufficient shares are not available in this priority, shares will be
allocated among trustees, officers and employees on a pro rata basis based on
the size of each person's order.
Community Offering
Any shares of Common Stock not subscribed for in the Subscription
Offering will be offered for sale in a Community Offering. This will involve
an offering of all unsubscribed shares directly to the general public. The
Community Offering, if any, shall be for a period of not more than 45 days
unless extended by the Company and the Bank, and will commence concurrently
with, during or promptly after the Subscription Offering. The Common Stock
will be offered and sold in the Community Offering, in accordance with FDIC
and Department 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 10,000
shares of Common Stock offered in the Community Offering. Further, the
Company may limit total orders in the Community Offering so as to assure that
the number of shares available for the Syndicated Community Offering may be up
to a specified percentage of the number of shares of Common Stock. Finally, 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 will be allocated (to the extent shares remain available) first to
natural persons residing in Greene County, New York (the "Community").
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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. The Bank may use deposit or loan records or such
other evidence provided to it to make a determination as to whether a person
is a resident. In all cases, however, such a determination shall be in the
sole discretion of the Bank.
The Bank and the Company, in their sole discretion, may reject
subscriptions, in whole or in part, received from any person in the Community
Offering.
Syndicated Community Offering
Any shares of Common Stock not sold in the Subscription Offering or in
the Community Offering, if any, may be offered for sale to the general public
by a selling group of broker-dealers in a Syndicated Community Offering,
subject to terms, conditions and procedures as may be determined by the Bank
and the Company in a manner that is intended to achieve the widest
distribution of the Common Stock, subject to the rights of the Company to
accept or reject in whole or in part any order in the Syndicated Community
Offering. It is expected that the Syndicated Community Offering, if any, will
begin as soon as practicable after termination of the Subscription Offering
and the Community Offering, if any. The Syndicated Community Offering shall
be completed within 45 days after the termination of the Subscription
Offering, unless such period is extended as provided herein.
If for any reason a Syndicated Community Offering of unsubscribed shares
of Common Stock cannot be effected and any shares remain unsold after the
Subscription Offering and the Community Offering, if any, the boards of
directors of the Company and the Bank will seek to make other arrangements
for the sale of the remaining shares. Such other arrangements will be subject
to the approval of the Department and the FDIC and to compliance with
applicable state and federal securities laws.
Restrictions on Sale of Stock by Trustees and Officers
All shares of the Common Stock purchased by trustees and officers of the
Bank 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."
Each certificate for 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 Agreements or Understandings Regarding Transfer of Common
Stock to be Purchased in the Offering
Prior to the completion of the Offering, no depositor or borrower 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 and borrower 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 of Common Stock
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To ensure that each purchaser receives a Prospectus at least 48 hours
before the Expiration Date, Prospectuses may not be mailed any later than
five days prior to such date or be hand delivered any later than two days
prior to such date. Order forms may only be distributed with a Prospectus.
Expiration Date. The Offering will terminate at 12:00 noon, New York
time on December 17, 1998, unless extended by the Bank for up to an
additional 45 days or, if approved by the Superintendent, 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 January 29, 1999, in which event
purchasers will be given the right to increase, decrease, confirm, or rescind
their orders. If the minimum number of shares sold in the Offering (705,039
shares) is not sold by the Expiration Date, the Bank may terminate the
Offering and promptly refund all orders for Common Stock. A reduction in the
number of shares below the minimum of the Estimated Valuation Range will not
require the approval of depositors or an amendment to the Independent
Valuation. If the number of shares is reduced below the minimum of the
Estimated Valuation Range, purchasers will be given an opportunity to
increase, decrease, or rescind their orders.
Use of Order Forms. In order to purchase the Common Stock, each
purchaser must complete an Order Form except for certain persons purchasing
in the Syndicated Community Offering as more fully described below. Any
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 12:00 noon, New York time on
December 17, 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 of Order Forms.
The Order Form includes a certification in which subscribers acknowledge
(i) that the Common Stock is not a deposit or savings account that is
federally insured or otherwise guaranteed by the Bank, the Company or the
federal government and (ii) that the subscribers received a copy of this
Prospectus describing the nature of the Common Stock and the risks involved
in an investment in the Common Stock, including the "Risk Factors" described
in this Prospectus. The certification is required by federal regulation and is
intended to ensure that subscribers are aware of the Risk Factors before
making an investment decision. However, signing the Order Form and
certification will not result in investors waiving their rights under the
Securities Act of 1933.
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 a deposit account maintained with the Bank. Third party checks may not
be accepted as payment for a subscriber's order. Appropriate means by which
such withdrawals may be authorized are provided in the order forms. Once such
a withdrawal amount has been authorized, a hold will be placed on such funds,
making them unavailable to the depositor until the Offering has been
completed or terminated. In the case of payments authorized to be made
through withdrawal from deposit accounts, all funds authorized for withdrawal
will continue to earn interest at the contract rate until the Offering is
completed or terminated. Interest penalties for early withdrawal applicable
to certificate of deposit accounts will not apply to withdrawals authorized
for the purchase of shares; however, if a withdrawal results in a certificate
of deposit account with a balance less than the applicable minimum balance
requirement, the certificate of deposit 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. Payments made by check
or money order will be placed in a segregated escrow account and will be paid
interest at the Bank's passbook rate of ____% (calculated using the simple
interest method), from the date payment is received until the Offering is
completed or terminated. Such interest will be paid by check, on all funds
held, including funds accepted as payment for shares of Common Stock,
promptly following 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 January 29, 1999, in which event purchasers may be given the
opportunity to increase, decrease, confirm or rescind their orders for a
specified period of time.
Depending on market conditions, the Common Stock may be offered for sale
to the general public on a best efforts basis in a Syndicated Community
Offering by a selling group of broker-dealers to be managed by Friedman,
Billings, Ramsey Co., Inc. In its discretion, Friedman, Billings, Ramsey &
Co., Inc. will instruct selected broker-dealers as to the number of shares to
be allocated to each selected broker-dealer. Only upon allocation of shares
to selected broker-dealers may they take orders from their customers.
Investors who desire to purchase shares in the Community Offering directly
through a selected broker-dealer, which may include Friedman, Billings,
Ramsey & Co., Inc., will be advised that the members of the selling group are
required either (a) upon receipt of an executed order form or direction to
execute an order form on behalf of an investor, to forward the appropriate
purchase price to the Bank for deposit in a segregated account on or before
twelve noon, prevailing time, of the business day next following such receipt
or execution; or (b) upon receipt of confirmation by such member of the
selling group of an investor's interest in purchasing shares, and following a
mailing of an acknowledgment by such member to such investor on the business
day next following receipt of confirmation, to debit the account of such
investor on the fifth business day next following
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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. Payment
for any shares purchased pursuant to alternative (a) above must be made by
check in full payment of the purchase price. Payment for shares purchased
pursuant to alternative (b) above may be made by wire transfer to the Bank.
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
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 Center as soon as possible so that the necessary forms may
be forwarded for execution prior to the Expiration Date.
If the ESOP purchases shares of the Common Stock, such plan will not be
required to pay for such shares until consummation of the Offering.
Delivery of Stock Certificates. Certificates representing Common Stock
issued in the Offering will be mailed by the Bank to the persons entitled
thereto at the registered address noted on the order form, as soon as
practicable following consummation of the Offering. Any certificates returned
as undeliverable will be held by the Bank until claimed by persons legally
entitled thereto or otherwise disposed of in accordance with applicable law.
Until certificates for the Common Stock are available and delivered to
purchasers, purchasers may not be able to sell the shares of stock which they
ordered.
Plan of Distribution and Selling Commissions
To assist in the marketing of the Common Stock, the Bank has retained
Friedman, Billings, Ramsey & Co., Inc., a broker-dealer registered with the
National Association of Securities Dealers, Inc. ("NASD"). Friedman,
Billings, Ramsey & Co., Inc. 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) in
soliciting orders for Common Stock. For these services, Friedman, Billings,
Ramsey & Co., Inc. will receive a fixed fee of $110,000. If there is a
Syndicated Community Offering, the fixed fee will be a negotiated percentage
of the value of the Common Stock sold by Friedman, Billings, Ramsey & Co.,
Inc. and other NASD member firms under selected broker-dealer agreements.
The Bank also will reimburse Friedman, Billings, Ramsey & Co., Inc. for
its reasonable out-of-pocket expenses associated with its marketing effort,
up to a maximum of $40,000 (including legal fees and expenses ). The Bank has
made an advance payment of $12,500 to Friedman, Billings, Ramsey & Co., Inc.
If the Plan of Reorganization is terminated by the Bank, if the Offering is
not completed by January 29, 1999, or if Friedman, Billings, Ramsey & Co.,
Inc. terminates its agreement with the Bank in accordance with the provisions
of the agreement, Friedman, Billings, Ramsey & Co., Inc. will only receive
reimbursement of its reasonable out-of-pocket expenses. The Bank will
indemnify Friedman, Billings, Ramsey & Co., Inc. against liabilities and
expenses (including legal fees) incurred in connection with certain claims or
litigation arising out of or based upon untrue statements or omissions
contained in the offering material for the Common Stock, including
liabilities under the Securities Act of 1933.
Trustees and executive officers of the Bank may participate in the
solicitation of offers to purchase Common Stock. Other trained employees of
the Bank may participate in the Offering in ministerial capacities, providing
clerical work in effecting a sales transaction or answering questions of a
ministerial nature. Other questions of prospective purchasers will be
directed to executive officers or registered representatives. The Bank will
rely on Rule 3a4-1 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), so as to permit officers, trustees, and employees to
participate in the sale of the Common Stock. No officer, trustee, or employee
of the Bank will be compensated for his participation by the payment of
commissions or other remuneration based either directly or indirectly on the
transactions in the Common Stock.
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A Stock Center will be established at a location adjacent to the Bank's
main office. Employees will inform prospective purchasers to direct their
questions to the Stock Center and will provide such persons with the
telephone number of the Center.
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 of
Reorganization.
A. The aggregate amount of outstanding Common Stock of the Company
owned or controlled by persons other than Mutual Company at the
close of the Offering shall not exceed 49% of the Company's total
outstanding Common Stock.
B. No person or group of persons acting in concert, together with their
associates, may purchase more than 20,000 shares, or $200,000, of
Common Stock in the Offering, except that: (i) the Company may, in
its sole discretion and without further notice to or solicitation
of subscribers or other prospective purchasers, increase such maximum
purchase limitation to up to 5% of the number of shares sold in the
Offering; (ii) Tax-Qualified Employee Plans may purchase up to 10%
of the shares sold in the Offering; and (iii) for purposes of this
paragraph shares to be held by any Tax-Qualified Employee Plan and
attributable to a person shall not be aggregated with other shares
purchased directly by or otherwise attributable to such person.
C. The aggregate amount of Common Stock acquired in the Offering by all
management persons and their associates, exclusive of any stock
acquired by such persons in the secondary market, shall not exceed
25% of the outstanding shares of Common Stock of the Company held by
persons other than the Mutual Company at the close of the Offering.
In calculating the number of shares held by management persons and
their associates under this paragraph or under the provisions of
paragraph C below, shares held by any Tax-Qualified Employee Benefit
Plan or any Non-Tax-Qualified Employee Benefit Plan of the Bank that
are attributable to such persons shall not be counted.
D. Notwithstanding any other provision of the Plan of Reorganization,
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.
E. 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 of Reorganization.
F. The Company will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons
entitled to subscribe for Common Stock pursuant to the Plan of
Reorganization reside. However, the Company and the Bank are not
required to offer Common Stock to any person who resides in a
foreign country.
Establishment of the Charitable Foundation
General. In furtherance of the Bank's commitment to the communities that
it serves, the Bank intends to establish a Charitable Foundation in
connection with the Reorganization. The Plan of Reorganization provides that
the Bank and the Company may establish the Charitable Foundation, which will
be incorporated under Delaware law as a non-stock corporation and will be
funded with cash and shares of Common Stock contributed by the Company. The
Bank will contribute to the Charitable Foundation 2% of the shares of Common
Stock to be issued in the Reorganization or 31,092, 36,579, 42,066 and 48,376
shares at the minimum, midpoint, maximum and adjusted maximum of the Offering
range and $100,000 in cash. The contribution of Common Stock to the
Charitable Foundation
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will be dilutive to the interests of stockholders and will have an adverse
impact on the reported earnings of the Company in the year in which the
Charitable Foundation is established.
Purpose of the Charitable Foundation. The purpose of the Charitable
Foundation is to provide funding to support charitable causes and community
development activities. Historically, the Bank has emphasized community
lending and development activities within the communities that it services,
and the Charitable Foundation is being formed as a complement to the Bank's
existing community activities. Management believes the establishment of a
Charitable Foundation is consistent with the Bank's commitment to community
service. Funding of the Charitable Foundation with Common Stock of the
Company also may be a means of enabling the communities served by the Bank to
share in the growth and success of the Company. The Charitable Foundation
will also enable the Company and the Bank to develop a unified charitable
donation strategy and will centralize the responsibility for administration
and allocation of corporate charitable funds. Charitable foundations have
been formed by other financial institutions for this purpose, among others.
The contribution to the Charitable Foundation will not take the place of the
Bank's traditional community lending activities.
Structure of the Charitable Foundation. The Charitable Foundation will
be incorporated under Delaware law as a non-stock corporation. Pursuant to
the Charitable Foundation's Bylaws, the Charitable Foundation's initial board
of directors will consist of persons who are existing directors and officers
of the Company. Subsequent to the Reorganization, other individuals may be
appointed to the Board, including individuals not affiliated with the Bank or
the Company. The members of the Charitable Foundation, who are comprised of
its board members, will elect the directors at the annual meeting of the
Charitable Foundation from those nominated by the nominating committee. Only
persons serving as directors of the Charitable Foundation qualify as members
of the Charitable Foundation, with voting authority. Directors will be
divided into three classes with each class appointed for three-year terms.
The certificate of incorporation of the Charitable Foundation provides that
the corporation is organized exclusively for charitable purposes, including
community development, as set forth in Section 501(c)(3) of the Internal
Revenue Code of 1986 (the "Code"). The Charitable Foundation's certificate of
incorporation further provides that no part of the net earnings of the
Charitable Foundation will inure to the benefit of, or be distributable to,
its directors, officers or members.
The authority for the affairs of the Charitable Foundation will be
vested in its board of directors which will be responsible for establishing
the policies of the Charitable Foundation with respect to grants or donations
consistent with the purpose for which the Charitable Foundation was
established. Although no formal policy governing Charitable Foundation grants
exists at this time, the Charitable Foundation's board of directors will
adopt such a policy upon establishment of the Charitable Foundation. As
directors of a nonprofit corporation, directors of the Charitable Foundation
will at all times be bound by their fiduciary duty to advance the Charitable
Foundation's charitable goals, to protect the assets of the Charitable
Foundation and to act in a manner consistent with the charitable purpose for
which the Charitable Foundation is established. The directors of the
Charitable Foundation also will be responsible for directing the activities
and managing the assets of the Charitable Foundation. However, as a condition
to issuing their non-objection to the Reorganization, the FDIC and the
Department have required the Charitable Foundation to commit that all shares
of Common Stock held by the Charitable Foundation will be voted in the same
ratio as all other shares of the Company's Common Stock (other than shares
held by the Mutual Company) on all proposals considered by stockholders of
the Company; provided, however, that, consistent with such condition, the
FDIC and the Department would waive this voting restriction under certain
circumstances (and subject to certain additional conditions) if compliance
with the voting restriction would: (i) cause a violation of the law of the
State of Delaware; (ii) cause the Charitable Foundation to lose its
tax-exempt status, or cause the Internal Revenue Service (the "IRS") to deny
the Charitable Foundation's request for a determination that it is an exempt
organization or otherwise have a material and adverse tax consequence on the
Charitable Foundation; or (iii) cause the Charitable Foundation to be subject
to an excise tax under Section 4941 of the Code. In order for the FDIC and
the Department to waive such voting restriction, the Company's or the
Charitable Foundation's legal counsel would be required to render an opinion
satisfactory to the FDIC and the Department that compliance with the voting
requirement would have the effect described in clauses (i), (ii) or (iii)
above. Under those circumstances, the FDIC and the Department would grant
waivers of the voting restriction upon submission of such legal opinion(s) by
the Company or the Charitable Foundation that are satisfactory to the FDIC
and the Department. In the event that the FDIC and the Department were to
waive the voting requirement, the directors would direct the voting of the
Common Stock held by the Charitable Foundation.
The Charitable Foundation's place of business will be located at the
Bank's administrative offices and initially the Charitable Foundation is
expected to have no employees but will utilize the members of the staff of
the Company or the Bank. The board of directors of the Charitable Foundation
will appoint such officers as may be necessary to
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manage the operation of the Charitable Foundation. In this regard, it is
expected that the Bank will be required to provide the FDIC with a commitment
that, to the extent applicable, the Bank will comply with the affiliate
restrictions set forth in Sections 23A and 23B of the Federal Reserve Act
with respect to any transactions between the Bank and the Charitable
Foundation.
Under Section 501(c)(3) of the Code, the Charitable Foundation will be
required to distribute annually in grants or donations, a minimum of 5% of
the average fair market value of its net investment assets. One of the
conditions imposed on the gift of Common Stock by the Company is that the
amount of Common Stock that may be sold by the Charitable Foundation in any
one year shall not exceed 5% of the average market value of the assets held
by the Charitable Foundation, except where the board of directors of the
Charitable Foundation determines that the failure to sell an amount of Common
Stock greater than such amount would result in a longer-term reduction of the
value of the Charitable Foundation's assets and as such would jeopardize the
Charitable Foundation's capacity to carry out its charitable purposes. Upon
completion of the Reorganization and the contribution of shares to the
Charitable Foundation, the Company would have 1,584,009, 1,863,540 and
2,143,072 shares issued and outstanding at the minimum, midpoint and maximum
of the Estimated Valuation Range. Because the Company will have an increased
number of shares outstanding, the voting and ownership interests of
stockholders in the Company's Common Stock would be diluted by 2%, as
compared to their interests in the Company if the Charitable Foundation was
not established. For additional discussion of the dilutive effect, see "Pro
Forma Data."
Impact on Earnings. The contribution of cash and Common Stock to the
Charitable Foundation will have an adverse impact on the Company's and the
Bank's earnings in the year in which the contribution is made. The Company
will recognize the full expense in the amount of the contribution of cash and
Common Stock to the Charitable Foundation in the quarter in which it occurs,
which is expected to be the quarter ending December 31, 1998. The aggregate
amount of the contribution will range from $410,920 to $520,660, based on the
minimum and maximum of the Estimated Valuation Range, respectively (or up to
$583,760 at the adjusted maximum of the Estimated Valuation Range). The
number of shares to be contributed to the Charitable Foundation will range
from 31,092 to 42,066, and the amount of cash to be contributed will be fixed
at $100,000. The contribution expense will be partially offset by the tax
benefit related to the expense. The Company and the Bank have been advised by
their independent tax advisors that the contribution to the Charitable
Foundation will be tax deductible, subject to an annual limitation based on
10% of the Company's annual taxable income. Assuming an aggregate
contribution of $520,660 (based on the maximum of the Estimated Valuation
Range), the Company estimates a net tax effected expense of $312,400 (based
upon a 40% tax rate). Management cannot predict earnings for the fiscal year
ending June 30, 1999, but expects that the establishment and funding of the
Charitable Foundation will have an adverse impact on the Company's earnings
for the year. In addition to the contribution to the Charitable Foundation,
the Bank or the Mutual Company may continue making grants and contributions
to the community that would not be permitted for the Charitable Foundation.
Tax Considerations. The Company and the Bank have been advised by their
independent tax advisors that an organization created for the above purposes
would qualify as a Section 501(c)(3) exempt organization under the Code, and
would be classified as a private Charitable Foundation. The Charitable
Foundation will submit a request to the IRS to be recognized as an exempt
organization. The Company and the Bank have received an opinion of their
independent tax advisors that the Charitable Foundation would qualify as a
Section 501(c)(3) exempt organization under the Code, except that such
opinion does not consider the impact of the condition to be agreed to by the
Charitable Foundation that Common Stock issued to the Charitable Foundation
be voted in the same ratio as all other shares of the Company's Common Stock
(other than shares held by the Mutual Company) on all proposals considered by
stockholders of the Company. Consistent with this condition, in the event
that the Company or the Charitable Foundation receives an opinion of their
legal counsel that compliance with the voting restriction would have the
effect of causing the Charitable Foundation to lose its tax-exempt status, or
otherwise have a material and adverse tax consequence on the Charitable
Foundation or subject the Charitable Foundation to an excise tax under
Section 4941 of the Code, the FDIC and the Superintendent shall waive such
voting restriction upon submission of a legal opinion by the Company or the
Charitable Foundation that is satisfactory to them. The independent tax
advisors' opinion further provides that there is substantial authority for
the position that the Company's contribution of its own stock to the
Charitable Foundation would not constitute an act of self-dealing, and that
the Company would be entitled to a deduction in the amount of the fair market
value of the stock at the time of the contribution less the nominal par value
that the Charitable Foundation is required to pay to the Company for such
stock, subject to an annual limitation based on 10% of the Company's annual
taxable income. The Company, however, would be able to carry forward any
unused portion of the deduction for five years following the contribution.
Assuming the sale of Common Stock at the adjusted maximum of the Estimated
Valuation Range, the Company estimates that all of the deduction should be
deductible over the six-year period. Although the
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<PAGE>
Company and the Bank have received an opinion of their independent tax
advisors that the Company will be entitled to the deduction for the
charitable contribution, there can be no assurances that the IRS will
recognize the Charitable Foundation as a Section 501(c)(3) exempt
organization or that the deduction will be permitted. In such event, the
Company's tax benefit related to the Charitable Foundation would have to be
fully expensed, resulting in a further reduction in earnings in the year in
which the IRS makes such a determination.
As a private Charitable Foundation, earnings and gains, if any, from the
sale of Common Stock or other assets are generally exempt from federal and
state corporate income taxation. However, investment income, such as
interest, dividends and capital gains, of a private Charitable Foundation
will generally be subject to a federal excise tax of 2.0%. The Charitable
Foundation will be required to make an annual filing with the IRS within four
and one-half months after the close of the Charitable Foundation's fiscal
year to maintain its tax-exempt status. The Charitable Foundation will be
required to publish a notice that the annual information return will be
available for public inspection for a period of 180 days after the date of
such public notice. The information return for a private Charitable
Foundation must include, among other things, an itemized list of all grants
made or approved, showing the amount of each grant, the recipient, any
relationship between a grant recipient and the Charitable Foundation's
managers and a concise statement of the purpose of each grant. The Charitable
Foundation will also be required to file an annual report with the Charities
Bureau of the Office of the Attorney General of the State of New York.
Comparison of Valuation and Other Factors Assuming the Charitable
Foundation is Not Established as Part of the Reorganization. The
establishment of the Charitable Foundation was taken into account by FinPro
in determining the estimated pro forma market value of the Common Stock of
the Company. The aggregate price of the shares of Common Stock being offered
in the Offering is based upon the independent appraisal conducted by FinPro
of the estimated pro forma market value of the Common Stock of the Company.
The pro forma aggregate price of the Common Stock being offered for sale in
the Reorganization is currently estimated to be between $7.1 million and $9.5
million, with a midpoint of $8.3 million. The pro forma price to book ratio
and the pro forma price to earnings ratio, at and for the year ended June 30,
1998, are 82.78% and 13.89x, respectively, at the midpoint of the Estimated
Valuation Range. In the event that the Reorganization did not include the
Charitable Foundation, FinPro has estimated that the estimated pro forma
market value of the Common Stock being offered for sale in the Offering would
be $10.0 million at the midpoint based on a pro forma price to book ratio and
a pro forma price to earnings ratio of 83.47% and 14.08x, respectively. The
amount of Common Stock being offered for sale in the Offering at the midpoint
of the Estimated Valuation Range is 36,579 less than the estimated amount of
Common Stock that would be sold in the Offering without the Charitable
Foundation based on the estimate provided by FinPro. Accordingly, certain
account holders of the Bank who subscribe to purchase Common Stock in the
Subscription Offering would receive fewer shares depending on the size of a
depositor's stock order and the amount of his or her qualifying deposits in
the Bank and the overall level of subscriptions. See "Comparison of Valuation
and Pro Forma Information Without Charitable Foundation." This estimate by
FinPro was prepared solely for purposes of providing subscribers with
information with which to make an informed decision on the Reorganization.
The decrease in the amount of Common Stock being offered as a result of
the contribution of Common Stock to the Charitable Foundation will not have a
significant effect on the Company or the Bank's capital position. The Bank's
regulatory capital is significantly in excess of its regulatory capital
requirements and will further exceed such requirements following the
Reorganization. The Bank's leverage and risk-based capital ratios at June 30,
1998 were 11.09% and 20.32%, respectively. Assuming the sale of shares at the
midpoint of the Estimated Valuation Range, the Bank's pro forma leverage and
risk-based capital ratios at June 30, 1998 would be 12.82% and 23.53%,
respectively. On a consolidated basis, the Company's pro forma stockholders'
equity would be $22.5 million, or approximately 15.3% of pro forma
consolidated assets, assuming the sale of shares at the midpoint of the
Offering Range. Pro forma stockholders' equity per share and pro forma net
income per share would be $12.08 and $0.72, respectively. If the Charitable
Foundation was not being established in the Reorganization, based on the
FinPro estimate, the Company's pro forma stockholders' equity would be
approximately $22.8 million, or approximately 15.5% of pro forma consolidated
assets at the midpoint of the Estimated Valuation Range, and pro forma
stockholder's equity per share and pro forma net income per share would be
substantially similar with or without the Charitable Foundation. See
"Comparison of Valuation and Pro Forma Information without Charitable
Foundation."
Regulatory Conditions Imposed on the Charitable Foundation.
Establishment of the Charitable Foundation is subject to certain conditions
agreed to by the Charitable Foundation in writing as a condition to receiving
the FDIC's non-objection to and Superintendent's approval of the
Reorganization, including the following: (i) the Charitable Foundation will
be subject to examination by the FDIC and the Department; (ii) the Charitable
Foundation must comply
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<PAGE>
with supervisory directives imposed by the FDIC and the Department; (iii) the
Charitable Foundation will operate in accordance with written policies
adopted by the board of directors, including a conflict of interest policy;
and (iv) any shares of Common Stock held by the Charitable Foundation must be
voted in the same ratio as all other outstanding shares of Common Stock
(other than shares held by the Mutual Company) on all proposals considered by
stockholders of the Company; provided, however, that, consistent with the
condition, the FDIC and the Department would waive this voting restriction
under certain circumstances (and subject to additional conditions) if
compliance with the voting restriction would: (a) cause a violation of the
law of the State of Delaware; (b) would cause the Charitable Foundation to
lose its tax-exempt status or otherwise have a material and adverse tax
consequence on the Charitable Foundation; or (c) would cause the Charitable
Foundation to be subject to an excise tax under Section 4941 of the Code. In
order to obtain a waiver, the Charitable Foundation's legal counsel would be
required to render an opinion satisfactory to the FDIC and the Department.
There can be no assurances that a legal opinion addressing these issues could
be rendered, or if rendered, that the FDIC and the Department would grant
unconditional waivers of the voting restriction. In no event would the voting
restriction survive the sale of shares of the Common Stock held by the
Charitable Foundation.
Potential Challenges. The establishment and funding of a Charitable
Foundation as part of a conversion of a mutual savings institution to stock
form has only recently occurred. As such, the Charitable Foundation, and the
Superintendent's approval of the Reorganization and the FDIC's nonobjection
to the Reorganization, may be subject to potential challenges notwithstanding
that the board of directors of the Company and the board of trustees of the
Bank have considered the various factors involved in the establishment of the
Charitable Foundation in reaching their determination to establish the
Charitable Foundation as part of the Reorganization. If challenges were to be
instituted seeking to prevent the Bank from establishing the Charitable
Foundation in connection with the Reorganization, no assurances could be made
that the resolution of such challenges would not result in a delay in the
consummation of the Reorganization or that any objecting persons would not be
ultimately successful in obtaining such removal or other relief against the
Company or the Bank. Additionally, if the Company and the Bank are forced to
eliminate the Charitable Foundation, the Company may be required to resolicit
subscribers in the Offering.
Liquidation Rights
In the unlikely event of a complete liquidation of the Bank in its
present mutual form, each depositor would have a claim to receive his or her
pro rata share of any assets of the Bank remaining after payment of claims of
all creditors (including the claims of all depositors to the withdrawal value
of their accounts). To the extent there are remaining assets, a depositor may
have a claim to receive a pro rata share of the remaining assets in the same
proportion as the value of such depositor's deposit accounts to the total
value of all deposit accounts in the Bank at the time of liquidation, subject
to the right of the State of New York to garnish such assets. After the
Reorganization, each depositor, in the event of a complete liquidation, would
have a claim as a creditor of the Bank. However, except as described below,
this claim would be solely in the amount of the balance in the deposit
account plus accrued interest. A depositor would not have an interest in the
value or assets of the Bank above that amount.
The Plan of Reorganization provides for the establishment, upon the
completion of the Reorganization, of a special "liquidation account" for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders
in an amount equal to the surplus and reserves of the Bank as of the date of
its latest balance sheet contained in the final Prospectus used in connection
with the Reorganization. Each Eligible Account Holder and Supplemental
Eligible Account Holder, who continues to maintain a deposit account at the
Bank, would, on a complete liquidation of the Bank, have a claim to an
interest in the liquidation account after payment of all creditors but prior
to any payment to the stockholders of the Bank. Each Eligible Account Holder
and Supplemental Eligible Account Holder would have an initial interest in
such liquidation account for each deposit account, with a balance of $100 or
more held in the Bank on June 30, 1997 and September 30, 1998, respectively
("Deposit Account"). Each Eligible Account Holder and Supplemental Eligible
Account Holder will have a claim to a pro rata interest in the total
liquidation account for each of his or her Deposit Accounts based on the
proportion that the balance of each such Deposit Account on June 30, 1997 and
September 30, 1998, respectively, bore to the balance of all Deposit Accounts
in the Bank on such date.
If, however, on the last day of any fiscal year of the Bank commencing
after the Eligibility Record Date or Supplemental Eligibility Record Date, as
the case may be, the deposit balance in any Deposit Account of an Eligible
Account Holder or Supplemental Eligible Account Holder is less than either
(i) the amount of qualifying deposits of such Eligible Account Holder or
Supplemental Eligible Account Holder on the
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<PAGE>
Eligibility Record Date or Supplemental Eligibility Record Date, as the case
may be, or (ii) the deposit balance in such Deposit Account at the close of
business on the last day of any previous fiscal year of the Bank
commencing after the Eligibility Record Date or the Supplemental
Eligibility Record Date, then such Eligible Account Holder's or Supplemental
Eligible Account Holder's account balance would be reduced in an amount equal
to the reduction in such deposit balance, and such account balance will cease
to exist if such Deposit Account is closed. In addition, no interest in the
liquidation account would ever be increased despite any subsequent increase
in the deposit balances of any Eligible Account Holder or Supplemental
Eligible Account Holder. Any assets remaining after the above liquidation
rights of Eligible Account Holders and Subsequent Eligible Account Holders
are satisfied would be distributed to the stockholders of the Bank.
Neither the Bank nor the Company shall be required to set aside funds
for the purpose of establishing the liquidation account, and the creation and
maintenance of the account will not operate to restrict the use or
application of any of the net worth accounts of the Bank, except that neither
the Bank nor the Company shall declare or pay a cash dividend on, or
repurchase any of, its capital stock if the effect would cause its net worth
to be reduced below the amount required for the liquidation account.
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
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 FinPro 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 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 Company and Minority Stockholders,
respectively, in exchange for Common Stock.
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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 received an opinion from PricewaterhouseCoopers LLP to
the effect that, for New York State tax purposes, the New York State
franchise tax and the New York State personal income tax consequences of
the Reorganization are consistent with those described in the federal tax
opinion letter. Both taxes adopt federal definitions of taxable income, and
contain no express modification that would treat the subject transaction
differently for state purposes. Accordingly, there is complete conformity
between the federal income tax results of the Reorganization and the
corresponding New York State tax treatment.
GREENE COUNTY SAVINGS BANK
STATEMENTS OF INCOME
The following Statements of Income of the Bank for each of the years in
the two-year period ended June 30, 1998 have been audited by
PricewaterhouseCoopers, LLP, independent certified public accountants, whose
report thereon appears elsewhere in this Prospectus. These statements should
be read in conjunction with the Financial Statements and Notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------
1998 1997
---- ----
<S> <C> <C>
Interest income:
Interest on loans................................................... $ 6,367,282 $ 6,175,215
Interest and dividends on investments:
U.S. Treasury..................................................... 985,130 962,932
U.S. Government agencies.......................................... 850,073 687,250
State and political subdivisions.................................. 341,222 362,490
Corporation debt securities....................................... 405,225 456,676
Mortgage-backed securities........................................ 110,488 69,863
Other securities.................................................. 17,724 23,441
Federal funds sold.................................................. 393,310 536,826
Other interest income............................................... 26,902 22,815
--------- ---------
Total interest income............................................. 9,503,356 9,297,316
--------- ---------
--------- ---------
Interest expense:
Interest on deposits................................................ 4,967,487 4,779,678
Net interest income............................................. 4,535,869 4,517,638
--------- ---------
Less: provision for loan losses........................................ 120,000 125,000
--------- ---------
Net interest income after provision for loan losses.................... 4,415,869 4,392,638
Noninterest income:
Service charges on deposit accounts................................. 251,188 230,442
Other operating income.............................................. 185,479 289,968
------- -------
Total other income................................................ 436,667 520,410
------- -------
Noninterest expense:
Salaries and employee benefits...................................... 1,571,650 1,491,651
Occupancy expense, net.............................................. 208,381 157,190
Equipment and furniture expense..................................... 185,476 163,845
Other............................................................... 1,183,752 960,563
------- -------
Total other expenses.............................................. 3,149,259 2,773,249
--------- ---------
Income before provision for taxes............................... 1,703,277 2,139,799
Provision for income taxes
Current............................................................. 565,609 720,287
</TABLE>
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<TABLE>
<S> <C> <C>
Deferred............................................................ (12,248) (28,625)
--------- ---------
Total provision for income taxes.................................. 553,361 691,662
--------- ---------
Net income...................................................... $ 1,149,916 $ 1,448,137
--------- ---------
--------- ---------
</TABLE>
See notes to financial statements contained elsewhere herein.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company has been formed for the purpose of issuing the Common Stock
and owning all of the capital stock of the Bank issued in the Reorganization.
Consequently, the Company has no operating history. All information in this
section should be read in conjunction with the financial statements and notes
thereto included in this Prospectus.
The Bank's principal business has historically consisted of offering
savings and other deposits to the general public and using the funds from
such deposits to make loans secured by residential real estate, as well as
commercial real estate, consumer and commercial business loans. The Bank also
invests a significant portion of its assets in investment securities and
mortgage-backed securities, both of which are classified as available for
sale. The Bank's net income depends primarily upon its net interest income,
which is the difference between interest income earned on interest-earning
assets, such as loans and investments, and the interest expense paid on
deposits. The Bank's net income is also affected to a lesser degree by
noninterest income, such as banking service charges and fees. The Bank's net
income is also affected by, among other things, provisions for loan losses
and noninterest expenses. The Bank's principal operating expenses, aside from
interest expense, consist of salaries and employee benefits, occupancy and
equipment, data-processing expense, deposit insurance costs and other
expenses such as professional fees and insurance premiums. The Bank's net
income also is affected significantly by general economic and competitive
conditions, particularly changes in market interest rates, government
legislation and policies affecting fiscal affairs, housing and financial
institutions, monetary policies of the Federal Reserve System, and the
actions of bank regulatory authorities. Management intends to initially
invest the net proceeds from the Offering in interest-earning assets and
believes that the Company and the Bank will derive additional interest income
from such sources.
The Bank's equity position (as well as its regulatory capital) will
significantly increase as a result of the net proceeds received in the
Offering, and management anticipates that it will take time to prudently
deploy such capital. Although earnings are expected to increase as a result
of the investment of the net proceeds, until the Bank has leveraged the
capital in the Offering by increasing its interest-earning assets (and its
interest-bearing liabilities) and thereby reducing its equity as a percentage
of assets, its return on average equity is expected to be below historical
levels and the industry average. Moreover, the Company's earnings will be
adversely affected in the fiscal year in which the funding of the Charitable
Foundation occurs.
Operating Strategy
In guiding the Bank's operations, management has implemented various
strategies designed to maintain and improve profitability consistent with
safety and soundness. These strategies include: (i) operating a community
bank that provides quality service by monitoring the needs of its customers
and offering customers personalized service; (ii) emphasizing one-to four-
family residential real estate lending; (iii) maintaining high levels of
liquidity; and (iv) maintaining asset quality. It is anticipated, subject to
market conditions, that the strategies presently in place will be continued
following completion of the Reorganization.
Community Banking. The Bank was established in 1889 and has been
operating continuously since that time. Throughout its history, the Bank has
been committed to meeting the financial needs of the communities in which it
operates and is dedicated to providing quality service to its customers. This
has enabled the Bank to maintain a high level of core deposits, which
comprised 54.5% of total deposits at June 30, 1998, and generally represent,
lower-cost funds than certificate accounts. Management believes that the
Bank can be more effective than many of its competitors in serving its
customers because of its ability to promptly and effectively provide senior
management responses to customer needs and inquiries. The Bank's ability to
provide these services is enhanced by the stability of senior management
which has an average tenure with the Bank of over 20 years and banking
experience averaging 25 years. In addition, the Bank intends to use the
mutual holding company structure to maintain its position as an
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<PAGE>
independent community bank, and to establish the Charitable Foundation as a
means of furthering the Bank's commitment to the communities in which it
conducts business.
Emphasis on Residential Real Estate Lending. Historically, the Bank has
emphasized the origination and retention in portfolio of fixed-rate one-to
four-family residential loans within Greene County. As of June 30, 1998,
85.5% of the loan portfolio consisted of one-to four- family residential
mortgage loans and home equity loans, 92.5% of the loan portfolio consisted
of loans secured by real estate, substantially all of which was located in
Greene County. During the year ended June 30, 1998, the Bank originated $15.8
million of one-to four-family mortgage loans, 95.3% of which were originated
with fixed rates. At June 30, 1998, 71.1% of the Bank's one- to four-family
residential real estate loans were fixed rate.
Maintaining High Levels of Liquid Investments. To position the Bank to
redeploy assets profitability in a rising interest rate environment,
management has determined to invest a significant portion of its assets in
short-term liquid investments. The Bank maintains a significant portion of
its assets in short-term U.S. Government and agency securities and other
interest earning assets (including federal funds sold, corporate debt
securities and municipal bonds issued by political subdivisions of New York
State). At June 30, 1998, U.S. Government and agency securities and municipal
bonds due in five years or less totalled $25.9 million, and federal funds
sold and cash and due from banks totalled $8.3 million, or, collectively,
24.4% of the Bank's total assets. See "Risk Factors--Potential Impact of
Changes in Interest Rates and the Current Interest Rate Environment,"
"--Management of Market Risk--Interest Rate Risk" and "Business of the
Bank--Investment Activities."
Maintaining Asset Quality. The Bank's high asset quality is a result of
its conservative underwriting standards, the diligence of its loan collection
personnel and the stability of the local economy. The Bank also invests in
investment securities, consisting primarily of U.S. Government securities,
federal agency obligations and mortgage- backed securities issued by Freddie
Mac and Fannie Mae and, to a lesser extent, private issuers. The Bank also
purchases other investment securities, such as municipal bonds and corporate
debt securities, which are generally rated A or higher by at least one
nationally recognized rating agency or receive a rating of A of higher as a
result of a guarantee by insurance companies. At June 30, 1998, the Bank's
ratio of nonperforming assets to total assets was 0.72%. At June 30, 1998,
the Bank's ratio of allowance of loan losses to non-performing loans was
82.17%.
Management of Interest Rate Risk
While the Bank's loan portfolio, consisting primarily of mortgage loans
secured by residential real property located in its market area, is subject
to risks associated with the local economy, the Bank's most significant form
of market risk is interest rate risk because the Bank's assets and
liabilities are sensitive to changes in interest rates. The Bank's assets
consist primarily of residential mortgage loans which have longer maturities
than the Bank's liabilities which consist primarily of deposits. The Bank
does not engage in any hedging transactions, such as interest rate swaps and
caps. The Bank's interest rate risk management program focuses primarily on
evaluating and managing the composition of the Bank's assets and liabilities
in the context of various interest rate scenarios. Factors beyond
management's control, such as market interest rates and competition, also
have an impact on interest income and interest expense.
A principal part of the Bank's business strategy is to manage interest
rate risk and to minimize the Bank's exposure to changes in market interest
rates. In recent years, the Bank has followed the following strategies to
manage interest rate risk: (i) investing in short-term U.S. Government
securities and federal agency obligations; (ii) maintaining a high level of
liquid interest earning assets such as short-term federal funds sold ; (iii)
maintaining a high concentration of less interest-rate sensitive and
lower-costing "core deposits"; (iv) originating consumer installment loans
that have up to 5 year terms but that have significantly shorter average
lives due to early prepayments; and (v) where possible, matching the funding
requirements for fixed rate residential mortgages with lower-costing core
deposit accounts. By investing in short-term, liquid securities and
originating consumer installment loans with shorter-average durations,
the Bank believes it is better positioned to react to increases in market
interest rates. However, investments in shorter-term securities generally
bear lower yields than longer-term investments. Thus, these strategies may
result in lower levels of interest income than would be obtained by investing
in longer-term fixed-rate loans. See "Business of the Bank--Investment
Activities."
Gap Analysis. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring a bank's interest rate sensitivity "gap." An
asset or
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<PAGE>
liability is deemed to be interest rate sensitive within a specific time
period if it will mature or reprice within that time period. The interest
rate sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period
and the amount of interest bearing-liabilities maturing or repricing within
that same time period. At June 30, 1998, the Bank's cumulative one-year gap
position, the difference between the amount of interest-earning assets
maturing or repricing within one year and interest-bearing liabilities
maturing or repricing within one year, was a negative 7.78%. A gap is
considered positive when the amount of interest rate sensitive assets exceeds
the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. Accordingly, during a period of
rising interest rates, an institution with a negative gap position generally
would not be in as favorable a position, compared to an institution with a
positive gap, to invest in higher yielding assets. The resulting yield on the
institution's assets generally would increase at a slower rate than the
increase in its cost of interest-bearing liabilities. Conversely, during a
period of falling interest rates, an institution with a negative gap would
tend to experience a repricing of its assets at a slower rate than its
interest-bearing liabilities which, consequently, would generally result in
its net interest income growing at a faster rate than an institution with a
positive gap position.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at June 30, 1998, which are
anticipated by the Bank, based upon certain assumptions, to reprice or mature
in each of the future time periods shown (the "GAP Table"). Except as stated
below, the amount of assets and liabilities shown which reprice or mature
during a particular period were determined in accordance with the earlier of
term to repricing or the contractual maturity of the asset or liability. The
table sets forth an approximation of the projected repricing of assets and
liabilities at June 30, 1998, on the basis of contractual maturities,
anticipated prepayments and scheduled rate adjustments within a three month
period and subsequent selected time intervals. The loan amounts in the table
reflect principal balances expected to be redeployed and/or repriced as a
result of contractual amortization and anticipated prepayments of
adjustable-rate and fixed-rate loans, and as a result of contractual rate
adjustments on adjustable-rate loans. The annual prepayment rate for real
estate-related assets are based on the particulars of coupon maturity of the
real estate-related assets. See "Business of the Bank--Lending Activities,"
"--Investment Activities" and "--Sources of Funds."
49
<PAGE>
<TABLE>
<CAPTION>
Amounts Maturing or Repricing at June 30, 1998
Up to 90 3 Months to 6 Months to 1 to 2 2 to 3
Days 6 Months 1 Year Years Years
---- -------- ------ ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets: (1)
Loans receivable (2).............................. $ 7,105 $ 8,092 $14,138 $ 7,577 $ 6,588
Investment securities............................. 5,009 2,636 5,228 9,508 8,212
Federal funds sold................................ 5,796 -- -- -- --
----- -- -- -- --
Total interest-earning assets................... $ 17,910 $10,728 $19,366 $ 17,085 $ 14,800
Interest-bearing liabilities:
Savings deposits.................................. $ 1,671 $ 1,671 $ 3,341 $ 6,682 $ 6,682
NOW deposits...................................... 309 309 619 1,237 1,237
MMDA accounts..................................... 2,129 2,129 2,907 3,111 3,111
Certificate accounts.............................. 11,764 10,429 20,857 7,033 3,619
Borrowings........................................ -- -- -- -- --
Escrow deposits................................... 84 84 169 337 337
-- -- --- --- ---
Total interest-bearing liabilities.............. $ 15,957 $14,622 $27,893 $ 18,400 $ 14,987
Interest sensitivity gap............................. 1,953 (3,894) (8,527) (1,315) (187)
Cumulative interest sensitivity gap.................. 1,953 (1,941) (10,468) (11,783) (11,970)
Cumulative interest sensitivity gap as a
percentage of total assets........................ 1.39% (1.38%) (7.46%) (8.40%) (8.53%)
Cumulative interest sensitivity gap as a
percentage of total interest-earning assets....... 1.45% (1.44%) (7.78%) (8.76%) (8.90%)
Cumulative interest-earning
assets as a percentage of cumulative
interest-bearing liabilities..................... 112.24% 93.65% 82.10% 84.67% 86.97%
</TABLE>
<TABLE>
<CAPTION>
3 to 5 Over 5
Years Years Total
----- ----- -----
<S> <C> <C> <C>
Interest-earning assets: (1)
Loans receivable (2).............................. $ 11,170 $ 26,317 $80,988
Investment securities............................. 11,469 5,716 47,778
Federal funds sold................................ -- -- 5,796
-- -- -----
Total interest-earning assets................... $ 22,639 $ 32,034 $134,562
Interest-bearing liabilities:
Savings deposits.................................. $ 13,365 -- $33,412
NOW deposits...................................... 2,474 -- 6,186
MMDA accounts..................................... 6,222 -- 19,609
Certificate accounts.............................. 1,900 -- 55,602
Borrowings........................................ -- -- --
Escrow deposits................................... 675 -- 1,687
--- -- -----
Total interest-bearing liabilities.............. $ 24,638 $ -- $116,497
Interest sensitivity gap............................. (1,999) 32,034
Cumulative interest sensitivity gap.................. (13,969) 18,065
Cumulative interest sensitivity gap as a
percentage of total assets........................ (9.96%) 12.88%
Cumulative interest sensitivity gap as a
percentage of total interest-earning assets....... (10.38%) 13.43%
Cumulative interest-earning
assets as a percentage of cumulative
interest-bearing liabilities..................... 88.01% 115.51%
</TABLE>
- ---------------------------------
(1) Interest-earning assets are included in the period in which the
balances are expected to be redeployed and/or repriced as a result of
anticipated prepayments, scheduled rate adjustments and contractual
maturities.
(2) Calculated net of deferred loan fees, loan discounts and loans in process.
50
<PAGE>
Certain shortcomings are inherent in the method of analysis presented in
the GAP Table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes
in market interest rates, while interest rates on other types may lag behind
changes in market rates. Additionally, certain assets such as adjustable-rate
loans, have features which restrict changes in interest rates both on a
short-term basis and over the life of the asset. Further, in the event of
changes in interest rates, prepayment and early withdrawal levels would
likely deviate significantly from those assumed in calculating the table.
Finally, the ability of many borrowers to service their adjustable-rate loans
may decrease in the event of an interest rate increase.
Analysis of Net Interest Income
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income also depends on the relative amounts of interest-earning
assets and interest-bearing liabilities and the interest rate earned or paid
on them, respectively.
Average Balance Sheet. The following tables set forth certain
information relating to the Bank at June 30, 1998 and for the years ended
June 30, 1998 and 1997. For the periods indicated, the total dollar amount of
interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest- bearing
liabilities, is expressed both in dollars and rates. No tax equivalent
adjustments were made. All average balances are average monthly balances.
Non-accruing loans have been excluded from the yield calculations in this
table.
<TABLE>
<CAPTION>
At June 30, 1998
----------------
Actual
Balance Yield/Rate
------- ----------
<S> <C> <C>
Interest-earning assets:
Loans receivable, net (1)................................ $ 80,260 7.93%
Investment securities.................................... 47,078 5.80
Federal funds............................................ 5,796 5.75
FHLB stock............................................... 700 --
------------- -------------
Total interest-earning assets (1)...................... $ 133,834 7.10%
------------- -------------
------------- -------------
Interest-bearing liabilities:
Savings deposits......................................... $ 52,560 3.45%
Demand and NOW deposits.................................. 14,162 1.31
Certificate accounts..................................... 55,602 5.23
Borrowings............................................... -- --
------------- -------------
Total interest-bearing liabilities..................... $ 122,324 4.06%
-------------
-------------
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------
1998 1997
---- ----
Average Interest Average Interest
Outstanding Earned/ Outstanding Earned/
Balance Paid Yield/Rate Balance Paid Yield/Rate
----------- ------- ---------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net (1) ................. 77,873 6,367 8.18% 74,477 6,175 8.29%
Investment securities (2) ................. 44,280 2,743 6.19 41,166 2,585 6.28
Federal funds ............................. 6,713 392 5.85 9,569 537 5.61
FHLB stock ................................ 58 -- -- -- -- --
------- ------- ------ ------- ------- ------
Total interest-earning assets ............ 128,924 9,502 7.37% 125,212 9,297 7.43%
------- ------- ------ ------- ------- ------
------- ------- ------ ------- ------- ------
Interest-bearing liabilities:
Savings deposits .......................... 51,791 1,812 3.50% 53,860 1,886 3.50%
Demand and NOW deposits ................... 12,472 186 1.50 11,260 152 1.35
Certificate accounts ...................... 53,389 2,970 5.56 49,589 2,742 5.53
Borrowings ................................ -- -- -- -- -- --
------- ------- ------ ------- ------- ------
Total interest-bearing liabilities 117,652 4,968 4.22% 114,709 4,780 4.17%
------- ------- ------ ------- ------- ------
------- ------- ------ ------- ------- ------
Net interest income .......................... 4,534 4,517
Net interest rate spread ..................... 3.15% 3.26%
Net earning assets ........................... 11,272 10,503
Net yield on average interest-earning assets . 3.52% 3.61%
Average interest-earning assets to
average interest-bearing liabilities109.58% 109.16%
</TABLE>
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
loss reserves.
(2) Includes mortgage-backed securities and asset-backed securities.
Rate/Volume Analysis. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning
assets and interest-bearing liabilities have affected the Bank's interest
income and interest expense during the periods indicated. Information is
provided in each category with respect to: (i) changes attributable to
changes in volume (changes in volume multiplied by prior rate); (ii) changes
attributable to changes in rate (changes in rate multiplied by prior volume);
and (iii) the net change. The changes attributable to the combined impact of
volume and rate have been allocated proportionately to the changes due to
volume and the changes due to rate.
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------
1998 vs. 1997 1997 vs. 1996
Increase/(Decrease) Total Increase/(Decrease) Total
Due to Increase/ Due to Increase/
------ ------
Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net............. $ 391 $ (199) $ 192 $ 140 $ 9 $ 149
Investment securities (1)......... 28 (9) (20) 184 125 309
Equity securities................. (5) (1) (6) 16 (1) 15
------- ------- ------- ------- ------- -------
Total interest-earning assets... 415 (209) 206 340 133 473
Interest-bearing liabilities:
Savings deposits.................. (43) (31) (74) 168 -- 168
Demand and NOW deposits........... 196 (162) 34 (3) 141 138
Certificate accounts.............. 201 27 228 38 3 41
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities 354 (166) 188 203 144 347
------- ------- ------- ------- ------- -------
Net interest income................. $ 61 $ (43) $ 18 $ 137 $ (11) $ 126
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
- -------------------
(1) Includes mortgage-backed securities and asset-backed securities.
Comparison of Financial Condition at June 30, 1998 and June 30, 1997
52
<PAGE>
Assets. Total assets increased to $140.3 million at June 30, 1998 from
$132.5 million at June 30, 1997, an increase of $7.8 million, or 5.9%. This
growth in total assets reflected an increase in loans receivable, net, which
increased by 6.2% to $80.3 million at June 30, 1998 from $75.6 million at
June 30, 1997, as well as an increase in investment securities of $4.8
million, or 11.1%, to $47.8 million at June 30, 1998 from $43.0 million at
June 30, 1997. The increase in total assets also reflected an increase in
premises and equipment of $900,000, to $2.6 million at June 30, 1998 from
$1.7 million at June 30, 1997 due to the completion and opening of the Bank's
new branch office in Greenville, New York in December 1997. The growth in
total assets was funded by deposits, which increased by $6.4 million, or
5.5%, to $122.3 million at June 30, 1998 from $115.9 million at June 30, 1997.
Net loans receivable increased to $80.3 million at June 30, 1998 from
$75.6 million at June 30, 1997. In the year ended June 30, 1998, one- to
four-family residential mortgage loans increased by $3.7 million, or 6.1%,
home equity loans increased $674,000, or 16.6%, consumer loans increased
$414,000, or 11.0% and commercial business loans increased $304,000, or
29.5%. The increases in loans in these categories more than offset a decrease
of $822,000, or 15.4%, in commercial real estate loans, and reflected the
economic strength and loan demand in the Bank's primary lending area as well
as consumer demand for the Bank's fixed-rate mortgage loan products in the
current low market interest rate environment.
The Bank's investment securities portfolio increased by $4.8 million, or
11.2%, to $47.8 million at June 30, 1998 from $43.0 million at June 30, 1997.
The Bank joined the FHLB in 1998. At June 30, 1998, the Bank held $700,000 of
FHLB stock.
Liabilities. Total deposits increased by $6.4 million, or 5.5%, to
$122.3 million at June 30, 1998 from $115.9 million at June 30, 1997. The
growth in deposits reflected in part deposit inflows resulting from the
expansion of the Bank's branch network with the opening of a new branch
office in Greenville in December 1997. The Bank's certificate accounts
increased to $55.6 million at June 30, 1998 from $51.2 million at June 30,
1997, while noncertificate accounts increased to $66.7 million at June 30,
1998 from $64.7 million at June 30, 1997. The increase in certificates of
deposit was attributable primarily to the Greenville branch opening as well
as the migration of some funds from savings and other demand accounts to
higher-yielding certificate accounts in the lower interest rate environment.
While the Bank has access to borrowings, at June 30, 1998, there were no
borrowings outstanding.
Retained earnings. Total retained earnings increased by $1.3 million, or
9.0%, to $15.7 million at June 30, 1998 from $14.4 million at June 30, 1997.
The increase in total retained earnings resulted from after tax net income of
$1.1 million in the year ended June 30, 1998 as well as an increase of
$174,000 in net unrealized gain on securities available for sale. As market
interest rates decreased in the year ended June 30, 1998, the market value of
the Bank's securities was positively affected.
Comparison of Operating Results for the Years Ended June 30, 1998 and
June 30, 1997
General. The earnings of the Bank depend primarily on its level of net
interest income, which is the difference between interest earned on the
Bank's interest-earning assets, consisting primarily of residential and
commercial real estate loans, consumer loans and securities available for
sale, and the interest paid on interest-bearing liabilities, consisting
primarily of deposits. 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 fees and service charges and gains
on sale of loans and securities, as well as its level of operating and other
expenses, including salaries and employee benefits, occupancy and equipment
costs, data processing expense, marketing and advertising costs, and
federal deposit insurance premiums.
Net income for the year ended June 30, 1998 was $1.1 million, a decrease
of $298,000, or 20.6%, from net income of $1.4 million for the year ended
June 30, 1997. The decrease in net income was due primarily to a decrease of
$85,000, or 16.3%, in noninterest income and an increase of $376,000, or
13.6%, in noninterest expense. These items were partially offset by a
decrease of $138,000 in tax expense for the year ended June 30, 1998.
Interest Income. Interest income increased by $206,000, or 2.2%, to $9.5
million for the year ended June 30, 1998 from $9.3 million for the year ended
June 30, 1997. The increase was primarily due to a $192,000, or 3.1%,
increase in interest income paid on loans and a $158,000, or 6.1%, increase
in interest and dividends on investments for the year ended June 30, 1998 as
compared to the year ended June 30, 1997. The increase in interest from loans
was
53
<PAGE>
attributable to a $3.4 million, or 4.6%, increase in the average balance of
loans receivable, partially offset by a 11 basis point decrease in the
average yield on loans receivable to 8.18% for the year ended June 30, 1998
from 8.29% for the year ended June 30, 1997. The continued origination and
portfolio growth of the Bank's one- to four-family residential mortgage loans
was responsible for the substantial majority of the increase in loans
receivable, reflecting growth in the Bank's primary market area as well as
demand for the Bank's fixed-rate one- to four-family real estate loan product
in the current low market interest rate environment. The increase in interest
and dividends from investments was due to a $3.1 million, or 8.0%, increase
in the average balance of investment securities to $44.3 million for the year
ended June 30, 1998 as compared to $41.2 million for the year ended June 30,
1997. This increase more than offset a 9 basis point decrease in the average
yield on investment securities to 6.19% from 6.28%. The increase in the
average balance of investment securities reflected the temporary deployment
of liquidity pending investment in higher-yielding mortgage loans, as well
as management's desire to take advantage of the shorter weighted average
lives of U.S. Treasury securities and the relatively high yield available
from such securities as compared to longer maturity securities given the
relatively flat yield curve that prevailed during the period.
Interest Expense. Interest expense increased by $188,000, or 3.9%, to
$5.0 million for the year ended June 30, 1998 from $4.8 million for the year
ended June 30, 1997. The increase was due to a $2.9 million, or 2.6%,
increase in the average balance of interest-bearing liabilities as well as a
5 basis point increase in the average rate paid on such liabilities for the
year ended June 30, 1998 as compared to the year ended June 30, 1997. In
particular, the increase in interest expense resulted from an increase in
interest expense on certificate accounts, which rose to $3.0 million for the
year ended June 30, 1998 as compared to $2.7 million for the year ended June
30, 1997. This increase was due to an increase of $3.8 million, or 7.7%, in
the average balance of such certificate accounts to $53.4 million for the
year ended June 30, 1998 from $49.6 million for the year ended June 30, 1997.
The increase in the average balance of such certificate accounts reflected
the Bank's new branch opening in Greenville, New York in December 1997. The
increase in interest expense attributable to certificate accounts was
partially offset by a $74,000, or 3.9%, decrease in interest expense on
savings deposits, reflecting a $2.1 million, or 3.8%, decrease in the average
balance of savings deposits for the year ended June 30, 1998 as compared to
the year ended June 30, 1997. The average cost of such deposits remained
unchanged at 3.50%.
Provision for Loan Losses. The Bank establishes provisions for loan
losses, which are charged to operations, in order to maintain the allowance
for loan losses at a level which is deemed appropriate to absorb future
charge-offs and loans deemed uncollectible. In determining the appropriate
level of the allowance for loan losses, management considers past and
anticipated loss experience, collateral values, current and anticipated
economic conditions volume and type of lending activities and the levels of
non-performing and other classified loans. 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 decreased to $120,000 for the year
ended June 30, 1998 from $125,000 for the year ended June 30, 1997. The
higher provision for the year ended June 30, 1997 was due, in part, to
exposure associated with loans made by the Bank to Bennett Funding Company,
an equipment lease finance company, which subsequently declared bankruptcy.
At June 30, 1998, the $104,000 remaining balance of Bennett Funding Company
lease receivables had been fully reserved.
Noninterest Income. Noninterest income consists primarily of fee income
for bank services and gains on the sale of loans and securities. Noninterest
income decreased by $85,000, or 16.3%, for the year ended June 30, 1998 as
compared to the year ended June 30, 1997. The decrease was due primarily to a
decrease in other operating income to $185,000 for the year ended June 30,
1998 from $290,000 for the year ended June 30, 1997. The decrease in these
items was partially offset by an increase of $21,000, or 9.1%, in services
charges on deposit accounts reflecting the increased average balances of such
deposit accounts for the year ended June 30, 1998 as compared to the year
ended June 30, 1997.
Noninterest Expense. Noninterest expense increased by $376,000, or
13.6%, to $3.1 million for the year ended June 30, 1998 compared to $2.8
million for the year ended June 30, 1997. The increase was due to an $80,000,
or 5.4%, increase in salaries and employee benefits, an increase of $51,000,
or 32.5%, in net occupancy expense and an increase of $22,000, or 13.2%, in
equipment and furniture expense. Each of these increases was attributable in
part to the Bank's opening of a new full service office in Greenville, New
York in December 1997, which necessitated the hiring of an additional five
full time equivalent employees, as well as depreciation of building,
furniture and equipment of the new branch office. The increase in net
occupancy expense also reflects expenses related to the Bank's continued
54
<PAGE>
upgrading of its technology, communications and information systems. In
addition, other noninterest expense increased by $223,000, or 23.2%, for the
year ended June 30, 1998, reflecting a $25,000, or 30.5%, increase in
advertising expenses, a $25,000, or 33.3%, increase in office supply
expenses, a $15,000, or 62.5%, increase in mortgage recording fees, and a
$36,000, or 12.2%, increase in servicing costs, relating in part to the
Bank's larger total loan portfolio.
Income Taxes. Income tax expense was $553,361 for the year ended June
30, 1998 compared to $691,662 for the year ended June 30, 1997. The effective
tax rate increased to 32.5% for the year ended June 30, 1998 from 32.3% for
the year ended June 30, 1997.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits, proceeds from
principal and interest payments on loans, mortgage-related and debt
securities, with two lines of credit available as needed. While maturities
and scheduled amortization of loans and securities are predictable sources of
funds, deposit outflows, mortgage prepayments, and borrowings are greatly
influenced by general interest rates, economic conditions and competition.
The Bank's primary investing activities are the origination of
residential one-to four- family and commercial real estate loans, other
consumer and commercial business loans, and the purchase of mortgage-related
and debt securities. During the years ended June 30, 1998 and 1997, the
Bank's loan originations totaled $25.0 million, and $20.7 million,
respectively. Purchases of mortgage-backed securities and debt securities
totaled $16.7 million, and $10.9 million for the years ended June 30, 1998
and 1997, respectively. These activities were funded primarily by deposit
growth and principal payments on loans, mortgage-backed securities and debt
and equity securities. Loan sales did not provide an additional source of
liquidity during the years ended June 30, 1998 and 1997 as the Bank generally
originates loans for retention in its portfolio.
The Bank experienced a net increase in total deposits of $6.5 million,
and $1.7 million for the years ended June 30, 1998 and 1997, respectively.
Deposit flows are affected by the level of interest rates, the interest rates
and products offered by local competitors, and other factors.
The Bank monitors its liquidity position on a daily basis. Excess
short-term liquidity is usually invested in overnight federal funds sold. In
the event the Bank requires funds beyond its ability to generate them
internally, additional sources of funds are available through the use of
short-term FHLB advances and two credit facilities made available to the Bank
by other financial institutions. There have been no borrowings outstanding
during any of the periods presented.
Loan commitments totaled $2.4 million at June 30, 1998 and were
comprised of $309,000 in commitments to originate adjustable rate loans and
$2.1 million in commitments to originate fixed rate loans. The Bank
anticipates that it will have sufficient funds available to meet current loan
commitments. Certificates of deposit which are scheduled to mature in one
year or less from June 30, 1998 totaled $43.1 million. Based upon the Bank's
experience and its current pricing strategy, management believes that a
significant portion of such deposits will remain with the Bank.
At June 30, 1998, the Bank exceeded all of its regulatory capital
requirements. See "Regulatory Capital Compliance" and "Regulation--Regulatory
Capital Requirements."
The Bank's most liquid assets are cash and interest-bearing demand
accounts. The levels of these assets are dependent on the Bank's operating,
financing, lending and investing activities during any given period. At June
30, 1998, cash and interest-bearing demand account totaled $2.5 million, or
1.8% of total assets. Also at June 30, 1998, U.S. Government and agency
securities and municipal bonds due in less than one year totalled $7.7
million, or 5.5% of total assets, and the Bank's portfolio of such securities
due in less than five years totalled $25.6 million, or 18.3% of total assets.
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
55
<PAGE>
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 Bank's earnings per
share disclosures which will be made from the date of completion of the
Reorganization and Offering.
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 Stock Award 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 Bank 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 loan shares of loans with servicing
retained, securitizations, repurchase agreements, securities lending, loan
participations and in-substance defeasances 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 Statements 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 of 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 am 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
July 1, 1998. Management does not anticipate that the adoption of this
standard will significantly affect the Bank'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
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<PAGE>
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 Bank upon
completion of the Reorganization and Offering. SFAS No. 131 is not expected
to have a significant impact on the Bank's financial reporting.
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 Bank in the fiscal year beginning July 1,
1998. Management does not anticipate that this standard will significantly
affect the Bank'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 Bank in the fiscal year beginning on July
1, 1999. The Bank has not engaged in derivatives and hedging activities
covered by the new standard, and does not expect to begin such activities.
Accordingly, SFAS No. 133 is not expected to have a material impact on the
Bank's consolidated financial statements.
Capability of the Bank's Data Processing to Accommodate the Year 2000
Like many financial institutions, the Bank relies upon computers for the
daily conduct of its business and for data processing. There is concern that
on January 1, 2000 computers will be unable to "read" the new year and as a
consequence, there may be widespread computer malfunctions. The Bank uses an
outside data processing servicer. Management has developed a formal written
plan to resolve any concern about the year 2000 issue and the Bank is in the
process of testing its computer applications and hardware to ensure that they
will be able to read the year 2000. Testing of mission-critical systems has
been completed, and overall testing is expected to be completed by the end of
the first calendar quarter in 1999. While the Bank's Year 2000 committee has
discussed contingency plans, such plans have not yet been formalized, pending
the completion of testing. It is expected that contingency plans will also be
completed by the end of the first calendar quarter in 1999.
The Bank has contacted each of its data processing vendors to ensure
that they will be able to provide service in light of the year 2000 issue.
Such vendors have represented to management that they are addressing the year
2000 issue and they expect to be able to provide the services for which the
Bank has contracted. Management will continue to monitor this issue and
report to the Board of Trustees on a quarterly basis until full compliance is
obtained from all vendors.
In considering the year 2000 readiness of the Bank's major borrowers,
management first determined that no borrower currently has been extended
credit exceeding 10% of the Bank's capital. Management has also informally
contacted the Bank's largest borrowers, and has been assured that data
sensitivity is not an issue with such borrowers.
Finally, management has evaluated the date sensitivity of the Bank's
non-information technology, such as utilities and its components (including
elevators, heating/air conditioning systems, alarms and video equipment).
These utilities and components are either not computer driven or are expected
to function normally after year 2000.
Costs related to the year 2000 issue will be expensed as they are
incurred, except for the costs, if any, for new hardware and software that is
purchased, which will be capitalized. Management has budgeted $110,000 for
updating its hardware and software systems to ensure compliance. Other than
this budgeted expenditure, management does not expect additional material
costs to be incurred in connection with the year 2000 issue.
The costs of the project are based on management's best estimates, which
were derived using numerous assumptions of future events including the
continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates
will be achieved, and actual results could differ materially from those
plans. Specific factors that might cause such material differences include,
but are not limited to, the availability and cost of personnel trained in
this area, the ability to locate and correct all relevant computer codes and
similar uncertainties. In addition, there can be no guarantee that the
systems of other companies on which the Bank's systems rely will be timely
converted, or that a failure to convert by another company, or a conversion
that is incompatible with the Bank's systems, would not have a material
adverse effect on the Bank.
BUSINESS OF GREENE COUNTY BANCORP, INC.
General
In July 1998, the Board of Trustees of the Bank adopted the Plan of
Reorganization. Under the Plan of Reorganization, the Bank organized the
Company. The Bank will be a wholly-owned subsidiary of the Company, the
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majority of whose shares will be held by the Mutual Company. See "Greene
County Bancorp, Inc." and "Regulation--Holding Company Regulation."
The Company is currently not an operating company. Following the
Reorganization, in addition to directing, planning and coordinating the
business activities of the Bank, the Company will initially invest net
proceeds it retains primarily in short and medium-term debt securities and
marketable equity securities. The Company also intends to fund the loan to
the ESOP to enable the ESOP to purchase 8% of the Minority Ownership
Interest. 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 officers of the Bank, who will not be separately provided cash
compensation by the Company. The Company may utilize support staff of the
Bank from time to time, if needed. Additional employees will be hired as
appropriate to the extent the Company expands its business in the future.
BUSINESS OF THE BANK
General
The Bank's principal business consists of attracting retail deposits from
the general public in the areas surrounding its branches and investing those
deposits, together with funds generated from operations and borrowings,
primarily in one-to four- family residential mortgage loans, commercial real
estate loans, and home equity loans, consumer loans and commercial business
loans. In addition, the Bank invests a significant portion of its assets in
investment securities and mortgage-backed securities. The Bank's revenues are
derived principally from the interest on its mortgage, consumer and
commercial loans and securities, loan origination and servicing fees and
service charges and fees collected on its deposit accounts. The Bank's
primary sources of funds are deposits, and principal and interest payments on
loans and investment and mortgage-backed securities. In recent years the Bank
has not had any borrowings.
Market Area
The Bank has been, and intends to continue to be, a community-oriented
bank offering a variety of financial services to meet the needs of the
communities it serves. The Bank currently operates four full service banking
offices in Greene County, New York. The Bank's primary deposit gathering area
is currently concentrated around the areas within Greene County where its
full service banking offices are located, namely the towns of Catskill,
Greenville, Cairo and Coxsackie. The Bank's primary lending area also has
historically been concentrated in Greene County, New York.
As of the 1990 census, the County population was 44,700 persons. As of the
1990 census, Greene County had the fourth largest percentage of population
growth in New York state in the ten year period ended in 1990. Greene County
is primarily rural and the major industry consists of tourism associated with
the several ski facilities and festivals located in the Catskill mountains.
The County has no concentrations of manufacturing industry. Greene County is
contiguous to the Albany-Schenectady-Troy metropolitan statistical area. The
close proximity of Greene County to the city of Albany has made it a
"bedroom" community for persons working in the Albany capital area. Greene
County and the Coxsackie Correctional Facilities are the largest employers in
the county. Other large employers include the Hunter Mountain and Ski Windham
resort areas, the Catskill, Cairo-Durham, Greenville and Coxsackie-Athens
Central School Districts and Stiefel Labs, Inc.
Competition
The Bank faces significant competition both in making loans and in
attracting deposits. The Bank's market area has a high density of financial
institutions, many of which are branches of 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, savings and loan
associations, mortgage banking companies, credit unions, insurance companies
and other financial service companies. Its most direct competition for
deposits has historically come from commercial banks, savings banks, savings
and loan associations and credit unions. The Bank faces additional
competition for deposits from non-depository competitors such as the
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mutual fund industry, securities and brokerage firms and insurance companies.
Competition may also increase as a result of the lifting of restrictions on
the interstate operations of financial institutions.
59
<PAGE>
Lending Activities
General. The principal lending activity of the Bank is the origination,
for retention in its portfolio, of fixed-rate and adjustable-rate mortgage
loans collateralized by one- to four-family residential real estate located
within its primary market area. To a lesser extent, the Bank also originates
commercial real estate loans, home equity loans, consumer loans and
commercial business loans.
In an effort to manage the interest rate risk associated with its
predominantly fixed-rate loan portfolio, the Bank maintains high levels of
liquidity, and, where possible, matches the funding of fixed-rate residential
mortgages with lower-costing core savings accounts. In addition, in
originating residential fixed-rate loans, the Bank has been successful in
marketing and originating such loans with 15 year terms. Currently, the
substantial majority of residential fixed-rate loans are being originated
with 15 years terms. Finally, the Bank has attempted to market to its
customers shorter term maturity features, such as fixed-rate residential
mortgage loans with "bi-weekly" mortgage payments, where the borrower makes
the equivalent of an extra monthly payment per year by paying half the
monthly mortgage payment every two weeks. The accelerated principal
amortization schedules of these loans have helped ameliorate the interest
rate risk that is inherent in a community based bank's residential lending
portfolio. The accelerated repayment schedule results in significant savings
to the borrower and allows for a more rapid increase in home equity.
Loan Portfolio Composition. Set forth below is selected information
concerning the composition of the Bank's loan portfolio in dollar amounts and
in percentages (before deductions for deferred fees and costs, unearned
discounts and allowances for losses) as of the dates indicated.
<TABLE>
<CAPTION>
June 30,
1998 1997
---- ----
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family......................... $ 64,705 79.69% $ 61,008 79.66%
Commercial.................................. 4,521 5.57 5,343 6.98
Construction and land....................... 798 .98 497 .65
Multi-family.............................. 388 .48 388 .51
------ ------ ------ ------
Total real estate loans................... 70,412 86.72 67,236 87.80
------ ------ ------ ------
Consumer Loans:
Installment (1)............................. 4,172 5.14 3,758 4.90
Home equity................................. 4,727 5.82 4,053 5.29
Passbook.................................... 544 .67 507 .66
------ ------ ------ ------
Total consumer loans...................... 9,443 11.63 8,318 10.85
Commercial Business Loans...................... 1,336 1.65 1,032 1.35
------ ------ ------ ------
Total consumer and commercial
business loans.......................... 10,779 13.28 9,350 12.20
Total gross loans......................... 81,191 100.00% 76,586 100.00%
------ ------ ------ ------
------ ------ ------ ------
Less:
Deferred fees and discounts................. (203) (216)
Allowance for losses........................ (728) (723)
------ ------
Total loans receivable, net............... $ 80,260 $ 75,647
------ ------
------ ------
</TABLE>
- --------------------------------------------
(1) Includes direct automobile loans (on both new and used automobiles) and
personal loans.
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<PAGE>
The following table shows the composition of the Bank's loan portfolios by
fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
June 30,
--------
1998 1997
---- ----
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Fixed-Rate Loans:
Real Estate Loans:
One- to four-family....................... $ 46,028 56.69% $ 36,581 47.78%
Commercial................................ 1,436 1.77 1,744 2.28
Construction and land .................... 760 .94 497 .64
Multi-family.............................. 157 .19 135 .18
------ ------ ------ ------
Total real estate loans................. 48,381 59.59 38,957 50.88
------ ------ ------ ------
Consumer Loans:
Installment (1)........................... 4,172 5.14 3,758 4.91
Home equity............................... 4,727 5.82 4,053 5.29
Passbook.................................. 544 .67 507 .66
Commercial Business Loans................... 1,336 1.65 1,032 1.35
------ ------ ------ ------
Total fixed-rate loans.................... 59,160 72.87 48,307 63.09
------ ------ ------ ------
Adjustable-Rate Loans:
Real estate loans:
One- to four-family....................... 18,677 23.00 24,429 31.90
Multi-family.............................. 231 .28 251 .31
Commercial real estate.................... 3,085 3.80 3,599 4.70
Construction and land .................... 38 .05 -- --
Total adjustable rate loans............. 22,031 27.13 28,279 36.91
Total loans............................. 81,191 100.00% 76,586 100.00%
------ ------ ------ ------
Less:
Deferred fees and discounts................. (203) (216)
Allowance for loan losses................... (728) (723)
------ ------
Total loans receivable, net............... $ 80,260 $ 75,647
------ ------
------ ------
</TABLE>
- --------------------------------------------
(1) Includes direct automobile loans (on both new and used automobiles) and
personal loans.
One-to Four- Family Residential Loans. The Bank's primary lending activity
is the origination, for retention in the Bank's portfolio, of one-to
four-family residential mortgage loans secured by property located in the
Bank's primary lending area. Generally, one-to four- family residential
mortgage loans are made in amounts up to 80% of the lesser of the appraised
value or purchase price of the property. However, the Bank will originate
one- to four-family residential mortgage loans with loan-to-value ratios of
up to 95%, with private mortgage insurance required (except for qualifying
first-time home buyers, for whom the Bank will originate loans with 90%
loan-to-value ratios without private mortgage insurance). Generally,
residential mortgage loans are originated for terms of up to 25 years, though
in recent years the Bank has been successful in marketing and originating the
substantial majority of such loans with 15 year terms. One-to four- family
fixed rate loans are offered with both a monthly and bi-weekly payment
feature. The Bank generally requires fire and casualty insurance, the
establishment of a mortgage escrow account for the payment of real estate
taxes, hazard and flood insurance, as well as title insurance on all
properties securing real estate loans made by the Bank.
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<PAGE>
The Bank currently offers one- to four-family residential mortgage loans
with fixed and adjustable interest rates. Originations of fixed-rate loans
versus adjustable-rate loans are monitored on an ongoing basis and are
affected significantly by the level of market interest rates, customer
preference, the Bank's interest rate gap position, and loan products offered
by the Bank's competitors. Particularly, in a relatively low interest rate
environment, borrowers may prefer fixed-rate loans to adjustable-rate loans.
Single family residential real estate loans often remain outstanding for
significantly shorter periods than their contractual terms because borrowers
may refinance or prepay loans at their option. The average length of time
that the Bank's single family residential mortgage loans remain outstanding
varies significantly depending upon trends in market interest rates and other
factors.
The Bank's adjustable-rate mortgage ("ARM") loans currently provide for
maximum rate adjustments of 150 basis points per year and 600 basis points
over the term of the loan. The Bank offers ARM loans with initial interest
rates that are below market, referred to as "teaser rates." However, in
underwriting such loans, borrowers are qualified at the full index rate. The
Bank's ARM loans adjust every year. After origination, the interest rate on
such ARM loans is reset based upon a contractual spread or margin above the
average yield on one-year United States Treasury securities, adjusted to a
constant maturity (the "U.S. Treasury Constant Maturity Index"), as published
weekly by the Federal Reserve Board.
ARM loans decrease the risk associated with changes in market interest
rates by periodically repricing, but involve other risks because as interest
rates increase, the underlying payments by the borrower increase, thus
increasing the potential for default by the borrower. At the same time, the
marketability of the underlying collateral may be adversely affected by
higher interest rates. Upward adjustment of the contractual interest rate is
also limited by the maximum periodic and lifetime interest rate adjustment
permitted by the terms of the ARM loans, and, therefore, is potentially
limited in effectiveness during periods of rapidly rising interest rates. At
June 30, 1998, 23.0% of the Bank's loan portfolio consisted of one-to four-
family residential loans with adjustable interest rates.
The Bank originates construction/permanent loans to homeowners for the
purpose of construction of primary and secondary residences. The Bank issues
a commitment and has one closing which encompasses both the construction
phase and permanent financing. The construction phase is a maximum term of
six months and the interest charged is the rate as stated in the commitment,
with loan-to-value ratios of up to 80% (or up to 95% with private mortgage
insurance), of the completed project. The Bank generally does not originate
loans secured by raw land.
Construction lending generally involves a greater degree of risk than
other one- to four-family mortgage lending. The repayment of the construction
loan is, to a great degree, dependent upon the successful and timely
completion of the construction of the subject property. Construction delays
may further impair the borrower's ability to repay the loan.
The Bank's residential mortgage loan originations are generally obtained
from the Bank's loan representatives operating in its branch offices through
their contacts with existing or past loan customers, depositors of the Bank,
referrals from attorneys and accountants who refer loan applications from the
general public, and local realtors.
All one-to four- family residential mortgage loans originated by the Bank
include "due-on-sale" clauses, which give the Bank the right to declare a
loan immediately due and payable in the event that, among other things, the
borrower sells or otherwise disposes of the real property subject to the
mortgage and the loan is not repaid.
At June 30, 1998, $64.7 million, or 79.7% of the Bank's loan portfolio,
consisted of one-to four- family residential mortgage loans. Approximately
$666,000 of such loans (representing 16 loans) were included in nonperforming
loans as of that date. See "Delinquencies and Classified Assets-Loans Past
Due--Nonperforming Assets."
Commercial Real Estate and Multifamily Loans. At June 30, 1998, $4.5
million, or 5.6%, of the total loan portfolio consisted of commercial real
estate loans. Commercial real estate loans are secured by office buildings,
mixed- use properties and other commercial properties. The Bank originates
fixed- and adjustable-rate commercial mortgage loans with maximum terms of up
to 20 years. The maximum loan-to-value ratio of commercial real estate loans
is generally 75%. At June 30, 1998, the largest commercial mortgage loan had
a principal balance of $445,000 and was secured by a medical arts building.
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<PAGE>
In underwriting commercial real estate loans, the Bank reviews the
expected net operating income generated by the real estate to ensure that it
is generally at least 110% of the amount of the monthly debt service; the age
and condition of the collateral; the financial resources and income level of
the borrower; and the borrower's business experience. The Bank's policy is to
require personal guarantees from all commercial real estate borrowers.
Loans secured by commercial real estate generally are larger than one-to
four- family residential loans and involve a greater degree of risk.
Commercial mortgage loans often involve large loan balances to single
borrowers or groups of related borrowers. Payments on these loans depend to a
large degree on the results of operations and management of the properties or
underlying businesses, and may be affected to a greater extent by adverse
conditions in the real estate market or the economy in general. Accordingly,
the nature of commercial real estate loans makes them more difficult for Bank
management to monitor and evaluate.
The Bank originates a limited number of multi-family loans, which
totalled $338,000, or 0.48% of the Bank's total loans at June 30, 1998.
Multi-family loans are generally secured by apartment buildings and
condominiums located in the Bank's primary market area. The Bank's
underwriting practices and the risks associated with multi-family loans do
not differ substantially from that of commercial real estate loans.
Consumer Loans. The Bank's consumer loans consist of direct loans on new
and used automobiles, personal loans (either secured or unsecured), home
equity loans, and other consumer loans (consisting of passbook loans,
unsecured home improvement loans and recreational vehicle loans). At June 30,
1998, consumer loans totaled $9.4 million, or 11.6% of the total loan
portfolio. Consumer loans (other than home equity loans) are originated at
fixed rates with terms to maturity of one to five years.
Consumer loans generally have shorter terms and higher interest rates
than one-to four- family mortgage loans. In addition, consumer loans expand
the products and services offered by the Bank to better meet the financial
services needs of its customers. Consumer loans generally involve greater
credit risk than residential mortgage loans because of the difference in the
underlying collateral. Repossessed collateral for a defaulted consumer loan
may not provide an adequate source of repayment of the outstanding loan
balance because of the greater likelihood of damage to loss of or
depreciation in the underlying collateral. The remaining deficiency often
does not warrant further substantial collection efforts against the borrower
beyond obtaining a deficiency judgment. In addition, consumer loan
collections depend on the borrower's personal financial stability.
Furthermore, the application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may limit the amount that
can be recovered on such loans.
The Bank's underwriting procedures for consumer loans include an
assessment of the applicant's credit history and the ability to meet existing
and proposed debt obligations. Although the applicant's creditworthiness is
the primary consideration, the underwriting process also includes a
comparison of the value of the security, to the proposed loan amount. The
Bank underwrites its consumer loans internally, which the Bank believes
limits its exposure to credit risks associated with loans underwritten or
purchased from brokers and other external sources.
The Bank offers fixed-rate home equity loans that are secured by the
borrower's residence. Home equity loans are generally underwritten with terms
not to exceed 15 years and under the same criteria that the Bank uses to
underwrite one-to four- family fixed rate loans. Home equity loans may be
underwritten with terms not to exceed 15 years and with a loan to value ratio
of 80% when combined with the principal balance of the existing mortgage
loan. The maximum amount of a home equity loan may not exceed $50,000 unless
approved by the Board of Trustees. The Bank appraises the property securing
the loan at the time of the loan application (but not thereafter) in order to
determine the value of the property securing the home equity loans. At June
30, 1998, the outstanding balance of home equity loans totaled $4.7 million,
or 5.8% of the Bank's loan portfolio.
Commercial Business Loans. The Bank also originates commercial business
loans up to 10 years at fixed rates. The Bank attributes growth in this
portfolio to its ability to offer borrowers senior management attention as
well as timely and local decision-making on commercial loan applications. The
decision to grant a commercial business loan depends primarily on the
creditworthiness and cash flow of the borrower (and any guarantors) and
secondarily on the value of and ability to liquidate the collateral which
consists of receivables, inventory and equipment. The Bank generally requires
annual financial statements and tax returns from its commercial business
borrowers and personal guarantees from the commercial business borrowers. The
Bank also generally requires an appraisal of any real estate that secures the
loan. At June 30, 1998, the Bank had $1.3 million of commercial business
loans which represented 1.7% of the total loan portfolio. On such date, the
average balance of the Bank's commercial business loans was
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<PAGE>
approximately $25,000. The largest commercial business lending relationship had
a balance of $255,000 and represented a loan to a local fire protection district
secured by a fire truck. At June 30, 1998, the Bank's commercial loan portfolio
included seven loans secured by fire trucks.
Commercial business lending generally involves greater risk
than residential mortgage lending and involves risks that are different
from those associated with residential and commercial real estate
lending. Real estate lending is generally considered to be collateral
based, with loan amounts based on predetermined loan to collateral values
and liquidation of the underlying real estate collateral is viewed as the
primary source of repayment in the event of borrower default. Although
commercial business loans may be collateralized by equipment or other
business assets, the liquidation of collateral in the event of a borrower
default is often an insufficient source of repayment because equipment
and other business assets may be obsolete or of limited use, among other
things. Accordingly, the repayment of a commercial business loan depends
primarily on the creditworthiness of the borrower (and any guarantors),
while liquidation of collateral is a secondary and often insufficient
source of repayment.
Loan Maturity Schedule. The following table sets forth certain
information as of June 30, 1998, regarding the amount of loans maturing or
repricing in the Bank's portfolio. Adjustable-rate loans are included in
the period in which interest rates are next scheduled to adjust rather than
the period in which they contractually mature, and fixed-rate loans are
included in the period in which the final contractual repayment is due.
The following table illustrates the future maturities of such loans at
June 30, 1998.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
Within through through through through Beyond
1 Year 3 Years 5 Years 10 years 20 years 20 Years Total
------ ------- ------- -------- -------- -------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One-to four- family $18,706 $ 278 $ 651 $ 8,375 $28,473 $ 8,222 $64,705
Home equity 40 345 1,173 1,921 1,248 -- 4,727
Multi-family 231 -- -- 128 29 -- 388
Commercial 3,359 49 82 444 587 -- 4,521
Construction and land loans -- -- -- -- 358 440 798
------- ----- ------ ------- ------- ------- -------
Total real estate loans $22,336 $ 672 $1,906 $10,868 $30,695 $ 8,662 $75,139
------- ----- ------ ------- ------- ------- -------
------- ----- ------ ------- ------- ------- -------
Consumer loans 802 2,022 1,765 83 44 -- 4,716
Commercial business loans 143 210 439 544 -- -- 1,336
------- ----- ------ ------- ------- ------- -------
Total loan portfolio $23,281 $2,904 $ 4,110 $11,495 $30,739 $ 8,662 $81,191
------- ----- ------ ------- ------- ------- -------
------- ----- ------ ------- ------- ------- -------
</TABLE>
The total amount of the above loans due after June 30, 1999 which
have predetermined interest rates is $57,910, while the total amount of
loans due after such dates which have adjustable interest rates is $0.
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The following table sets forth the loan origination and repayment activities
of the Bank for the periods indicated. The Bank did not purchase or sell any
loans during the periods presented.
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Originations by Type:
Adjustable rate:
One- to four-family.................................... $ 742 $ 1,856
Commercial real estate................................. 45 --
---------- --------
Total adjustable rate.............................. 787 1,856
---------- --------
Fixed rate:
One- to four-family.................................... 15,030 9,535
Commercial real estate................................. 150 586
Construction and land ................................. 2,930 2,605
Home equity ........................................... 2,064 1,996
Installment............................................ 3,194 3,785
Commercial business.................................... 350 568
Passbook............................................... 492 373
---------- --------
Total fixed-rate................................... 24,210 19,448
---------- --------
Total loans originated............................. $ 24,997 $ 21,304
---------- --------
Repayments:
One- to four-family ................................... 12,075 9,268
Commercial real estate................................. 1,017 5
Construction and land ................................. 2,629 3,101
Home equity ........................................... 1,390 1,670
Installment............................................ 2,780 3,208
Commercial business.................................... 46 362
Passbook .............................................. 455 506
---------- --------
Total principal repayments........................... 20,392 18,120
---------- --------
Net increase (decrease)................................ $ 4,605 $ 3,184
---------- --------
---------- --------
</TABLE>
Loan Approval Procedures and Authority. The Board of Trustees establishes
the lending policies and loan approval limits of the Bank. Loan officers
generally have the authority to originate mortgage loans, consumer loans and
commercial business loans up to amounts established for each lending officer.
All residential loans over $200,000, however, must be approved by the Executive
Committee or the full Board of Trustees.
The Board annually approves independent appraisers used by the Bank. For
larger loans, the Bank may require an environmental site assessment to be
performed by an independent professional for all non-residential mortgage loans.
It is the Bank policy to require hazard insurance on all mortgage loans.
Loan Origination Fees and Other Income. In addition to interest earned on
loans, the Bank receives loan origination fees. Such fees and costs vary with
the volume and type of loans and commitments made and purchased, principal
repayments, and competitive conditions in the mortgage markets, which in turn
respond to the demand and availability of money.
In addition to loan origination fees, the Bank also receives other income
that consists primarily of deposit transaction account service charges and late
charges. The Bank also collects fees for originating savings bank life insurance
on an agency basis and for referring student loan borrowers to Sallie Mae.
Finally, the Bank installs, maintains and services merchant bankcard equipment
for local retailers and is paid a percentage of the transactions processed by
such equipment.
66
<PAGE>
Loans-to-One Borrower. Savings banks 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's policy provides that loans to one borrower (or related borrowers)
should not exceed 10% of the Bank's capital and reserves.
At June 30, 1998, the largest aggregate amount loaned by the Bank to one
borrower consisted of $507,000, which consisted of a commercial real estate loan
of $444,650 and a commercial business loan of $62,356. The loans comprising the
lending relationship were performing in accordance with their terms.
Delinquencies and Classified Assets
Collection Procedures. A computer generated late notice is sent and a 2%
late charge is assessed when a payment is 15 days late. A second notice will be
incorporated in the next month's billing notice, approximately 21 days after the
first due payment. Accounts thirty days or more past due will be reviewed by the
collection manager and receive individual attention as required, including
collection letters and telephone calls. Accounts that have a history of
consistent late or delinquent payments will be monitored closely by the
collection manager to avoid further deterioration. Accounts two or more payments
past due are reported to the Board of Trustees for consideration of foreclosure
action. With respect to consumer loans, a late notice is sent and a late charge
is assessed after 10 days (or, in the case of home equity loans, 15 days) after
payment is due. A second notice is sent after 15 days (in the case of home
equity loans, 25 days) thereafter. Loans 30 days or more past due are reviewed
by the collection manager for individual attention, including collection letters
and telephone calls. Accounts three or more payments past due are reported to
the Board of Trustees and are subject to legal action and repossession of
collateral.
Loans Past Due and Non-performing Assets. Loans are reviewed on a regular
basis. Management determines that a loan is impaired when it is probable that at
least a portion of the loan will not be collected due to an irreversible
deterioration in the financial condition of the borrower or the value of the
underlying collateral. When a loan is determined to be impaired, the measurement
of the loan is based on present value of estimated future cash flows, except
that all collateral-dependent loans are measured for impairment on the fair
value of the collateral. Management places loans on nonaccrual status once the
loans have become over 90 days delinquent. Nonaccrual is defined as a loan in
which collectibility is questionable and therefore interest on the loan will no
longer be recognized on an accrual basis. Instead, such interest is recognized
on a cash basis until such time as the borrower has brought the loan to
nondelinquent status. At June 30, 1998, the Bank had non-performing loans of
$884,000, and a ratio of non-performing loans to total loans of 1.10%.
Real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure is classified as 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 value of
the property is less than the loan, less any related specific loan loss
provisions, the difference is charged against the allowance for loan losses. Any
subsequent write-down of REO is charged against earnings. At June 30, 1998, the
Bank's REO totalled $124,000, and its ratio of non-preforming assets to total
assets was 0.72%.
67
<PAGE>
The following table sets forth delinquencies in the Bank's loan portfolio at
June 30, 1998. When a loan is delinquent 90 days or more, the Bank fully
reverses all accrued interest thereon and ceases to accrue interest thereafter.
For all the dates indicated, the Bank did not have any material restructured
loans within the meaning of SFAS 114.
<TABLE>
<CAPTION>
60-89 Days 90 Days and Over Total Delinquent Loans
---------- ----------------- -----------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
(Dollars in Thousands)
------ ------ -------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family.............. 8 $ 387 75.88% 16 $ 666 75.34% 24 $ 1,053 75.54%
Multi-family..................... 1 123 24.12 -- -- -- 1 123 8.82
Commercial....................... -- -- -- 2 91 10.29 2 91 6.53
Construction and land loans...... -- -- -- -- -- -- -- -- --
Consumer............................ -- -- -- 4 20 2.27 4 20 1.43
Commercial business................. -- -- -- 3 107 12.10 3 107 7.68
------ ------ -------- ------- ------- -------- ------- ------- --------
Total.......................... 9 $ 510 100% 25 $ 884 100% 34 $ 1,394 100%
------ ------ -------- ------- ------- -------- ------- ------- --------
------ ------ -------- ------- ------- -------- ------- ------- --------
</TABLE>
68
<PAGE>
Nonaccrual Loans and Nonperforming Assets. The following table sets forth
information regarding nonaccrual loans and other non-performing assets. The Bank
had no accruing loans delinquent more than 90 days at June 30, 1998 or 1997.
<TABLE>
<CAPTION>
June 30,
--------------
1998 1997
------ ------
(Dollars in Thousands)
<S> <C> <C>
Nonaccruing loans:
One- to four-family............................. $ 666 $ 293
Commercial real estate.......................... 91 296
Consumer........................................ 20 5
Commercial business............................. 107 139
-------------- -------------
Total......................................... 884 733
-------------- -------------
Foreclosed assets:
One- to four-family............................. -- 32
Multi-family.................................... -- 38
Nonfarm, nonresidential properties.............. 124 --
-------------- -------------
Total......................................... $ 124 $ 70
-------------- -------------
-------------- -------------
Total non-performing assets........................ 1,008 803
Total as a percentage of total assets.............. .72% .61%
</TABLE>
During the year ended June 30, 1998, gross interest income of $40,000 would
have been recorded on nonaccruing loans under their original terms, if the loans
had been current throughout the period. No interest income was recorded on
nonaccruing loans or on accruing loans more than 90 days delinquent during the
year ended June 30, 1998.
Classification of Assets. Consistent with regulatory guidelines, the Bank
provides for the classification of loans and other assets considered to be of
lesser quality. Such ratings coincide with the "Substandard", "Doubtful" and
"Loss" classifications used by federal regulators in their examination of
financial institutions. Generally, an asset is considered Substandard if it is
inadequately protected by the current net worth and paying capacity of the
obligors and/or the collateral pledged. Substandard assets include those
characterized by the distinct possibility that the insured financial institution
will sustain some loss if the deficiencies are not corrected. Assets classified
as Doubtful have all the weaknesses inherent in assets classified Substandard
with the added characteristic that the weaknesses present make collection or
liquidation in full, on the basis of currently existing facts, highly
questionable and improbable. Assets classified as Loss are those considered
uncollectible and of such little value that their continuance as assets without
the establishment of a specific loss reserve and/or charge-off is not warranted.
Assets which do not currently expose the insured financial institution to
sufficient risk to warrant classification in one of the aforementioned
categories but otherwise possess weaknesses are designated "Special Mention."
When the Bank classifies problem assets as either Substandard or Doubtful,
it establishes general valuation allowances or "loss reserves" in an amount
deemed prudent by management. General allowances represent loss allowances that
have been established to recognize the inherent risk associated with lending
activities, but which, unlike specific allowances, 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 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 general or specific loss allowances. The
Bank reviews its portfolio monthly to determine whether any assets require
classification in accordance with applicable regulations.
69
<PAGE>
On the basis of management's review of its assets, at June 30, 1998, the
Bank had classified a total of $113,000 of loans as follows:
<TABLE>
<CAPTION>
At June 30, 1998
-----------------
(In Thousands)
<S> <C>
Special mention....................... $ --
Substandard........................... 113
Doubtful assets....................... --
Loss assets........................... --
--
Total.............................. $ 113
General loss allowance................ $ 511
Specific loss allowance............... $ 104
Charge-offs........................... $ 126
</TABLE>
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in the loan portfolio, the composition of the loan portfolio, specific
impaired loans and current economic conditions. Such evaluation, which includes
a review of all loans on which full collectibility may not be reasonably
assured, considers among other matters, the estimated net realizable value or
the fair value of the underlying collateral, economic conditions, historical
loan loss experience and other factors that warrant recognition in providing for
an adequate loan loss allowance. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowance for loan losses and valuation of REO. Such agencies may require the
Bank to recognize additions to the allowance based on their judgment about
information available to them at the time of their examination. The allowance
for loan losses is increased by a provision for loan losses (which results in a
charge to noninterest expense) and is reduced by net charge-offs. The Bank's
provision for loan losses is described in "Management's Discussion and Analysis
of Financial Condition and Results of Operations." At June 30, 1998, the total
allowance was $728,000, which amounted to 0.91% of total loans and 82.17% of
nonperforming loans. Management will continue to monitor and modify the level of
the allowance for loan losses in order to maintain it at a level which
management considers adequate to provide for potential loan losses. For the
years ended June 30, 1998 and 1997, the Bank had charge-offs of $126,000 and
$11,000, respectively, against this allowance.
70
<PAGE>
Analysis of the Allowance For Loan Losses. The following table sets forth
the analysis of the allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------
1998 1997
---------- ----------
(In thousands)
<S> <C> <C>
Balance at beginning of period..................... $ 723 $ 597
------------- -------------
Charge-offs:
One- to four-family............................. 18 --
Commercial real estate.......................... 70 --
Consumer........................................ 28 11
Commercial business............................. 10 --
------------- -------------
126 11
------------- -------------
Recoveries:
One- to four-family............................. -- 12
Consumer........................................ 11 --
------------- -------------
11 12
------------- -------------
Net charge-offs.................................... 115 (1)
Additions charged to operations.................... 120 125
------------- -------------
Balance at end of period........................... $ 728 $ 723
------------- -------------
Ratio of net charge-offs during the period to
average loans outstanding during the period..... .15% .001%
------------- -------------
Ratio of net charge-offs during the period to
average non-performing assets................... 12.74% .15%
------------- -------------
------------- -------------
</TABLE>
Allocation of Allowance for Loan Losses. The following table sets forth the
allocation of the allowance for loan losses by loan category for the periods
indicated. The allowance is allocated to each loan category based on historical
loss experience and economic conditions. The unallocated portions of the
allowance represent general reserves for unused lines of credit and inherent
risk associated with increased volume in lending transactions.
71
<PAGE>
<TABLE>
<CAPTION>
June 30,
----------
1998 1997
---- ----
Percent Percent
of Loans of Loans
Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans
--------- ---------- ---------- --------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family..................... $ 318 $ 64,705 79.7% $ 293 $ 60,981 79.6%
Multi-family............................ 1 388 .5 1 195 .3
Commercial real estate.................. 78 4,521 5.6 88 5,343 7.0
Construction and land .................. 2 798 1.0 1 497 .6
Consumer................................ 59 4,064 5.0 52 3,619 4.7
Commercial business..................... 62 1,336 1.6 45 1,032 1.3
Home equity loans....................... 14 4,727 5.8 12 4,053 5.3
Passbook loans.......................... 5 544 .7 5 507 .7
Specific................................ 104 108 .1 205 359 .5
Unallocated............................. 85 21
---------- ---------
Total................................ $ 728 $ 81,191 100.00% $ 723 $ 76,586 100.00%
---------- --------- -------- --------- --------- ---------
---------- --------- -------- --------- --------- ---------
</TABLE>
Securities Investment Activities
Given the Bank's substantial portfolio of fixed-rate residential mortgage
loans, the Bank maintains high balances of liquid investments for the purpose of
reducing interest rate risk. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Management of Interest Rate
Risk". The securities investment policy is established by the Board of Trustees.
This policy dictates that investment decisions will be made based on the safety
of the investment, liquidity requirements, potential returns, cash flow targets,
and desired risk parameters. In pursuing these objectives, management considers
the ability of an investment to provide earnings consistent with factors of
quality, maturity, marketability and risk diversification.
The Bank's current policies generally limit securities investments to U.S.
Government and agency securities, federal funds sold, municipal bonds, corporate
debt obligations and mutual funds. The two mutual funds in which the Bank
invests have portfolios comprised primarily of adjustable-rate mortgage-backed
securities and were purchased by the Bank to provide interest earning liquid
funds and an adjustable interest rate. In addition, the Bank's policy permits
investments in mortgage-backed securities, including securities issued and
guaranteed by Fannie Mae, Freddie Mac, GNMA and collateralized mortgage
obligations ("CMOs"). The Bank's current securities investment strategy utilizes
a risk management approach of diversified investing between three categories:
short-, intermediate- and long-term. The emphasis of this approach is to
increase overall investment securities yields while managing interest rate risk.
The Bank will only invest in securities rated A or higher by at least one
nationally recognized rating agency (or securities attaining such rating as a
result of guarantees by insurance companies), with the exception of occasional
investments in smaller non-rated local bonds. The Bank does not engage in any
hedging transactions, such as interest rate swaps or caps.
At June 30, 1998, the Bank had $47.8 million in investment securities, or
34.1% of total assets. 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 regarding its investments. As of June 30, 1998, the
entire investment securities portfolio was classified as available for sale. At
June 30, 1998, the Bank's mortgage-backed securities portfolio totaled $5.2
million, or 3.7% of total assets and the Bank's asset-backed securities
portfolio totalled $6.3 million, or 4.5% of total assets.
72
<PAGE>
Book Value of Investment Securities. The following table sets forth certain
information regarding the investment securities and other interest earning
assets as of the dates indicated.
<TABLE>
<CAPTION>
June 30,
----------
1998 1997
---- ----
Book % of Book % of
Value Total Value Total
--------- -------- --------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Investment securities available for sale:
U.S. government securities............... $ 12,969 27.4% $ 18,532 43.2%
Federal agency obligations............... 8,569 18.1 7,145 16.7
Corporate debt securities................ 3,736 7.8 3,079 7.3
Municipal bonds.......................... 7,390 15.6 6,312 14.7
Equity securities........................ 81 .2 100 .2
Mortgage-backed securities............... 5,196 11.0 5,221 12.2
Asset-backed securities.................. 6,305 13.2 784 1.8
Mutual funds............................. 2,353 5.0 1,644 3.8
Other.................................... 75 .2 75 .1
Subtotal............................. 46,674 98.5% 42,892 100.00%
FHLB stock.................................. 700 1.5 -- --
--------- -------- --------- --------
Total investment securities and FHLB stock $ 47,374 100.00% $ 42,892 100.00%
--------- -------- --------- --------
--------- -------- --------- --------
</TABLE>
Investment Portfolio Maturities. The following table sets forth the
scheduled maturities, book value, market value and weighted average yields for
the Bank's investment portfolio at June 30, 1998.
<TABLE>
<CAPTION>
At June 30, 1998
---------------------------
Less Than 1 to 5 5 to 10 Over Total
1 Year Year Years 10 Years Securities
Book Book Book Book Book Market
Value Value Value Value Value Value
--------- --------- --------- -------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. government securities................ $ 5,731 $ 6,643 $ 595 $ -- $ 12,969 $ 13,190
Federal agency obligations................ 1,001 7,568 -- -- 8,569 8,620
Mortgage-backed securities................ 270 3,452 343 1,131 5,196 5,189
Asset-backed securities................... -- 1,203 2,083 3,019 6,305 6,324
Corporate debt securities................. 100 2,400 1,236 -- 3,736 3,799
Municipal bonds........................... 955 3,679 2,756 -- 7,390 7,479
Equity securities......................... 81 -- -- -- 81 81
Mutual funds.............................. 2,353 -- -- -- 2,353 2,321
FHLB stock................................ 700 -- -- -- 700 700
Other..................................... 75 -- -- -- 75 75
--------- --------- --------- -------- ---------- ----------
Total securities.......................... $ 11,266 $ 24,945 $ 7,013 $ 4,150 $ 47,374 $ 47,778
--------- --------- --------- -------- ---------- ----------
--------- --------- --------- -------- ---------- ----------
Weighted average yield.................... 6.36% 6.23% 5.65% 6.25% 6.12% --
--------- --------- --------- -------- ---------- ----------
--------- --------- --------- -------- ---------- ----------
</TABLE>
Mortgage-Backed Securities. The Bank purchases mortgage-backed securities in
order to: (i) generate positive interest rate spreads with minimal
administrative expense; (ii) lower the Bank's credit risk as a result of the
guarantees provided by Freddie Mac, Fannie Mae, and GNMA; and (iii) increase
liquidity. At June 30, 1998, mortgage-backed securities (including CMOs) totaled
$5.2 million or 3.7% of total assets, all of which were classified as available
for sale. At June 30, 1998, all of the mortgage-backed securities were fixed
rate. The mortgage-backed securities portfolio had coupon rates ranging from
5.25% to 7.15%, a weighted average yield of 6.13% and a weighted average life
(including pre-payment assumptions) of 1.85 years at June 30, 1998. The
estimated market value of the Bank's mortgage-backed securities at June 30, 1998
was $5.2 million which was $25,000 greater than the book value.
Mortgage-backed securities are created by the pooling of mortgages and the
issuance of a security 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 the Bank focuses its investments on mortgage-backed securities backed
by single-family mortgages. The issuers of such securities (generally
73
<PAGE>
U.S. Government agencies and government sponsored enterprises, including Fannie
Mae, Freddie Mac and GNMA) 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 and credit enhancements. In addition, 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 estimated over the life of the security, which may require
adjustments to the amortization of any premium or accretion of any discount
relating to such instruments thereby altering the net yield on such securities.
There is also reinvestment risk associated with the cash flows from such
securities or in the event such securities are redeemed by the issuer. In
addition, the market value of such securities may be adversely affected by
changes in interest rates. Management reviews prepayment estimates periodically
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 Bank's mortgage-backed
securities portfolio. Of the Bank's $5.2 million mortgage-backed securities
portfolio at June 30, 1998, $3.7 million with a weighted average yield of 6.20%
had contractual maturities within five years , $343,000 with a weighted average
yield of 5.25% had contractual maturities of five to ten years and the remaining
$1.1 million with a weighted average yield of 6.20% had contractual maturities
more than 10 years. However, the actual maturity of a security may be less than
its stated 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
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 Bank's 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.
At June 30, 1998, the Bank's portfolio of asset-backed securities totalled
$6.3 million, or 4.5% of total assets, all of which were classified as available
for sale. At June 30, 1998, all of the asset-backed securities were fixed rate.
The portfolio had coupon rates ranging form 5.25% to 7.00%, a weighted average
yield of 6.37% and a weighted average life (including pre-payment assumptions)
of 1.75 years at June 30, 1998. The estimated market value of the Bank's
asset-backed securities portfolio at June 30, 1998 was $6.3 million, which was
$19,000 greater than the book value at such date.
Asset-backed securities are a type of debt security collateralized by
various loans and assets including: automobile loans, equipment leases, credit
card receivables, home equity and improvement loans, manufactured housing,
student loans and other consumer loans. In the case of the Bank, its
asset-backed securities are collateralized by automobile loans and
second-mortgage loans. Issuance of asset-backed securities begins with creation
of a special purpose bankruptcy-remote trust to hold collateral on behalf of
investors and to administer the distribution of cash flows. The business of a
bankruptcy-remote asset-backed securities trust is restricted to the purchase of
loans and issuance of debt collateralized by those loans. Because consumer loans
are amortizing, alternate principal cash flow structures can be created and
tranched in a very similar manner as CMOs. There are several typical structures
available to investors in the asset-backed securities market. They are excess
spread, senior/subordinated, reserve funds and surety bond guaranteed. Excess
spread is the first line of protection for most asset-backed securities and is
the difference between interest cash flow from the underlying loans and the
combined investor coupon, servicing fee, charge-offs and trust costs.
Senior/subordinated structures are internal credit support designating one
portion of the transaction as junior to the remaining portion. Obligations to
the senior class are honored prior to junior class obligations in the event of a
cash flow shortfall from the collateral. A reserve fund is, in effect, part of
the subordinated piece retained, in a declining balance, by the trust so that a
portion of the junior class may be rated investment grade. Surety bond or
guarantee structures are guarantees by third party AAA-rated monoline insurance
companies. Insurers generally guarantee (or wrap) the principal and interest
payments of 100% of a transaction, not just the subordinated class. Asset-backed
securitizations provide the Bank with a broad selection of fixed-income
alternatives, most with higher credit ratings and less downgrade risk than
corporate bonds and more stable cash flows than mortgage related securities.
Prepayments and structure risk of asset-backed securities are less of a concern
than CMO securities due to the shorter maturities of the underlying collateral
promoting greater stability of payments.
74
<PAGE>
Of the Bank's $6.3 million portfolio of asset-backed securities at June 30,
1998, $1.2 million with a weighted average yield of 5.70% had contractual
maturities within 5 years, $2.1 million with a weighted average yield of 6.20%
had contractual maturities of 5 to 10 years, and the remaining $3.7 million with
a weighted average yield of 6.72% had contractual maturities of more than 10
years.
Sources of Funds
General. Deposits, repayments and prepayments of loans and securities,
proceeds from sales of securities, and 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.
Deposits. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. The Bank's deposit accounts consist of savings, NOW
accounts, non-interest bearing checking accounts and money market accounts, and
certificates of deposit. The Bank offers certificates of deposit with balances
in excess of $100,000 but does not pay preferential rates on such certificates.
The Bank also offers IRAs.
At June 30, 1998, deposits totaled $122.3 million. At June 30, 1998, the
Bank had a total of $55.6 million in certificates of deposit, of which $43.1
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. Deposits are obtained predominantly from the areas in which the
Bank's branch offices are located. The Bank relies primarily on competitive
pricing of its deposit products and customer service and long-standing
relationships with customers to attract and retain these deposits; however,
market interest rates and rates offered by competing financial institutions
significantly affect the Bank's ability to attract and retain deposits. The Bank
uses traditional means of advertising its deposit products, including radio,
television, and print media and it generally does not solicit deposits from
outside its market area. While certificates of deposit in excess of $100,000 are
accepted by the Bank, they are not subject to preferential rates. The Bank 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 sets forth the deposit activities of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
Years Ended
June 30,
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Opening balance.................................... $ 115,855 $ 114,187
Deposits........................................... 228,799 200,355
Withdrawals........................................ 227,002 203,188
Interest credited.................................. 4,672 4,501
Ending balance..................................... 122,324 115,855
Net increase (decrease)............................ 6,469 1,668
Percent increase (decrease)........................ 5.58% 1.47%
</TABLE>
75
<PAGE>
The following table indicates the amount of the Bank's certificates of
deposit by time remaining until maturity as of June 30, 1998.
<TABLE>
<CAPTION>
Over
3 Months 4 to 12 Over
or Less Months 12 Months Total
--------- -------- --------- ------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than $100,000..... 10,828 27,014 11,088 48,930
Certificates of deposit of $100,000 or more.... 936 4,272 1,464 6,672
--------- -------- --------- ------
Total certificates of deposit.................. 11,764 31,286 12,552 55,602
--------- -------- --------- ------
--------- -------- --------- ------
</TABLE>
The following tables set forth information, by various rate categories,
regarding the balance of deposits by types of deposit for the periods indicated.
<TABLE>
<CAPTION>
June 30,
1998 1997
---- ----
Amount Percent Amount Percent
----------- ---------- ---------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Transactions and Savings Deposits:
Demand Accounts............................. $ 7,514 6.14% $ 6,345 5.48%
Savings Accounts............................ 33,412 27.31 32,480 28.04
NOW Accounts................................ 6,187 5.06 5,341 4.61
Money Market Accounts....................... 19,609 16.03 20,439 17.64
----------- ---------- ---------- --------
Total Non-Certificates......................... 66,722 54.54 64,605 55.77
----------- ---------- ---------- --------
Certificates:
0.00-3.99%.................................. 612 .50 490 .42
4.00-5.99%.................................. 46,733 38.20 41,974 36.23
6.00-7.99%.................................. 8,257 6.76 8,786 7.58
8.00% and over.............................. -- -- -- --
----------- ---------- ---------- --------
Total Certificates............................. 55,602 45.46 51,250 44.23
----------- ---------- ---------- --------
Total Deposits................................. $ 122,324 100.00% $ 115,855 100.00%
----------- ---------- ---------- --------
----------- ---------- ---------- --------
</TABLE>
The following table sets forth the amount and remaining maturities of the
Bank's certificates of deposit accounts at June 30, 1998.
<TABLE>
<CAPTION>
0.00- 4.00- 6.00 or Percent
3.99% 5.99% greater Total of Total
----- ----- ------- ----- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Certificate accounts maturing in quarter ending:
30-Sep-98.................................. $ 612 $11,152 $ -- $11,764 $21.16%
31-Dec-98.................................. -- 11,518 463 11,981 21.55
31-Mar-99.................................. -- 9,055 1,944 10,999 19.78
30-Jun-99.................................. -- 7,101 1,204 8,305 14.94
30-Sep-99.................................. -- 2,074 395 2,469 4.44
31-Dec-99.................................. -- 2,169 229 2,398 4.31
31-Mar-00.................................. -- 1,137 408 1,545 2.78
30-Jun-00.................................. -- 781 367 1,148 2.06
30-Sep-00.................................. -- 716 152 868 1.56
31-Dec-00.................................. -- 685 397 1,082 1.95
31-Mar-01.................................. -- 104 498 602 1.08
30-Jun-01.................................. -- 224 316 540 .97
Thereafter................................. -- 17 1,884 1,901 3.42
Total...................................... $ 612 $46,733 $ 8,257 $55,602 100%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Percent of total........................... 1.00% 84.1% 14.9%
-------- -------- --------
-------- -------- --------
</TABLE>
76
<PAGE>
Borrowed Funds. In the event that the Bank requires funds beyond its ability
to generate them in internally, additional sources of funds are available
through the use of short-term FHLB advances and two credit facilities made
available to the Bank by other financial institutions. At June 30, 1998, the
Bank had no borrowed funds. Properties
The Bank currently conducts its business through four full service banking
offices. The following table sets forth the Bank's offices as of June 30, 1998.
The Bank's current facilities are considered by management to be adequate for
the needs of the Bank in the foreseeable future.
<TABLE>
<CAPTION>
Location Leased Original Date of Net Book Value
or Year Lease of Property or
Owned Leased or Expiration Leasehold
Acquired Improvements at
June 30, 1998
---------------
(In thousands)
<S> <C> <C> <C> <C>
Main Office: (1)
Main & Church Streets Owned 1963 -- 209
Catskill, New York 12414
Full Service Branches:
Route 385 Owned 1974 -- 87
West Coxsackie, NY 12051
Main Street Owned 1988 -- 261
Cairo, NY 12413
Route 32 Owned 1997 -- 973
Greenville, NY 12083
Operations Dept.:
429 Main Street Leased 1990 May 31, 2000 --
Catskill, NY 12414
</TABLE>
- ----------
(1) Includes adjacent parking lot.
Legal Proceedings
The Bank is not involved in any pending legal proceedings other than routine
legal proceedings occurring in the ordinary course of business which, in the
aggregate, involve amounts which are believed by management to be immaterial to
the financial condition or operations of the Bank.
Personnel
As of June 30, 1998, the Bank had 53 full-time employees and three 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.
77
<PAGE>
FEDERAL AND STATE TAXATION
Federal Taxation
General. The Mutual Company, the Company and the Bank will be subject to
federal income taxation in the same general manner as other corporations, with
some exceptions discussed below. The following discussion of federal taxation is
intended only to summarize certain pertinent federal income tax matters and is
not a comprehensive description of the tax rules applicable to the Bank.
Method of Accounting. For federal income tax purposes, the Bank currently
reports its income and expenses on the accrual method of accounting and uses a
tax year ending December 31 for filing its consolidated federal income tax
returns. The Small Business Protection Act of 1996 (the "1996 Act") eliminated
the use of the reserve method of accounting for bad debt reserves by savings
institutions, effective for taxable years beginning after 1995.
Bad Debt Reserves. Prior to the 1996 Act, the Bank was permitted to
establish a reserve for bad debts and to make annual additions to the reserve.
These additions could, within specified formula limits, be deducted in arriving
at the Bank's taxable income. As a result of the 1996 Act, the Bank must use the
specific charge off method in computing its bad debt deduction beginning with
its 1996 Federal tax return. In addition, the federal legislation requires the
recapture (over a six year period) of the excess of tax bad debt reserves at
December 31, 1995 over those established as of December 31, 1987. The amount of
such reserve subject to recapture as of June 30, 1998, was approximately
$379,000.
Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt
reserves created prior to January 1, 1988 were subject to recapture into taxable
income should the Bank fail to meet certain thrift asset and definitional tests.
New federal legislation eliminated these thrift related recapture rules.
However, under current law, pre-1988 reserves remain subject to recapture should
the Bank make certain non-dividend distributions.
At June 30, 1998, the Bank's total federal pre-1988 reserve was
approximately $379,000. This reserve reflects the cumulative effects of federal
tax deductions by the Bank for which no Federal income tax provision has been
made.
Minimum Tax. The Code imposes an alternative minimum tax ("AMT") at a rate
of 20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The AMT is payable to the
extent such AMTI is in excess of an exemption amount. Net operating losses can
offset no more than 90% of AMTI. Certain payments of alternative minimum tax may
be used as credits against regular tax liabilities in future years. The Bank has
not been subject to the alternative minimum tax and has no such amounts
available as credits for carryover.
Net Operating Loss Carryovers. A financial institution may carry back net
operating losses to the preceding two taxable years and forward to the
succeeding 20 taxable years. This provision applies to losses incurred in
taxable years beginning after August 5, 1997. At June 30, 1998, the Bank had no
net operating loss carryforwards for federal income tax purposes.
Corporate Dividends-Received Deduction. The Company may exclude from its
income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. Following completion of the Reorganization and
Offering, it is expected that the Mutual Company will own less than 80% of the
outstanding Common Stock of the Company. As such, the Mutual Company will not be
permitted to file a consolidated federal income tax return with the Company and
the Bank. The corporate dividends-received deduction is 80% in the case of
dividends received from corporations with which a corporate recipient does not
file a consolidated return, and corporations which own less than 20% of the
stock of a corporation distributing a dividend may deduct only 70% of dividends
received or accrued on their behalf.
78
<PAGE>
State Taxation
New York State Taxation - General. The Company and the Bank will report
income on a combined calendar year basis to New York State. The New York State ^
franchise tax on banking 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) $250. 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. The Mutual Company will file a separate New York State franchise
tax return.
Bad Debt Reserves. The Bank is allowed to utilize the reserve method of
accounting for New York State franchise tax purposes and is required to maintain
two reserve accounts-the Reserve for Losses on Nonqualifying Loans (the "NY NQL
Reserve") and the Reserve for Losses on Qualifying Real Property Loans (the "NY
QRPL Reserve"). The addition to the NY NQL Reserve must be computed under the
"experience method". The addition to the NY QRPL Reserve may be computed under
either the experience method or the "percentage of taxable income method" (the
"PTI method"). The deduction under the PTI method is equal to 32% of entire net
income (before the deduction for the bad debt reserve addition), which must
first be allocated to the NY NQL Reserve. The balance, if any, is the allowable
addition to the NY QRPL reserve, subject to a limitation based upon 6% of
Qualifying Real Property Loans ("QRPL"). As of December 31, 1997, the Bank's NY
QRPL Reserve was subject to this limitation.
The Bank will not be subject to the six-year recapture of the excess federal
bad debt reserve at December 31, 1995.
Recapture of New York State Bad Debt Reserves. If the Bank ceases to qualify
as a "thrift institution" (as defined in the New York State tax law), or fails
to hold at least 60% of its assets in "Qualifying Assets", it will no longer be
entitled to use the reserve method and must recapture into entire net income a
portion of its NY QRPL Reserve. The amount subject to recapture is generally
equal to the excess of the NY QRPL Reserve over the federal QRPL Reserve as of
December 31, 1995. The amount of the Bank's NY QRPL Reserve subject to recapture
is approximately $1.8 million. Since it is the Banks' intention to continue to
qualify as a thrift institution and to meet the 60% Qualifying Asset test, a
deferred tax liability has not been established for the $162,000 New York State
tax that would result from such failure.
Net Operating Loss Deductions. For New York State franchise tax purposes,
the Bank is not entitled to carry back or forward net operating losses ("NOLs")
incurred in taxable years ending before January 1, 2001. NOLs incurred in
taxable years beginning on or after January 1, 2001 can be carried forward to
the succeeding 20 taxable years. No carryback of NOLs will be permitted.
Corporate Dividends-Received Deduction. Similar to the federal rules, the
Company and the Bank will file a combined New York State franchise tax report
and intercompany dividends will be eliminated. However, the Mutual Company will
not own the requisite percentage (generally 80% or more) of the common stock of
the Company necessary to file on a combined basis with the Company. As long as
the Mutual Company owns more than 50% of the common stock of the Company, it
will be eligible for a 60% dividends-received deduction. The Mutual Company will
not be entitled to any dividends-received deduction if it owns 50% or less of
the common stock of the Company.
Delaware State Taxes. As a Delaware holding company not earning income in
Delaware, the Company will be exempt from Delaware corporate income tax, but
will be required to file an annual report with, and pay an annual franchise tax
to, the State of Delaware.
79
<PAGE>
REGULATION
General
The Bank is a New York-chartered mutual savings bank and its deposit
accounts are insured up to applicable limits by the FDIC through the BIF. The
Bank is subject to extensive regulation by the Department, as its chartering
agency; and by the FDIC, as its deposit insurer. The Bank is required to file
reports with, and is periodically examined by, the FDIC and the Superintendent
concerning its activities and financial condition and must obtain regulatory
approvals prior to entering into certain transactions, including, but not
limited to, mergers with or acquisitions of other banking institutions. The Bank
is a member of the FHLB of New York and is subject to certain regulations by the
Federal Home Loan Bank System. Both the Company and the Mutual Company, as bank
holding companies, will be subject to regulation by the Federal Reserve Board
and will be required to file reports with the Federal Reserve Board. Any change
in such regulations, whether by the Department, the FDIC, or the Federal Reserve
Board could have a material adverse impact on the Bank, the Company, or the
Mutual Company.
Certain of the regulatory requirements applicable to the Bank, the Company
and the Mutual Company are referred to below or elsewhere herein.
New York Bank Regulation
The exercise by an FDIC-insured savings bank of the lending and investment
powers under the New York State Banking Law is limited by FDIC regulations and
other federal law and regulations. In particular, the applicable provisions of
New York State Banking Law and regulations governing the investment authority
and activities of an FDIC insured state-chartered savings bank have been
substantially limited by the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") and the FDIC regulations issued pursuant thereto.
The Bank derives its lending, investment and other authority primarily from
the applicable provisions of New York State Banking Law and the regulations of
the Department, as limited by FDIC regulations. Under these laws and
regulations, savings banks, including the Bank, may invest in real estate
mortgages, consumer and commercial loans, certain types of debt securities,
including certain corporate debt securities and obligations of federal, state
and local governments and agencies, certain types of corporate equity securities
and certain other assets. Under the statutory authority for investing in equity
securities, a savings bank may invest up to 7.5% of its assets in corporate
stock, with an overall limit of 5% of its assets invested in common stock.
Investment in the stock of a single corporation is limited to the lesser of 2%
of the outstanding stock of such corporation or 1% of the savings bank's assets,
except as set forth below. Such equity securities must meet certain earnings
ratios and other tests of financial performance. A savings bank's lending powers
are not subject to percentage of assets limitations, although there are limits
applicable to single borrowers. A savings bank may also, pursuant to the
"leeway" power, make investments not otherwise permitted under the New York
State Banking Law. This power permits investments in otherwise impermissible
investments of up to 1% of assets in any single investment, subject to certain
restrictions and to an aggregate limit for all such investments of up to 5% of
assets. Additionally, in lieu of investing in such securities in accordance with
and reliance upon the specific investment authority set forth in the New York
State Banking Law, savings banks are authorized to elect to invest under a
"prudent person" standard in a wider range of investment securities as compared
to the types of investments permissible under such specific investment
authority. However, in the event a savings bank elects to utilize the "prudent
person" standard, it will be unable to avail itself of the other provisions of
the New York State Banking Law and regulations which set forth specific
investment authority. The Bank has not elected to conduct its investment
activities under the "prudent person" standard. A savings bank may also exercise
trust powers upon approval of the Department.
New York State chartered savings banks may also invest in subsidiaries under
their service corporation investment authority. A savings bank may use this
power to invest in corporations that engage in various activities authorized for
savings banks, plus any additional activities which may be authorized by the ^
Banking Board. Investment by a savings bank in the stock, capital notes and
debentures of its service corporations is limited to 3% of the bank's assets,
and such investments, together with the bank's loans to its service
corporations, may not exceed 10% of the savings bank's assets. Furthermore, New
York banking regulations impose requirements on loans which a bank may make to
its executive officers and directors and to certain corporations or partnerships
in which such persons have equity interests. These requirements include, but are
not limited to, requirements that (i) certain loans must be approved in advance
by a majority of the entire board of trustees and the interested party must
abstain from participating directly
80
<PAGE>
or indirectly in the voting on such loan, (ii) the loan must be on terms that
are not more favorable than those offered to unaffiliated third parties, and
(iii) the loan must not involve more than a normal risk of repayment or present
other unfavorable features.
Under the New York State Banking Law, the Superintendent may issue an order
to a New York State chartered banking institution to appear and explain an
apparent violation of law, to discontinue unauthorized or unsafe practices and
to keep prescribed books and accounts. Upon a finding by the Department that any
director, trustee or officer of any banking organization has violated any law,
or has continued unauthorized or unsafe practices in conducting the business of
the banking organization after having been notified by the Superintendent to
discontinue such practices, such director, trustee or officer may be removed
from office after notice and an opportunity to be heard. The Bank does not know
of any past or current practice, condition or violation that might lead to any
proceeding by the Superintendent or the Department against the Bank or any of
its trustees or officers.
Insurance of Accounts and Regulation by the FDIC
The Bank is a member of the BIF, which is administered by the FDIC. Deposits
are insured up to applicable limits by the FDIC and such insurance is backed by
the full faith and credit of the U.S. Government. As insurer, the FDIC imposes
deposit insurance premiums and is authorized to conduct examinations of and to
require reporting by FDIC-insured institutions. It also may prohibit any
FDIC-insured institution from engaging in any activity the FDIC determines by
regulation or order to pose a serious risk to the FDIC. The FDIC also has the
authority to initiate enforcement actions against savings banks, after giving
the Superintendent an opportunity to take such action, and may terminate the
deposit insurance if it determines that the institution has engaged or is
engaging in unsafe or unsound practices, or is in an unsafe or unsound
condition.
In late 1995, the FDIC approved a final rule regarding deposit insurance
premiums which, effective with respect to the semi-annual premium assessment
beginning January 1, 1996, reduced deposit insurance premiums for BIF member
institutions to zero basis points (subject to an annual minimum of $2,000) for
institutions in the lowest risk category.
As a result of legislation passed in 1996, relating to the recapitalization
of the Savings Association Insurance Fund ("SAIF"), from 1997 through 1999,
FDIC-insured institutions will pay an insurance premium of approximately 1.3
basis points of their BIF-assessable deposits. Based upon assessable deposits at
June 30, 1998, the Bank would expect to pay $3,600 in insurance premiums per
quarter during 1998.
Regulatory Capital Requirements
The FDIC has adopted risk-based capital guidelines to which the Bank is
subject. The guidelines establish a systematic analytical framework that makes
regulatory capital requirements more sensitive to differences in risk profiles
among banking organizations. The Bank is required to maintain certain levels of
regulatory capital in relation to regulatory risk-weighted assets. The ratio of
such regulatory capital to regulatory risk-weighted assets is referred to as the
Bank's "risk-based capital ratio." Risk-based capital ratios are determined by
allocating assets and specified off-balance sheet items to four risk-weighted
categories ranging from 0% to 100%, with higher levels of capital being required
for the categories perceived as representing greater risk.
These guidelines divide a savings bank's capital into two tiers. The first
tier ("Tier I") includes common equity, retained earnings, certain
non-cumulative perpetual preferred stock (excluding auction rate issues) and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and other intangible assets (except mortgage servicing rights and
purchased credit card relationships subject to certain limitations).
Supplementary ("Tier II") capital includes, among other items, cumulative
perpetual and long-term limited-life preferred stock, mandatory convertible
securities, certain hybrid capital instruments, term subordinated debt and the
allowance for loan and lease losses, subject to certain limitations, less
required deductions. Savings banks are required to maintain a total risk-based
capital ratio of 8%, of which at least 4% must be Tier I capital.
In addition, the FDIC has established regulations prescribing a minimum Tier
I leverage ratio (Tier I capital to adjusted total assets as specified in the
regulations). These regulations provide for a minimum Tier I leverage ratio of
3% for banks that meet certain specified criteria, including that they have the
highest examination rating and are not experiencing or anticipating significant
growth. All other banks are required to maintain a Tier I leverage ratio of 3%
81
<PAGE>
plus an additional cushion of at least 100 to 200 basis points. The FDIC may,
however, set higher leverage and risk-based capital requirements on individual
institutions when particular circumstances warrant. Savings banks experiencing
or anticipating significant growth are expected to maintain capital ratios,
including tangible capital positions, well above the minimum levels.
Standards for Safety and Soundness
The federal banking agencies have adopted a final regulation and Interagency
Guidelines Prescribing Standards for Safety and Soundness ("Guidelines") to
implement the safety and soundness standards required under federal law. The
Guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. The standards set forth in the Guidelines
address internal controls and information systems; internal audit system; credit
underwriting; loan documentation; interest rate risk exposure; asset growth; and
compensation, fees and benefits. The agencies also adopted additions to the
Guidelines which require institutions to examine asset quality and earnings
standards. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by federal law. The final
regulations establish deadlines for the submission and review of such safety and
soundness compliance plans.
Limitations on Dividends and Other Capital Distributions
The FDIC has the authority to use its enforcement powers to prohibit a
savings bank from paying dividends if, in its opinion, the payment of dividends
would constitute an unsafe or unsound practice. Federal law also prohibits the
payment of dividends by a bank that will result in the bank failing to meet its
applicable capital requirements on a pro forma basis. New York law restricts
the Bank from declaring a dividend which would reduce its capital below (i) the
amount required to be maintained by state and federal law and regulations, or
(ii) the amount of the Bank's liquidation account established in connection with
the Reorganization. The liquidation account is expected initially to total $15.7
million. New York law also prescribes that dividends declared by a stock savings
bank in any calendar year shall not exceed the total of its net profits for that
year combined with its retained net profits of the proceeding two years, plus
any required transfer to surplus or for the retirement of any preferred stock,
unless approved by the Superintendent.
Prompt Corrective Action
The federal banking agencies have promulgated regulations to implement the
system of prompt corrective action required by federal law. Under the
regulations, a bank shall be deemed to be (i) "well capitalized" if it has total
risk-based capital of 10.0% or more, has a Tier I risk-based capital ratio of
6.0% or more, has a Tier I leverage capital ratio of 5.0% or more and is not
subject to any written capital order or directive; (ii) "adequately capitalized"
if it has a total risk-based capital ratio of 8.0% or more, a Tier I risk-based
capital ratio of 4.0% or more and a Tier I leverage capital ratio of 4.0% or
more (3.0% under certain circumstances) and does not meet the definition of
"well capitalized"; (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8.0%, a Tier I risk-based capital ratio that is
less than 4.0% or a Tier I leverage capital ratio that is less than 4.0% (3.0%
under certain circumstances); (iv) "significantly undercapitalized" if it has a
total risk-based capital ratio that is less than 6.0%, a Tier I risk-based
capital ratio that is less than 3.0% or a Tier I leverage capital ratio that is
less than 3.0%; and (v) "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than 2.0%. Federal law
and regulations also specify circumstances under which a federal banking agency
may reclassify a well capitalized institution as adequately capitalized and may
require an adequately capitalized institution to comply with supervisory actions
as if it were in the next lower category (except that the FDIC may not
reclassify a significantly undercapitalized institution as critically
undercapitalized).
Based on the foregoing, the Bank is currently classified as a "well
capitalized" savings institution.
Activities and Investments of Insured State-Chartered Banks Acting as Principal
Federal law generally limits the activities and equity investments of
FDIC-insured, state-chartered banks to those that are permissible for national
banks, notwithstanding state laws. Under regulations dealing with equity
investments, an insured state bank generally may not, directly or indirectly,
acquire or retain any equity investment of
82
<PAGE>
a type, or in an amount, that is not permissible for a national bank. An insured
state bank is not prohibited from, among other things, (i) acquiring or
retaining a majority interest in a subsidiary; (ii) investing as a limited
partner in a partnership the sole purpose of which is the direct or indirect
investment in the acquisition, rehabilitation, or new construction of a
qualified housing project, provided that such limited partnership investments
may not exceed 2% of the bank's total assets; (iii) acquiring up to 10% of the
voting stock of a company that solely provides or reinsures directors',
trustees', and officers' liability insurance coverage or bankers' blanket bond
group insurance coverage for insured depository institutions; and (iv) acquiring
or retaining the voting shares of a depository institution if certain
requirements are met.
Federal law and FDIC regulations permit certain exceptions to the foregoing
limitation. For example, certain state-chartered banks, such as the Bank, may
continue to invest in common or preferred stock listed on a National Securities
Exchange or the National Market System of NASDAQ, and in the shares of an
investment company registered under the Investment Company Act of 1940, as
amended. As of June 30, 1998, the Bank had no securities pursuant to this
exception.
Transactions with Affiliates
Under current federal law, transactions between depository institutions and
their affiliates are governed by Sections 23A and 23B of the Federal Reserve
Act. An affiliate of a savings bank is any company or entity that controls, is
controlled by, or is under common control with the savings bank, other than a
subsidiary. In a holding company context, at a minimum, the parent holding
company of a savings bank and any companies which are controlled by such parent
holding company are affiliates of the savings bank. Generally, Section 23A
limits the extent to which the savings bank or its subsidiaries may engage in
"covered transactions" with any one affiliate to an amount equal to 10% of such
savings bank's capital stock and surplus, and contains an aggregate limit on all
such transactions with all affiliates to an amount equal to 20% of such capital
stock and surplus. The term "covered transaction" includes the making of loans
or other extensions of credit to an affiliate; the purchase of assets from an
affiliate, the purchase of, or an investment in, the securities of an affiliate;
the acceptance of securities of an affiliate as collateral for a loan or
extension of credit to any person; or issuance of a guarantee, acceptance, or
letter of credit on behalf of an affiliate. Section 23A also establishes
specific collateral requirements for loans or extensions of credit to, or
guarantees, acceptances on letters of credit issued on behalf of an affiliate.
Section 23B requires that covered transactions and a broad list of other
specified transactions be on terms substantially the same, or no less favorable,
to the savings bank or its subsidiary as similar transactions with
nonaffiliates.
Further, Section 22(h) of the Federal Reserve Act restricts a savings bank
with respect to loans to directors, executive officers, and principal
stockholders. Under Section 22(h), loans to directors, executive officers and
stockholders who control, directly or indirectly, 10% or more of voting
securities of a savings bank, and certain related interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such
persons and affiliated entities, the savings bank's total capital and surplus.
Section 22(h) also prohibits loans above amounts prescribed by the appropriate
federal banking agency to directors, executive officers, and stockholders who
control 10% or more of voting securities of a stock savings bank, and their
respective related interests, unless such loan is approved in advance by a
majority of the board of directors of the savings bank. Any "interested"
director may not participate in the voting. The loan amount (which includes all
other outstanding loans to such person) as to which such prior board of director
approval is required, is the greater of $25,000 or 5% of capital and surplus or
any loans over $500,000. Further, pursuant to Section 22(h), loans to directors,
executive officers and principal stockholders must generally be made on terms
substantially the same as offered in comparable transactions to other persons.
Section 22(g) of the Federal Reserve Act places additional limitations on loans
to executive officers.
Holding Company Regulation
Federal Bank Holding Company Regulation. Upon consummation of the
Reorganization, the Company, as the sole shareholder of the Bank, and the Mutual
Company, as indirect controlling shareholder of the Bank, will become bank
holding companies. Bank holding companies are subject to comprehensive
regulation and regular examinations by the Federal Reserve Board under the Bank
Holding Company Act of 1956, as amended (the "BHCA"), and the regulations of the
Federal Reserve Board. The Federal Reserve Board also has extensive enforcement
authority over bank holding companies, including, among other things, the
ability to assess civil money penalties, to issue cease and desist or removal
orders and to require that a holding company divest subsidiaries (including its
bank subsidiaries). In general, enforcement actions may be initiated for
violations of law and regulations and unsafe or unsound practices.
83
<PAGE>
After consummation of the Reorganization and Offering, the Company will be
subject to capital adequacy guidelines for bank holding companies (on a
consolidated basis) which are substantially similar to those of the FDIC for the
Bank. On a pro forma consolidated basis after the Reorganization and Offering,
the Company's pro forma stockholders' equity will exceed these requirements.
Under Federal Reserve Board policy, a bank holding company must serve as a
source of strength for its subsidiary bank. Under this policy the Federal
Reserve Board may require, and has required in the past, a holding company to
contribute additional capital to an undercapitalized subsidiary bank.
Under the BHCA, a bank holding company must obtain Federal Reserve Board
approval before: (i) acquiring, directly or indirectly, ownership or control of
any voting shares of another bank or bank holding company if, after such
acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares); (ii) acquiring all or
substantially all of the assets of another bank or bank holding company; or
(iii) merging or consolidating with another bank holding company.
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company which is not a bank or bank holding company, or
from engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve certain non-bank activities
which, by statute or by Federal Reserve Board regulation or order, have been
identified as activities closely related to the business of banking or managing
or controlling banks. The list of activities permitted by the Federal Reserve
Board includes, among other things, operating a savings association, mortgage
company, finance company, credit card company or factoring company; performing
certain data processing operations; providing certain investment and financial
advice; underwriting and acting as an insurance agent for certain types of
credit-related insurance; leasing property on a full-payout, non-operating
basis; selling money orders, travelers' checks and United States Savings Bonds;
real estate and personal property appraising; providing tax planning and
preparation services; and, subject to certain limitations, providing securities
brokerage services for customers.
Interstate Banking and Branching. Federal law allows the Federal Reserve
Board to approve an application of an adequately capitalized and adequately
managed bank holding company to acquire control of, or acquire all or
substantially all of the assets of, a bank located in a state other than such
holding company's home state, without regard to whether the transaction is
prohibited by the laws of any state. The Federal Reserve Board may not approve
the acquisition of the bank that has not been in existence for the minimum time
period (not exceeding five years) specified by the statutory law of the host
state. The Federal Reserve Board is prohibited from approving an application if
the applicant (and its depository institution affiliates) controls or would
control more than 10% of the insured deposits in the United States or 30% or
more of the deposits in the target bank's home state or in any state in which
the target bank maintains a branch. Individual states continue to have authority
to limit the percentage of total insured deposits in the state which may be held
or controlled by a bank or bank holding company to the extent such limitation
does not discriminate against out-of-state banks or bank holding companies.
Individual states may also waive the 30% state-wide concentration limit referred
to above.
Additionally, beginning on June 1, 1997, the federal banking agencies were
authorized to approve interstate merger transactions without regard to whether
such transaction is prohibited by the law of any state, unless the home state of
one of the banks "opted out" by adopting a law which applies equally to all
out-of-state banks and expressly prohibits merger transactions involving
out-of-state banks. Interstate acquisitions of branches are permitted only if
the law of the state in which the branch is located permits such acquisitions.
In response to Riegle-Neal, the State of New York enacted laws allowing
interstate mergers and branching on a reciprocal basis.
Federal law authorizes the FDIC to approve interstate branching de novo by
national and state banks, respectively, only in states which specifically allow
for such branching. The appropriate federal banking agencies are required to
prescribe regulations which prohibit any out-of-state bank from using the
interstate branching authority primarily for the purpose of deposit production.
The FDIC and Federal Reserve Board have adopted such regulations. These
regulations include guidelines to ensure that interstate branches operated by an
out-of-state bank in a host state are reasonably helping to meet the credit
needs of the communities which they serve. Should the FDIC determination that a
bank interstate branch is not reasonably helping to meet the credit needs of the
communities serviced by an interstate branch, the FDIC is authorized to close
the interstate branch or not permit the bank to open a new branch in the state
in which the bank previously opened an interstate branch.
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Dividends. The Federal Reserve Board has issued a policy statement on the
payment of cash dividends by bank holding companies, which expresses the Federal
Reserve Board's view that a bank holding company should pay cash dividends only
to the extent that the holding company's net income for the past year is
sufficient to cover both the cash dividends and a rate of earning retention that
is consistent with the holding company's capital needs, asset quality and
overall financial condition. The Federal Reserve Board also indicated that it
would be inappropriate for a company experiencing serious financial problems to
borrow funds to pay dividends. Furthermore, under the prompt corrective action
regulations adopted by the Federal Reserve Board, the Federal Reserve Board may
prohibit a bank holding company from paying any dividends if the holding
company's bank subsidiary is classified as "undercapitalized."
Bank holding companies are required to give the Federal Reserve Board prior
written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of their consolidated
net worth. The Federal Reserve Board may disapprove such a purchase or
redemption if it determines that the proposal would constitute an unsafe or
unsound practice or would violate any law, regulation, Federal Reserve Board
order, or any condition imposed by, or written agreement with, the Federal
Reserve Board. This notification requirement does not apply to any company that
meets the well-capitalized standard for commercial banks, has a safety and
soundness examination rating of at least a "2" and is not subject to any
unresolved supervisory issues.
New York State Bank Holding Company Regulation. In addition to the federal
bank holding company regulations, a bank holding company organized or doing
business in New York State also may be subject to regulation under the New York
State Banking Law. The term "bank holding company," for the purposes of the New
York State Banking Law, is defined generally to include any person, company or
trust that directly or indirectly either controls the election of a majority of
the directors or owns, controls or holds with power to vote more than 10% of the
voting stock of a bank holding company or, if the Company is a banking
institution, another banking institution, or 10% or more of the voting stock of
each of two or more banking institutions. In general, a bank holding company
controlling, directly or indirectly, only one banking institution will not be
deemed to be a bank holding company for the purposes of the New York State
Banking Law. Under New York State Banking Law, the prior approval of the Banking
Board is required before: (1) any action is taken that causes any company to
become a bank holding company; (2) any action is taken that causes any banking
institution to become or be merged or consolidated with a subsidiary of a bank
holding company; (3) any bank holding company acquires direct or indirect
ownership or control of more than 5% of the voting stock of a banking
institution; (4) any bank holding company or subsidiary thereof acquires all or
substantially all of the assets of a banking institution; or (5) any action is
taken that causes any bank holding company to merge or consolidate with another
bank holding company. Additionally, certain restrictions apply to New York State
bank holding companies regarding the acquisition of banking institutions which
have been chartered five years or less and are located in smaller communities.
Officers, directors and employees of New York State bank holding companies are
subject to limitations regarding their affiliation with securities underwriting
or brokerage firms and other bank holding companies and limitations regarding
loans obtained from its subsidiaries. Although the Company will not be a bank
holding company for purposes of New York State law upon the Effective Date of
the Reorganization, any future acquisition of ownership, control, or the power
to vote 10% or more of the voting stock of another bank or bank holding company
would cause it to become such.
Mutual Holding Company Regulation. Under New York law, the Mutual Company
may exercise all powers and privileges of a New York chartered mutual savings
bank, except for the power of accepting deposits. As a bank holding company, the
Mutual Company is also authorized to exercise all powers and engage in all
activities permitted to a bank holding company under the BHCA.
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 any
savings institution subsidiary. In connection with its approval of the
Reorganization, however, it is expected that the Federal Reserve Board will
impose certain conditions on the waiver by the Mutual Company of dividends paid
on the Common Stock. In particular, the Mutual Company is expected to be
required to obtain prior Federal Reserve Board approval before it may waive any
dividends. As of the date hereof, management does not believe that the Federal
Reserve Board has given its approval to any waiver of dividends by any mutual
holding company that has requested its approval.
The terms of the Federal Reserve Board approval of the Reorganization are
also expected to require that the amount of any waived dividends will not be
available for payment to Minority Stockholders and be excluded from
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capital for purposes of calculating dividends payable to Minority Stockholders.
Moreover, the cumulative amount of waived dividends must be maintained in a
restricted capital account which would be added to any liquidation account of
the Bank, and would not be available for distribution to Minority Stockholders.
The restricted capital account and liquidation account amounts would not be
reflected in the Bank's financial statements or the notes thereto, but would be
considered as a notational or memorandum account of the Bank, and would be
maintained in accordance with the rules, regulations and policy of the Office of
Thrift Supervision except that such rules would be administered by the Federal
Reserve Board, and any other rules and regulations adopted by the Federal
Reserve Board. The Plan of Reorganization also provides that if the Mutual
Company converts to stock form in the future, any waived dividends would reduce
the percentage of the converted company's shares of Common Stock issued to
Minority Stockholders in connection with any such transaction. See "Conversion
of the Mutual Company to Stock Form."
Management does not believe that the Mutual Company will initially waive
dividends declared by the Company. If the Mutual Company decides that it is in
its best interest to waive a particular dividend to be paid by the Company, and
the Federal Reserve Board approves such waiver, then the Company would pay such
dividend only to Minority Stockholders, and the amount of the dividend waived by
the Mutual Company would be treated in the manner described above. The Mutual
Company's decision as to whether or not to waive a particular dividend, if such
waiver is approved by the Federal Reserve Board, will depend on a number of
factors, including the Mutual Company's capital needs, the investment
alternatives available to the Mutual Company as compared to those available to
the Company, and regulatory approvals. There can be no assurance (i) that after
the Reorganization the Mutual Company will waive dividends paid by the Company,
(ii) that the Federal Reserve Board will approve any dividend waivers by the
Mutual Company or (iii) of the terms that may be imposed by the Federal Reserve
Board on any dividend waiver.
Conversion of the Mutual Company to Stock Form. New York law, regulations of
the Department and the Plan of Reorganization permit the Mutual Company to
convert from the mutual to the capital stock form of organization (a "Conversion
Transaction"). There can be no assurance when, if ever, a Conversion Transaction
will occur, and the board of trustees has no current intention or plan to
undertake a Conversion Transaction. In a Conversion Transaction, the Mutual
Company would merge with and into the Bank or the Company, with the Bank or the
Company as the resulting entity, and certain depositors of the Bank would
receive the right to subscribe for additional shares of the resulting entity. In
a Conversion Transaction, each share of Common Stock outstanding immediately
prior to the completion of the Conversion Transaction held by persons other than
the Mutual Company would be automatically converted into and become the right to
receive a number of shares of Common Stock of the resulting entity determined
pursuant to 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 resulting entity 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.
The Dividend Waiver Adjustment would adjust the percentage of the to-be
outstanding shares of the resulting entity issued in exchange for minority
shares to reflect (i) the aggregate amount of dividends waived by the Mutual
Company and (ii) assets other than Common Stock held by the Mutual Company.
Pursuant to the Dividend Waiver Adjustment, the percentage of the to-be
outstanding shares of the resulting entity issued to Minority Stockholders in
exchange for their minority shares (the "Adjusted Minority Ownership
Percentage") is 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 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 resulting
entity minus the value of the Mutual Company's assets other than Common Stock
and the denominator is equal to the pro forma market value of the resulting
entity.
Federal Securities Law
The Common Stock of the Company to be issued in the Offering will be
registered with the SEC under the Exchange Act prior to completion of the
Reorganization and the Offering. The Company will be subject to the information,
proxy solicitation, insider trading restrictions and other requirements of the
SEC under the Exchange Act.
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The Company 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.
Federal Reserve System
The Federal Reserve Board requires all depository institutions to maintain
noninterest-bearing reserves at specified levels against their transaction
accounts (primarily checking, NOW and Super NOW checking accounts). At June 30,
1998, the Bank was in compliance with these reserve requirements.
Community Reinvestment Act
Under the Community Reinvestment Act, as amended (the "CRA"), as implemented
by FDIC regulations, a savings bank has a continuing and affirmative obligation,
consistent with its safe and sound operation, to help meet the credit needs of
its entire community, including low and moderate income neighborhoods. The CRA
does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the FDIC, in connection
with its examination of a savings institution, to assess the institution's
record of meeting the credit needs of its community and to take such record into
account in its evaluation of certain applications by such institution. The CRA
requires the FDIC to provide a written evaluation of an institution's CRA
performance utilizing a four-tiered descriptive rating system. The Bank's latest
CRA rating was "outstanding."
New York State Regulation. The Bank is also subject to provisions of the New
York State Banking Law which impose continuing and affirmative obligations upon
banking institutions organized in New York State to serve the credit needs of
its local community ("NYCRA") which are substantially similar to those imposed
by the CRA. Pursuant to the NYCRA, a bank must file an annual NYCRA report and
copies of all federal CRA reports with the Banking Department. The NYCRA
requires the Banking Department to make an annual written assessment of a bank's
compliance with the NYCRA, utilizing a four-tiered rating system, and make such
assessment available to the public. The NYCRA also requires the Superintendent
to consider a bank's NYCRA rating when reviewing a bank's application to engage
in certain transactions, including mergers, asset purchases and the
establishment of branch offices or automated teller machines, and provides that
such assessment may serve as a basis for the denial of any such application.
The Bank's NYCRA rating as of its latest examination was "outstanding."
Federal Home Loan Bank System
The Bank is a member of the FHLB of New York, which is one of 12 regional
FHLBs, that administers the home financing credit function of savings
institutions. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures established
by the board of directors of the FHLB. These policies and procedures are subject
to the regulation and oversight of the Federal Housing Finance Board. All
advances from the FHLB are required to be fully secured by sufficient collateral
as determined by the FHLB. In addition, all long-term advances are required to
provide funds for residential home financing.
As a member, the Bank is required to purchase and maintain stock in the FHLB
of New York. At June 30, 1998, the Bank had $700,000 of FHLB stock. The dividend
yield from FHLB stock was 7.45% at June 30, 1998. No assurance can be given that
such dividends will continue in the future at such levels.
Under federal law, the FHLBs are required to provide funds for the
resolution of troubled savings institutions and to contribute to low and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of the Bank's FHLB stock may result in a corresponding
reduction in the Bank's capital.
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MANAGEMENT OF GREENE COUNTY BANCORP, INC.
Directors of the Company
The Board of Directors of the Company consists of nine members, each of whom
is currently serving as a trustee 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
stockholders following completion of the Reorganization consists of directors
Whittaker, O'Grady and Smith. The class of directors whose term expires at the
second annual meeting of stockholders following completion of the Reorganization
consists of directors Buck, Klein and Camera. The class of directors whose term
of office expires at the third annual meeting of stockholders following the
completion of the Reorganization consists of directors Ingalls, Slutzky and
Jenkins. The biographical information regarding these individuals is set forth
under "Management of the Bank-Biographical Information."
Executive Officers of the Company
The following individuals are executive officers of the Company and hold the
offices set forth below opposite their names. The biographical information for
each executive officer is set forth under "Management of the Bank--Biographical
Information."
<TABLE>
<CAPTION>
Name Age* Position
- ---- ---- --------
<S> <C> <C>
J. Bruce Whittaker 55 President and Chief Executive Officer
Bruce P. Egger 49 Vice President and Secretary
Edmund L. Smith, Jr. 55 Vice President and Treasurer
Daniel T. Sager 44 Vice President
</TABLE>
- ----------
* As of June 30, 1998
The executive officers of the Company are elected annually and hold office
until their respective successors have been elected or until death, resignation,
retirement or removal by the board.
Since the formation of the Company, none of the executive officers has
received remuneration from the Company. It is not anticipated that the executive
officers of the Company will initially receive any remuneration in his or her
capacity as an executive officer. For information concerning compensation of
executive officers of the Bank, see "Management of the Bank."
Indemnification and Limitation of Liability
The Certificate of Incorporation of the Company provides that a director or
officer of the Company shall be indemnified by the Company to the fullest extent
authorized by the Delaware General Corporation Law ("DGCL") against all
expenses, liability and loss reasonably incurred or suffered by such person in
connection with his or her activities as a director or officer or as a director
or officer of another company, if the director or officer held such position at
the request of the Company. Delaware law requires that such director, officer,
employee or agent, in order to be indemnified, must have acted in good faith and
in a manner reasonably believed to be not opposed to the best interests of the
Company and, with respect to any criminal action or proceeding, either had
reasonable cause to believe such conduct was lawful or did not have reasonable
cause to believe his or her conduct was unlawful.
In addition, the Certificate of Incorporation and Delaware law also provide
that the Company may maintain insurance, at its expense, to protect itself and
any director, officer, employee or agent of the Company or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Company has the power to indemnify such
person against such expense, liability or loss under the DGCL. The Company
intends to obtain such insurance.
The Certificate of Incorporation also provides that directors of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
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Delaware General Corporation Law (which relates to unlawful dividends or stock
purchases or redemptions), or (iv) for any transaction from which the director
derived an improper personal benefit.
MANAGEMENT OF THE BANK
Directors of the Bank
Upon completion of the Reorganization, the initial directors of the Bank
will consist of those persons who currently serve on the Board of Trustees 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 proposed directors of the Bank are as follows:
<TABLE>
<CAPTION>
Director Age * Occupation Director Since Term Expires
-------- ----- ---------- -------------- ------------
<S> <C> <C> <C> <C>
Walter H. Ingalls 67 Retired Lumber Company President 1966 2001
J. Bruce Whittaker 55 President and Chief Executive Officer, 1987 1999
Greene County Savings Bank
Richard J. Buck 73 Retired Partner, Insurance Agency 1970 2000
Raphael Klein 71 Retired Movie Theater Owner 1986 2000
Paul Slutzky 50 General Manager-Construction Company 1992 2001
Anthony Camera, Jr. 72 Retired President and Chief Executive 1986 2000
Officer, Mutual Insurance Company
David H. Jenkins, DVM 44 Veterinarian/Owner-Catskill Animal Hospital 1996 2001
Dennis R. O'Grady 58 Pharmacist/Co-Owner-Mikhitarian Pharmacy 1981 1999
Martin C. Smith 53 Employee-Main Bros. Oil Co., Inc. 1993 1999
</TABLE>
- ----------
* As of June 30, 1998
Executive Officers of the Bank
The following table sets forth certain information (as of June 30, 1998)
regarding the executive officers of the Bank, all of whom currently serve in
their indicated position as executive officers of the Bank.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
J. Bruce Whittaker 55 President and Chief Executive Officer
Bruce P. Egger 49 Vice President and Secretary
Edmund L. Smith, Jr. 55 Vice President and Treasurer
Daniel T. Sager 44 Vice President-Lending
</TABLE>
The executive officers of the Bank will be elected annually and will hold
office until the next annual meeting of the board of directors of the Bank held
immediately after the annual meeting of stockholders of the Bank, and until
their successors are elected and qualified, or until death, resignation,
retirement or removal by the board of directors.
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Biographical Information
Trustees/Directors of the Bank
J. Bruce Whittaker is President and Chief Executive Officer of the
Bank, and has served in that position since 1987. Mr. Whittaker has
been affiliated with the Bank in various capacities since 1972. Mr.
Whittaker was appointed to the Board of Trustees in 1987.
Walter H. Ingalls is the Chairman of the Board. Mr. Ingalls is retired.
Prior to his retirement, Mr. Ingalls was the President of the GNH
Lumber Co., a lumber company located in Norton Hill, New York.
Richard J. Buck is retired. Prior to his retirement he was a partner
with Grossman Agency, a general insurance agency in Catskill, New York
Raphael Klein is retired. Prior to his retirement he was the co-owner
of Klein Theaters, a movie theater chain in Hudson, New York.
Paul Slutzky is the General Manager of I. & O. A. Slutzky Constr. Co.,
a construction company located in Hunter, New York.
Anthony Camera, Jr. is retired. Prior to his retirement, he was
President of Commercial Mutual Insurance Co., an insurance company in
Catskill, New York.
David H. Jenkins, DVM is a veterinarian and the owner of Catskill
Animal Hospital, Catskill, New York.
Dennis R. O'Grady is a pharmacist and the co-owner of Mikhitarian
Pharmacy located in Catskill, New York.
Martin C. Smith is currently employed by Main Bros. Oil Co., Inc., and
is the former owner of R.E. Smith Fuel Company, which was purchased by
Main Bros. Oil Co., Inc., located in Albany, New York.
Executive Officers of the Bank Who Are Not Directors
Bruce P. Egger has served as Vice President and Secretary of the Bank
since 1987 and has been affiliated with the Bank in various capacities
since 1977. Prior to that time, Mr. Egger worked in the retail trade.
Edmund L. Smith, Jr., has served as Vice President and Treasurer of the
Bank since 1988 and has been affiliated with the Bank in various
capacities since 1975. Prior to that time, Mr. Smith was the bursar of
Columbia-Greene Community College.
Daniel T. Sager has served as Vice President-Lending of the Bank since
1995 and has been affiliated with the Bank in various capacities since
1987. Prior to that time, Mr. Sager was employed as branch manager for
a commercial bank.
Meetings and Committees of the Bank's Board
The Board of Trustees 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 year ended June 30, 1998, the board held 13 meetings. No trustee
attended fewer than 75% in the aggregate of the total number of meetings of the
board or board committees on which such trustee served during 1997. The Board of
Trustees of the Bank has the following standing committees: Audit Committee,
Personnel Committee, Appraisal and Loan Committee, Re-Inspection Committee and
Executive Committee.
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 monthly, or more often as may be necessary. The board of
directors initially is expected to have a standing executive committee and an
audit committee. The board of directors may, by resolution, designate one or
more additional committees.
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The executive committee initially will consist of the following six
directors of the Company: Messrs. Buck, Ingalls, Klein, Slutzky, Whittaker and
Smith. 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 executive committee may also serve as
the nominating committee for the purpose of identifying, evaluating and
recommending potential candidates for election to the board.
The audit committee initially will consist of the following four directors
of the Company: Messrs. Ingalls, Camera, Jenkins and O'Grady. The audit
committee is expected to meet at least quarterly to examine and approve the
audit report prepared by the independent auditors of the Bank, to review and
recommend the independent auditors to be engaged by the Company, to review the
internal audit function and internal accounting controls of the Company, and to
review and approve audit policies.
Compensation of Trustees and Directors
Directors of the Bank will receive an annual retainer of $6,000 and a fee of
$500 per meeting for attendance at Board and Committee meetings. Directors of
the Bank and the Company who are also employees of the Bank and the Company are
not eligible to receive Board fees. Initially, no separate compensation will be
paid to directors for service on the Board of Directors or Board committees of
the Company.
Executive Compensation
Summary Compensation Table. The following table sets forth for the year
ended June 30, 1998, certain information as to the total remuneration paid by
the Bank to the Chief Executive Officer of the Bank. No other executive officer
of the Bank during the year ended June 30, 1998 received total annual
compensation in excess of $100,000.
<TABLE>
<CAPTION>
Long-Term Compensation
--------------------------------------------
Annual Compensation (1) Awards Payouts
-------------------------------- ------------------ -----------------------
Other
Annual Restricted Options/ All Other
Compensation Stock SARS LTIP Compensation
Name and Principal Position Salary Bonus (2) Awards(3) (#)(4) Payouts (5)
--------------------------- ------ ----- ------------- --------- ------ ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Bruce Whittaker $120,000 $2,300 -- -- -- -- $3,600
President and Chief Executive
Officer
</TABLE>
- ----------
(1) In accordance with the rules on executive officer and director compensation
disclosure adopted by the SEC, Summary Compensation information is excluded
for the years ended June 30, 1997 and 1996, as the Bank was not a public
company during such periods.
(2) The Bank also provides each qualifying employee, including Mr. Whittaker,
life insurance equal to twice the employee's salary. The aggregate value of
this benefit to Mr. Whittaker did not exceed the lesser of $50,000 or 10%
of the total annual salary and bonus reported for such officer.
(3) Does not include awards pursuant to the Stock Award Plan, as such awards
were not earned, vested or granted in 1998. For a discussion of the terms
of the Stock Award Plan which are intended to be adopted by the Company,
see "--Benefit Plans--Recognition and Retention Plan."
(4) No stock options or SARs were earned or granted in 1998. For a discussion
of the Stock Option Plan which is intended to be adopted by the Company,
see "--Benefit Plans--Stock Option Plan."
(5) Consists of the Bank's contribution to the Bank's 401(k) Plan on behalf of
Mr. Whittaker.
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Report of Independent Compensation Consultant
Pursuant to regulations of the Department applicable to the Reorganization,
the Bank must obtain the opinion of an independent compensation consultant as to
whether or not the total compensation for the executive officers and
trustees/directors of the Bank, viewed as a whole and on an individual basis, is
reasonable and proper in comparison to the compensation provided to executive
officers and directors of similar publicly-traded financial institutions. The
Bank has obtained an opinion from William M. Mercer, Incorporated, Rochester,
New York, which indicates that, based upon published professional survey data of
similarly situated publicly-traded financial institutions operating in the
relevant markets as of October 1, 1998 with respect to the total cash
compensation (base salary and annual incentive) for executive officers and total
compensation for trustees of the Bank, such compensation, viewed as a whole and
on an individual basis, is reasonable and proper in comparison to the
compensation provided to similarly situated publicly-traded financial
institutions, and that, with respect to the amount of shares of Common Stock
expected to be reserved under the ESOP, the Stock Award Plan and Stock Option
Plan as a whole, such amounts reserved for granting are reasonable in comparison
to similar publicly-traded financial institutions.
Compensation of Officers and Directors through Benefit Plans. The Bank's
current tax-qualified employee pension benefit plans consist of a defined
benefit pension plan and a defined contribution plan with a salary deferral
feature under 401(k) of the Internal Revenue Code. As a result of the
Reorganization, the Company and the Bank will be able to compensate employees
with stock-based compensation pursuant to the ESOP, the Recognition and
Retention Plan and the Stock Option Plan described below.
Employment Agreement. The Bank intends to enter into an employment agreement
with its President and Chief Executive Officer, J. Bruce Whittaker. The
agreement will have a term of 36 months. On each anniversary date, the agreement
may be extended for an additional twelve months, so that the remaining term
shall be 36 months. If the agreement is not renewed, the agreement will expire
36 months following the anniversary date. Under the agreement, the current Base
Salary for Mr. Whittaker (as defined in the agreement) is $125,000. The Base
Salary may be increased but not decreased. In addition to the Base Salary, the
agreement provides for, among other things, participation in retirement plans
and other employee and fringe benefits applicable to executive personnel. In
addition to the above, the Bank will provide Mr. Whittaker and his dependents
with continuing health care coverage upon Mr. Whittaker's retirement or other
termination of employment after attainment of age 55 with 25 years of service,
in substantially the same amount as provided to Mr. Whittaker and his dependents
prior to the termination of his employment. Such coverage, which shall survive
the termination or expiration of the agreement, shall cease upon Mr. Whittaker's
attainment of age 65. The agreement provides for termination by the Bank for
cause at any time. In the event the Bank terminates the executive's employment
for reasons other than disability, retirement, or for cause, or in the event of
the executive's resignation from the Bank (such resignation to occur within the
period or periods set forth in the employment agreement) upon (i) failure to
re-elect the executive to his current offices, (ii) a material change in the
executive's functions, duties or responsibilities, or relocation of his
principal place of employment by more than 30 miles, (iii) liquidation or
dissolution of the Bank or the Company, (iv) a breach of the agreement by the
Bank, or (v) following a change in control of the Bank or the Company, the
executive, or in the event of death, his beneficiary, would be entitled to
severance pay in an amount equal to three times the highest Base Salary and the
highest bonus paid during any of the last three years. Mr. Whittaker would
receive an aggregate of $375,000 pursuant to his employment agreement upon a
change in control of the Bank or the Company, based upon his current level of
compensation. The Bank would also continue the executive's life, dental and
disability coverage for 36 months from the date of termination, and would
continue his health coverage until Mr. Whittaker attains age 65 (as discussed
above). In the event the payments to the executive would include an "excess
parachute payment" as defined by Code Section 280G (relating to payments made in
connection with a change in control), the payments would be reduced in order to
avoid having an excess parachute payment.
Under the agreement, the executive's employment may be terminated upon his
retirement in accordance with any retirement policy established on behalf of the
executive and with his consent. Upon the executive's retirement, he will be
entitled to all benefits available to him under any retirement or other benefit
plan maintained by the Bank. In the event of the executive's disability for a
period of six months, the Bank may terminate the agreement provided that the
Bank will be obligated to pay him his Base Salary for the remaining term of the
agreement or one year, whichever is longer, reduced by any benefits paid to the
executive pursuant to any disability insurance policy or similar arrangement
maintained by the Bank. In the event of the executive's death, the Bank will pay
his Base Salary to his named beneficiaries for one year following his death, and
will also continue medical, dental, and other benefits
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to his family for one year. The employment agreement provides that, following
his termination of employment, the executive will not compete with the Bank for
a period of one year.
Defined Contribution Plan. Effective September 1, 1995, the Bank adopted the
Financial Institutions Thrift Plan (the "Prior Plan"). In connection with the
Reorganization, effective October 1, 1998, the Bank withdrew from the Prior Plan
and adopted The Bank of Greene County Employees' Savings & Profit Sharing Plan
and Trust (the "Plan") in order to permit the investment of Plan assets in
Common Stock. Employees are eligible to join the Plan on the first of the month
following completion of one year of continuous employment (during which 1,000
hours are completed). The first year eligibility period runs from the date of
hire to the anniversary of such date. If an employee does not satisfy the
eligibility requirements during such period then the next eligibility period
shall be the calendar year. Employees are eligible to contribute, on a pre-tax
basis, up to 15% of their eligible salary, in increments of 1%. The Bank shall
make a matching contribution equal to 50% of a member's contributions on up to
6% of a member's compensation. In addition, the Bank may make an additional
discretionary contribution allocated among members' accounts on the basis of
compensation. All employee contributions and earnings thereon under the Plan are
at all times fully 100% vested. A member vests in employer matching and
discretionary contributions at the rate of 20% per year beginning in the second
year of employment and continuing until the member is 100% vested after six
years of employment. Employees are entitled to borrow, within tax law limits,
from amounts allocated to their accounts.
Plan benefits will be paid to each member in a lump sum or in equal payments
over a fixed period upon termination, disability or death. In addition, the Plan
permits employees to withdraw salary reduction contributions prior to age 59-1/2
or termination in the event the employee suffers a financial hardship. In
certain circumstances, the Plan permits employees to withdraw the Bank's
matching contributions to their accounts. The Plan permits employees to direct
the investment of their own accounts into various investment options.
At December 31, 1997, the market value of the Prior Plan trust fund equaled
approximately $899,856. The total contribution (i.e, both the employee and Bank
contributions) to the Prior Plan for the Prior Plan year ended December 31,
1997, was approximately $109,654.
Defined Benefit Pension Plan. The Bank maintains the Financial Institutions
Retirement Fund, which is a qualified, tax-exempt defined benefit plan
("Retirement Plan"). All employees age 21 or older who have worked at the Bank
for a period of one year in which they have 1,000 or more hours of service are
eligible for membership in the Plan. Once eligible, an employee must have been
credited with 1,000 or more hours of service with the Bank during the year in
order to accrue benefits under the Retirement Plan. The Bank annually
contributes an amount to the Retirement Plan necessary to satisfy the
actuarially determined minimum funding requirements in accordance with the
Employee Retirement Income Security Act ("ERISA").
The regular form of all retirement benefits (i.e., normal, early or
disability) is a life annuity with a guaranteed term of 10 years. For a married
participant, the normal form of benefit is a 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. An optional
form of benefit may be selected instead of the normal form of benefits. These
optional forms include various annuity forms as well as a lump sum payment after
age 55. Benefits payable upon death may be made in a lump sum, installments over
10 years, or a lifetime annuity.
The normal retirement benefit payable at or after age 65, is an amount equal
to 1.5% multiplied by years of benefit service (not to exceed 30) times average
compensation based on the average of the five years providing the highest
average. A reduced benefit is payable upon retirement at age 55 at or after
completion of five years of service. A member is fully vested in his account
upon completion of 5 or more years of employment or upon attaining normal
retirement age.
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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 salary and
benefit service classifications specified below.
<TABLE>
<CAPTION>
Highest Five-Year Years of Service and Benefit Payable at Retirement(1)
Average -----------------------------------------------------
Compensation 15 20 25 30
------------------- ------ ------- ------- ------
<S> <C> <C> <C> <C>
$50,000 11,250 15,000 18,750 22,500
$75,000 16,875 22,500 28,125 33,750
$100,000 22,500 30,000 37,500 45,000
$125,000 28,125 37,500 46,875 56,250
$150,000 33,750 45,000 56,250 67,500
</TABLE>
- ----------
(1) No additional credit is received for years of service in excess of 30,
however, increases in compensation after 30 years will generally cause an
increase in benefits.
As of September 30, 1997, Mr. J. Bruce Whittaker had 25 years of credited
service (i.e., benefit service), under the Retirement Plan.
Employee Stock Ownership Plan and Trust. The Bank intends to implement an
employee stock ownership plan ("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 Minority Ownership Interest. 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 up to ten years. It is anticipated that the interest rate for the
loan will be a floating rate equal to the Prime Rate published in the Wall
Street Journal at the time of the Offering. Shares purchased by the ESOP will be
held in a suspense account for allocation among participants as the loan is
repaid.
Contributions to the ESOP and shares released from the suspense account in
an amount proportional to the repayment of the ESOP loan will be allocated among
ESOP participants on the basis of compensation in the year of allocation. For
this purpose, compensation is defined as wages reported on federal income tax
form W-2 but not in excess of Code Section 401(a)(17) limit. Participants in the
ESOP will receive credit for service prior to the effective date of the ESOP. A
participant is 100% vested in his benefits after five years or upon normal
retirement (as defined in the ESOP), early retirement, disability or death of
the participant. A participant who terminates employment for reasons other than
death, retirement, or disability prior to five years of credited service will
forfeit his benefits under the ESOP. Benefits will be payable in the form of
Common Stock and/or cash upon death, retirement, early retirement, disability or
separation from service. Alternatively, a participant may request that the
benefits be paid entirely in the form of Common Stock or entirely in cash. 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 Statement of Position 93-6, (Employers' Accounting for
Employee Stock Ownership Plans), the Bank is required to record compensation
expense in an amount equal to the fair market value of the shares released from
the suspense account.
In connection with the establishment of the ESOP, the Bank will establish a
committee of nonemployee directors to administer the ESOP. The Bank will either
appoint its non-employee directors or an independent financial institution to
serve as trustee of the ESOP. The ESOP 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 stockholders to be held no
earlier than six months after the completion of the Reorganization, the board of
directors intends to submit for shareholder approval a Stock Option Plan for
directors and officers of the Bank and of the Company. If approved by the
stockholders, Common Stock in an aggregate amount equal to 10% of the Minority
Ownership Interest 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 Minority Ownership Interest would amount to 73,694 shares, 86,603
shares, 99,594 shares and 114,533 shares at the minimum, midpoint, maximum and
adjusted maximum of the Offering Range, respectively. If the plan is approved
within one year of the
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completion of the Reorganization, no options would be granted under the Stock
Option Plan until the date on which shareholder approval is received.
The exercise price of the options granted under the Stock Option Plan will
be equal to the fair market value of the shares on the date of grant of the
stock options. If the Stock Option Plan is adopted within one year following the
Offering, options will become exercisable at a rate of 20% at the end of each
twelve (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 FDIC and Department rules, if the Stock Option Plan is adopted within the
first 12 months after completion of 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 awards thereunder.
The Stock Option Plan would be administered by a committee of non-employee
members of the Company's board of directors. Options granted under the Stock
Option Plan to employees could be "incentive" stock options designed to result
in beneficial tax treatment to the employee but no tax deduction to the Company.
Non-qualified stock options could also be granted under the Stock Option Plan,
and will be granted to the non-employee directors who receive grants of stock
options. In the event an option recipient terminated his employment or service
as an employee or director, the options would terminate during certain specified
periods. The Stock Option Plan will terminate ten years following its adoption,
unless earlier terminated by the Company.
Stock Award Plan. At a meeting of the Company's stockholders to be
held no earlier than six months after the completion of the Reorganization,
the board of directors also intends to submit the Stock Award Plan for
shareholder approval. The Stock Award Plan will provide the Bank's directors
and officers an ownership interest in the Company in a manner designed to
encourage them to continue their service with the Bank. The Bank will
contribute funds to the restricted stock plan from time to time to enable it
to acquire an aggregate amount of Common Stock equal to up to 3% of the
shares of the Minority Ownership Interest if the restricted stock plan is
adopted within one year of completion of the Offering, or up to 4% of the
Minority Ownership Interest if the restricted stock plan is adopted more than
a year after completion of the Offering. Five percent of the Minority
Ownership Interest would amount to 36,847 shares, 43,301 shares, 49,797
shares or 57,266 shares at the minimum, midpoint, maximum or adjusted maximum
of the Offering Range, respectively. In the event that additional authorized
but unissued shares would be acquired by the Stock Award Plan after the
Offering, the interests of existing stockholders would be diluted. The
executive officers and directors will be awarded Common Stock under the Stock
Award Plan without having to pay cash for the shares. No awards under the
Stock Award Plan will be made until the date the Stock Award Plan is approved
by the Company's stockholders.
Awards under the Stock Award Plan would be nontransferable and
nonassignable, and during the lifetime of the recipient could only be earned by
the director or officer. If the Stock Award Plan is adopted within one year
following completion of 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 twelve (12) months of service with the Bank after the
date of grant of the award. Awards would be adjusted for capital changes such as
stock dividends and stock splits. Notwithstanding the foregoing, awards would be
100% vested upon termination of employment or service due to death or
disability, and if the Stock Award Plan is adopted more than 12 months after
completion of the Reorganization, 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 Stock Award Plan), shares not already delivered under the
Stock Award Plan would be forfeited. Under FDIC and Department rules, if the
Stock Award Plan is adopted within the first 12 months after completion of the
Reorganization and Offering, shares of Common Stock granted under the restricted
stock plan may not exceed 3% of the Minority Ownership Interest, 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 awards thereunder. The Stock Award Plan would be administered by a
committee of non-employee members of the Company's board of directors. The Stock
Award Plan will terminate fifteen years following its adoption, unless earlier
terminated by the Company.
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When shares become vested under the Stock Award 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 Section 83(b) of the Code to be taxed earlier. The amount of
income recognized by the participant would be a deductible expense for tax
purposes for the Company. If the Stock Award Plan is adopted within one year
following completion of the Reorganization and Offering, dividends and other
earnings will accrue and be payable to the award recipient when the shares
vest. If the Stock Award Plan is adopted within one year following completion
of the Reorganization and Offering, shares not yet vested under the Stock
Award Plan will be voted by the trustee of the Stock Award Plan, taking into
account the best interests of the recipients of the Stock Award Plan grants.
If the Stock Award Plan is adopted more than one year following completion of
the Reorganization and Offering, dividends declared on unvested shares will
be distributed to the participant when paid, and the participant will be
entitled to vote the unvested shares.
Indebtedness of Management
Under New York Banking law, the Bank, as a mutual institution, cannot make a
loan to a trustee or a person who is an "executive officer" for regulatory
purposes, except for loans made to executive officers that are secured by a
first mortgage on a primary residence or by a deposit account at the Bank. Any
such loans that are outstanding have been made in the ordinary course of
business on the same terms and conditions as the Bank would make to any other
customer and do not involve more than a normal risk of collectibility or present
other unfavorable features. Following the Reorganization, the Bank will not be
subject to this restriction in connection with loans to directors and executive
officers.
The Bank also is subject to Sections 22(h), 23A and 23B of the Federal
Reserve Act which limit the amount of credit and other transactions between a
bank and its executive officers and its affiliates, prescribes terms and
conditions for bank affiliate transactions deemed to be consistent with safe and
sound banking practices, and restricts the types of collateral security
permitted in connection with a bank's extension of credit to an affiliate.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
The Mutual Holding Company Structure. Under New York law, the Plan of
Reorganization, and the Company's governing corporate instruments, at least 51%
of the Company's voting shares must be owned by the Mutual Company. The Mutual
Company will be controlled by its board of trustees, who will consist of persons
who also are members of the board of directors of the Company and the Bank. The
Mutual 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
Company, acting through its board of trustees, will be able to control the
business and operations of the Company and the Bank, and will be able to prevent
any challenge to the ownership or control of the Company by Minority
Stockholders. Accordingly, a change in control of the Company and the Bank
cannot occur unless the Mutual Company first converts to the stock form of
organization. Although New York law, applicable regulations and the Plan of
Reorganization permit the Mutual Company to convert from the mutual to the
capital stock form of organization, it is not anticipated that a conversion of
the Mutual Company will occur in the foreseeable future.
In addition to the anti-takeover aspects of the Mutual Company structure,
the following is a general summary of certain provisions of the Company's
Certificate of Incorporation 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 Certificate of
Incorporation 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 Superintendent and the Company's
Registration Statement filed with the SEC. See "Additional Information." The
following discussion does not reflect the powers and provisions of the Bank's
charter.
Provisions of the Company's Certificate of Incorporation and Bylaws
Restrictions on Call of Special Meetings. The Certificate of Incorporation
provides that a special meeting of stockholders may be called by the Chairman of
the Board of the Company or pursuant to a resolution adopted by a majority of
the board of directors. Stockholders are not authorized to call a special
meeting of stockholders.
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Absence of Cumulative Voting. The Certificate of Incorporation provides that
there shall be no cumulative voting rights in the election of directors.
Limitation on Voting Rights. The Certificate of Incorporation provides that
(i) no person shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 5% of any class of equity security of the
Company, inclusive of shares of such class held by the Mutual Company (provided
that such limitation shall not apply to the Mutual Company or any tax-qualified
employee stock benefit plans maintained by the Company); and that (ii) shares
beneficially owned in violation of the stock ownership restriction described
above shall not be entitled to vote and shall not be voted by any person or
counted as voting stock in connection with any matter submitted to a vote of
stockholders. For these purposes, a person (including management) who has
obtained the right to vote shares of the Common Stock pursuant to revocable
proxies shall not be deemed to be the "beneficial owner" of those shares if that
person is not otherwise deemed to be a beneficial owner of those shares.
Amendments to Certificate of Incorporation and Bylaws. Amendments to the
Certificate of Incorporation must be approved by the Company's board of
directors and also by a majority of the outstanding shares of the Company's
voting stock; provided, however, that approval by at least 80% of the
outstanding voting stock is generally required for certain provisions (i.e.,
provisions relating to the call of special stockholder meetings, cumulative
voting, limitation on voting rights and director liability).
The bylaws may be amended by the affirmative vote of the total number of
directors of the Company or the affirmative vote of at least 80% of the total
votes eligible to be voted at a duly constituted meeting of stockholders.
Federal Reserve Board Regulations
The Change in Bank Control Act and the BHCA, together with the Federal
Reserve Board regulations under those acts, require that the consent of the
Federal Reserve Board be obtained prior to any person or company acquiring
"control" of a bank holding company. Control is conclusively presumed to exist
if an individual or company acquires more than 25% of any class of voting stock
of the bank holding company. Control is rebuttably presumed to exist if the
person acquires more than 10% of any class of voting stock of a bank holding
company if either (i) the holding company has registered securities under
Section 12 of the Exchange Act or (ii) no other person will own a greater
percentage of that class of voting securities immediately after the transaction.
The regulations provide a procedure to rebut the rebuttable control presumption.
Since the Company's Common Stock will be registered under Section 12 of the
Exchange Act, any acquisition of 10% or more of the Company's Common Stock will
give rise to a rebuttable presumption that the acquiror of such stock controls
the Company, requiring the acquiror, prior to acquiring such stock, to rebut the
presumption of control to the satisfaction of the Federal Reserve Board or
obtain Federal Reserve Board approval for the acquisition of control.
Restrictions applicable to the operations of bank holding companies may deter
companies from seeking to obtain control of the Company. See "Regulation."
New York Banking Law
In addition to federal law, the New York State Banking Law generally
requires prior approval of the New York State Banking Board before any action is
taken that causes any entity or person to acquire direct or indirect control of
a banking institution which is organized in New York State. Control is presumed
to exist if any company or person directly or indirectly owns, controls or holds
with power to vote 10% or more of the voting stock of a banking institution or
of any company or person that owns, controls or holds with power to vote 10% or
more of the voting stock of a banking institution.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
General
The Company is authorized to issue 4,000,000 shares of Common Stock having a
par value of $.10 per share. The Company currently expects to issue between
1,584,009 and 2,143,072 shares, with an adjusted maximum of 2,464,532 shares, of
Common Stock and no shares of Preferred Stock in the Reorganization. Each share
of the Common Stock will have the same relative rights as, and will be identical
in all respects with, each other share of the Common Stock. Upon payment of the
purchase price for the Common Stock, in accordance with the Plan of
Reorganization, all such stock will be duly authorized, fully paid, validly
issued, and non-assessable.
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The Common Stock of The Company will represent nonwithdrawable capital, will
not be an account of an insurable type, and will not be insured by the FDIC.
Common Stock
Voting Rights. Under Delaware law, the holders of the Common Stock will
possess exclusive voting power in the Company. Each stockholder will be entitled
to one vote for each share held on all matters voted upon by stockholders,
except as discussed in "Restrictions on Acquisition of the Company--Provisions
of the Company's Certificate of Incorporation and Bylaws--Limitation on Voting
Rights." There will be no right to cumulate votes in the election of directors.
If the Company issues Preferred Stock, subsequent to the Reorganization, holders
of the Preferred Stock may also possess voting rights.
Dividends. Upon consummation of the Reorganization, the Company's only asset
will be investments made with the net proceeds of the Offering, the ESOP loan
and the Bank's common stock. The payment of dividends by the Company is subject
to limitations which are imposed by law and applicable regulation. The Company's
source for the payment of cash dividends may in the future depend on the receipt
of dividends from the Bank. See "Dividend Policy." The holders of Common Stock
will be entitled to receive and share equally in such dividends as may be
declared by the board of directors of the Company out of funds legally available
therefore. If the Company issues Preferred Stock, the holders thereof may have a
priority over the holders of the Common Stock with respect to dividends.
Liquidation or Dissolution. In the unlikely event of the liquidation or
dissolution of the Company, the holders of the Common Stock will be entitled to
receive -- after payment or provision for payment of all debts and liabilities
of the Company (including all deposits in the Bank and accrued interest thereon)
and after distribution of the liquidation account established upon completion of
the Offering for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders who continue their deposit accounts at the Bank - all
assets of the Company available for distribution, in cash or in kind. See "The
Reorganization and Offering--Liquidation Rights." If Preferred Stock is issued
subsequent to the Offering, the holders thereof may have a priority over the
holders of Common Stock in the event of liquidation or dissolution.
No Preemptive Rights. Holders of the Common Stock will not be entitled to
preemptive rights with respect to any shares which may be issued. The Common
Stock will not be subject to call for redemption, and, upon receipt by the
Company of the full purchase price therefor, each share of the Common Stock will
be fully paid and nonassessable.
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 will be passed upon for the Bank and the Company by the firm
of Luse Lehman Gorman Pomerenk & Schick, P.C., Washington, D.C., special counsel
to the Company and the Bank. The New York income tax consequences of the
Reorganization will be passed upon for the Company and the Bank by
Pricewaterhouse Coopers, LLP. The federal income tax consequences of certain
matters relating to the establishment of the Charitable Foundation will be
passed upon for the Company and the Bank by Pricewaterhouse Coopers. Certain
legal matters will be passed upon for Friedman Billings, Ramsey & Co, Inc. by
Patton Boggs, LLC, Washington, D.C.
EXPERTS
The financial statements of Greene County Savings Bank as of June 30, 1998
and for each of the years in the two-year period ended June 30, 1998 have been
included herein and in the registration statement in reliance upon the report of
PricewaterhouseCoopers, LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as "Experts" in accounting
and auditing.
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FinPro has consented to the publication herein of the summary of its report
to the Bank and the Company setting forth its belief as to the estimated pro
forma market value of the Common Stock upon Reorganization and its valuation
with respect to Subscription Rights.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information can be
examined without charge at the public reference facilities of the SEC located at
450 Fifth Street, NW, Washington, D.C. 20549, and copies of such material can be
obtained from the SEC at prescribed rates. The SEC maintains a web site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The address of this web
site is http://www.sec.gov. The statements contained herein as to the contents
of any contract or other document filed as an exhibit to the registration
statement are, of necessity, brief descriptions thereof and are not necessarily
complete but do contain all material information regarding such documents; each
such statement is qualified by reference to such contract or document.
The Bank has filed an Application with the Department with respect to the
Reorganization. Pursuant to the rules and regulations of the Department, this
Prospectus omits certain information contained in that Application. The
Application may be examined at the office of the Department, 2 Rector Street,
New York, New York, and at the Bank's main office at 425 Main Street,
Catskill, New York, 12414-1300.
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 Certificate of Incorporation and bylaws of the Company, as
well as the Plan of Reorganization, are available without charge from the Bank
by contacting the Secretary, 425 Main Street, Catskill, New York, 12414- 1300;
(518) 943-3700. Copies of the Independent Valuation are available for inspection
at each of the Bank's offices.
99
<PAGE>
GREENE COUNTY SAVINGS BANK
FINANCIAL STATEMENTS
(and Report of Independent Accountants)
For the Years Ended June 30, 1998 and 1997
<PAGE>
Report of Independent Accountants
To the Board of Trustees
Greene County Savings Bank
In our opinion, the accompanying statement of financial condition and the
related statements of income and changes in net worth and cash flows present
fairly, in all material respects, the financial position of Greene County
Savings Bank at June 30, 1998, and the results of their operations and their
cash flows for each of the two years in the period ended June 30, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Albany, New York
August 7, 1998
F-1
<PAGE>
Greene County Savings Bank
Statement of Financial Condition
June 30, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and due from banks $ 2,476,032
Federal funds sold 5,796,051
-----------------
Total cash and cash equivalents 8,272,083
Investment securities, at fair value 47,778,335
Loans 81,191,211
Less: allowance for possible loan losses (728,478)
Unearned origination fees and costs, net (202,771)
-----------------
Net loans receivable 80,259,962
Premises and equipment 2,584,281
Accrued interest receivable 1,091,120
Prepaid expenses and other assets 143,600
Other real estate 123,548
-----------------
Total assets $ 140,252,929
-----------------
-----------------
LIABILITIES AND NET WORTH
Deposits:
Savings certificates, $100,000 and over $ 6,672,000
Other savings certificates 48,930,036
Regular and day-to-day 32,950,825
Money market accounts 19,609,467
Checking accounts 7,514,136
NOW accounts 6,186,521
Christmas Club 460,774
-----------------
122,323,759
Accrued interest and other liabilities 509,314
Accrued income taxes 2,101
Tax escrow funds 1,687,530
-----------------
Total liabilities 124,522,704
Net worth:
Surplus 2,706,456
Undivided profits 12,781,369
Unrealized gain on securities available for sale,
net of applicable deferred income taxes 242,400
-----------------
Total net worth 15,730,225
-----------------
Total liabilities and net worth $ 140,252,929
-----------------
-----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
Greene County Savings Bank
Statements of Income
For the Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Interest income:
Interest on loans $ 6,367,282 $ 6,175,215
Interest and dividends on investments:
US Treasury 985,130 962,932
US Government agencies 856,073 687,256
State and political subdivisions 341,222 362,490
Corporation debt securities 405,225 456,678
Mortgage-backed securities 110,488 69,863
Other securities 17,724 23,441
Federal funds sold 393,310 536,826
Other interest income 26,902 22,615
------------------ -----------------
9,503,356 9,297,316
------------------ -----------------
Interest expense:
Interest on deposits 4,967,487 4,779,678
------------------ -----------------
Net interest income 4,535,869 4,517,638
------------------ -----------------
Less: provision for loan losses 120,000 125,000
------------------ -----------------
Net interest income after provision for loan losses 4,415,869 4,392,638
Non-interest income:
Service charges on deposit accounts 251,188 230,442
Other operating income 185,479 289,968
------------------ -----------------
Total other income 436,667 520,410
------------------ -----------------
Non-interest expenses:
Salaries and employee benefits 1,571,650 1,491,651
Occupancy expense, net 208,381 157,190
Equipment and furniture expense 185,476 163,845
Other 1,183,752 960,563
------------------ -----------------
Total other expenses 3,149,259 2,773,249
------------------ -----------------
Income before provision for taxes 1,703,277 2,139,799
Provision for income taxes
Current 565,609 720,287
Deferred (12,248) (28,625)
------------------ -----------------
Total provision for income taxes 553,361 691,662
------------------ -----------------
Net income $ 1,149,916 $ 1,448,137
------------------ -----------------
------------------ -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
Greene County Savings Bank
Statements of Changes in Net Worth
For the Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Unrealized
Gain (loss)
on Securities
Available-
For-sale, net Total
Undivided of Deferred Net
Profits Surplus Income Taxes Worth
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Balances at June 30, 1996 $ 10,183,316 $ 2,706,456 $ (7,200) $ 12,882,572
Net income for year ended
June 30, 1997 1,448,137 1,448,137
Change in unrealized gain on
securities available for sale, net of
applicable deferred income taxes 75,200 75,200
------------- ------------- -------------- --------------
Balance at June 30, 1997 11,631,453 2,706,456 68,000 14,405,909
------------- ------------- -------------- --------------
Net income for year ended
June 30, 1998 1,149,916 1,149,916
Change in unrealized gain on
securities available for sale, net of
applicable deferred income taxes 174,400 174,400
------------- ------------- -------------- --------------
Balance at June 30, 1998 $ 12,781,369 $ 2,706,456 $ 242,400 $ 15,730,225
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
Greene County Savings Bank
Statements of Cash Flows
For the Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net income $ 1,149,916 $ 1,448,137
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 147,128 110,400
Net accretion of security premiums and discounts (161,533) (167,837)
Provision for loan losses 120,000 125,000
Loss on sale of other real estate 2,793 12,009
Provision (credit) for deferred income taxes (12,248) (28,625)
Net change in unearned loan fees and costs (12,848) (57,951)
Net (increase) decrease in accrued interest receivable (48,580) 257,062
Net (increase) decrease in prepaids and other assets 11,571 443,512
Net (decrease) increase in other liabilities (235,666) 47,460
----------------- ------------------
Net cash provided by operating activities 960,533 2,189,167
----------------- ------------------
Cash flows from investing activities:
Proceeds from maturities of available-for-sale securities 7,686,731 7,500,000
Purchases of securities available-for-sale (12,651,981) (10,888,898)
Principal payments on securities available-for-sale 2,423,055 744,667
Principal payments on mortgage-backed securities
available-for-sale 1,923,198 1,338,993
Purchases of mortgage-backed securities available-for-sale (4,024,423) -
Proceeds from maturities of mortgage-backed securities
available-for-sale 325,809 -
Proceeds from sale of other real estate 179,699 68,378
Net increase in loans receivable (4,971,125) (2,730,620)
Purchases of premises and equipment (1,060,217) (409,778)
----------------- ------------------
Net cash used by investing activities (10,169,254) (4,377,258)
----------------- ------------------
Cash flows from financing activities
Net increase in deposits 6,468,829 1,668,328
Net increase (decrease) in escrow payments 123,905 (25,143)
----------------- ------------------
Net cash provided by financing activities 6,592,734 1,643,185
----------------- ------------------
Net decrease in cash and cash equivalents (2,615,987) (544,906)
Cash and cash equivalents at beginning of period 10,888,070 11,432,976
----------------- ------------------
Cash and cash equivalents at end of period $ 8,272,083 $ 10,888,070
----------------- ------------------
----------------- ------------------
Cash paid during the period for:
Interest $ 4,967,903 $ 4,779,770
----------------- ------------------
Income taxes $ 833,551 $ 738,257
----------------- ------------------
Non-cash investing activity:
Foreclosed loans transferred to other real estate $ 252,007 $ 70,457
----------------- ------------------
Net change in unrealized gain on available-for-sale
securities $ 174,400 $ 75,200
----------------- ------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Nature of operations:
Greene County Savings Bank (the "Bank" or "Company"), a New York
State-charted mutual savings bank, has four full service offices
located in its market area consisting of Greene County, New York. The
Bank is primarily engaged in the business of attracting deposits from
the general public in the Bank's market area, and investing such
deposits, together with other sources of funds, in loans and investment
securities.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and cash equivalents:
Cash and cash equivalents include cash on hand, amounts due from banks,
interest-bearing deposits (with original maturity of three months or
less) and federal funds sold. Generally, federal funds are sold for
one-day periods. The carrying amounts reported in the balance sheet for
cash and cash equivalents approximate those assets' fair values.
Investment securities:
The Company has classified its investments in debt and equity
securities as available-for-sale. Available-for-sale securities are
reported at fair value, with net unrealized gains and losses reflected
as a separate component of net worth, net of applicable income taxes.
None of the Company's investment securities have been classified as
trading or held-to-maturity securities.
Realized gains or losses on investment security transactions are based
on the specific identification method and are reported under other
income. Fair values of investment securities are based on quoted market
prices, where available. If quoted market prices are not available,
fair values are based on quoted market prices of comparable
instruments. Premiums and discounts are amortized and accreted,
respectively, using methods that approximate the effective yield method
over the remaining contractual maturity, adjusted for anticipated
prepayments.
Loans:
Fair values for variable rate loans that reprice frequently, with no
significant credit risk, are based on carrying values. Fair values for
fixed rate loans are estimated using discounted cash flows and interest
rates currently being offered for loans with similar terms to borrowers
of similar credit quality. The carrying amount of accrued interest
approximates fair value.
Interest on loans is accrued and credited to income based upon the
principal amount outstanding. Unearned discount on installment loans is
recognized as income over the term of the loan, principally using a
method that approximates the effective yield method. Nonrefundable loan
fees and related direct costs are deferred and amortized over the life
of the loan as an adjustment to loan yield using the effective interest
method.
F-6
<PAGE>
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Allowance for possible loan losses:
The allowance for loan losses is maintained at a level considered
adequate to provide for potential loan losses. The allowance is
increased by a provision for loan losses, charged to expense, and
reduced by net charge-offs. The level of the allowance is based on
management's evaluation of the collectibility of the loan portfolio,
including the nature of the portfolio, credit concentrations, trends in
historical loss experience, specific impaired loans, and economic
conditions. The Bank considers residential mortgages, home equity loans
and installment loans to customers small, homogeneous loans which are
evaluated for impairment collectively based on historical loss
experience. Commercial mortgage and business loans are considered
impaired if it is probable that the Bank will not be able to collect
scheduled payments of principal and interest when due, according to the
contractual terms of the loan agreement. The measurement of impaired
loans is generally based on the present value of estimated future cash
flows, except that all collateral dependent loans are measured for
impairment based on the fair value of the collateral. No loans were
deemed impaired during the fiscal years ended June 30, 1998 and 1997.
Income recognition on impaired and non-accrual loans:
The Bank places a loan, including impaired loans, on nonaccrual status
when it is specifically determined to be impaired or when principal and
interest is delinquent for 90 days or more. Any unpaid interest
previously accrued on these loans is reversed from income. When a loan
is specifically determined to be impaired, collection of interest and
principal are generally applied as a reduction to principal
outstanding. Interest income on all other nonaccrual loans is
recognized on a cash basis.
Premises and equipment:
Premises and equipment is stated at cost. Depreciation is computed
using principally the straight-line method over the estimated useful
lives of the related assets. Maintenance and repairs are charged to
expense when incurred. Gains and losses from sales or other
dispositions of depreciable property are included in current
operations.
Other real estate:
Properties acquired through foreclosure, or by deed in lieu of
foreclosure, are carried at the lower of cost (fair value at the date
of foreclosure) or fair value less estimated disposal costs.
Deposits:
Fair values disclosed for demand and savings deposits are equal to the
carrying amounts at the reporting date. The carrying amounts for
variable rate money market and certificates of deposit approximate fair
values at the reporting date. Fair values for fixed rate certificates
of deposit are estimated using discounted cash flows and interest rates
currently being offered on similar certificates. The carrying value of
accrued interest approximates fair value.
Restrictions on retained earnings:
Retained earnings of the Bank are subject to certain restrictions under
New York State Banking regulations. As required under these
regulations, if the net worth of the Bank is less than ten percent of
the amount due depositors at the close of any accounting period, five
percent of net earnings, before dividends paid to depositors and losses
on sale of assets, for such period is credited to appropriated retained
earnings.
F-7
<PAGE>
Greene County Savings Bank
Notes to Financial Statements, Continued
1. Summary of Significant Accounting Policies, Continued
Restrictions on retained earnings, continued:
Unappropriated retained earnings represent accumulated undistributed
net earnings of the Bank which have not been allocated to appropriated
equity and are not restricted as to use under New York State banking
regulations.
Income taxes:
Provisions for income taxes are based on taxes currently payable or
refundable and deferred income taxes on temporary differences between
the tax basis of assets and liabilities and their reported amounts in
the financial statements. Deferred tax assets and liabilities are
reported in the financial statements at currently enacted income tax
rates applicable to the period in which the deferred tax assets and
liabilities are expected to be realized or settled.
2. Investment Securities
Securities available-for-sale at June 30, 1998 consist of the following:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 12,969,356 $ 221,625 $ 1,216 $ 13,189,765
U.S. Government agencies 8,569,188 59,086 7,793 8,620,481
State and political subdivisions 7,389,943 101,296 11,652 7,479,587
Mortgage-backed securities 5,196,204 8,442 15,586 5,189,060
Asset-backed securities 6,304,752 20,227 1,296 6,323,683
Corporate debt securities 3,735,833 64,429 1,466 3,798,796
Equity securities and other 81,454 81,454
Foreign obligations 75,000 75,000
Federal Home Loan Bank stock 700,000 700,000
Mutual funds 2,352,605 32,096 2,320,509
-------------- ------------- ------------ ---------------
$ 47,374,335 $ 475,105 $ 71,105 $ 47,778,335
-------------- ------------- ------------ ---------------
-------------- ------------- ------------ ---------------
</TABLE>
The amortized cost and estimated fair value of debt securities at June
30, 1998, by contractual maturity, are shown below. Expected maturities
may differ from contractual maturities, because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
----------------- -----------------
<S> <C> <C>
Amounts maturing in:
One year or less $ 7,787,368 $ 7,828,078
After one year through five years 20,290,540 20,563,884
After five years through ten years 4,586,412 4,696,667
Mortgage-backed securities 5,196,204 5,189,060
Asset-backed securities 6,304,752 6,323,683
----------------- -----------------
$ 44,165,276 $ 44,601,372
----------------- -----------------
----------------- -----------------
</TABLE>
F-8
<PAGE>
Greene County Savings Bank
Notes to Financial Statements, Continued
2. Investment Securities, Continued
The Bank participates in a securities lending program with the
custodian of substantially all Bank securities. Under the terms of the
agreement, the custodian acts as an agent for the Bank and loans
available securities to borrowers. At June 30, 1998, $4,985,000 of
securities were on loan under this program.
3. Loans
Major classifications of loans at June 30, 1998 are summarized as
follows
<TABLE>
<S> <C>
Real estate mortgages:
Residential $ 64,705,332
Commercial 5,706,421
Home equity loans 4,727,206
Commercial loans 1,336,229
Installment loans to individuals 4,171,688
Passbook loans to individuals 544,335
----------------
$ 81,191,211
----------------
----------------
</TABLE>
At June 30, 1998, loans to officers and trustees were not significant.
Changes in the allowance for possible loan losses for the periods ended
June 30 were as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Balance, beginning of year $ 723,019 $ 596,924
Provision charged to expense 120,000 125,000
Loans charged off (126,224) (11,002)
Recoveries 11,683 12,097
----------------- ----------------
$ 728,478 $ 723,019
----------------- ----------------
----------------- ----------------
</TABLE>
At June 30, 1998, the Bank's impaired loans for which specific valuation
allowances were recorded were not significant.
4. Premises and Equipment
A summary of premises and equipment at June 30, 1998 is as follows:
<TABLE>
<S> <C>
Land 409,702
Buildings and improvements 2,156,500
Furniture and equipment 1,859,570
----------------
4,425,772
Less: accumulated depreciation (1,841,491)
----------------
$ 2,584,281
----------------
----------------
</TABLE>
F-9
<PAGE>
Greene County Savings Bank
Notes to Financial Statements, Continued
5. Income Taxes
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Current:
Federal income tax $ 471,448 $ 573,013
State income tax 94,161 147,274
------------------ ----------------
Total current 565,609 720,287
Deferred income tax (12,248) (28,625)
------------------ ----------------
Total income tax expense $ 553,361 $ 691,662
------------------ ----------------
------------------ ----------------
</TABLE>
The Bank's effective tax rate differs from the federal statutory rate
as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Tax based on federal statutory rate 34% 34%
State income taxes, net of federal benefit 3.7 4.5
Tax exempt income (5.7) (5.9)
Other, net .5 (.3)
----------- ----------
Total income tax expense 32.5% 32.3%
----------- ----------
----------- ----------
</TABLE>
The components of the deferred tax assets and liabilities at June 30 were
as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 184,414 $ 145,257
Nonaccruing interest 34,739 17,583
Loan origination fee adjustments 24,281
----------- -----------
Total deferred tax assets $ 219,153 $ 187,121
----------- -----------
----------- -----------
Deferred tax liabilities:
Depreciation 160,069 133,104
Investments 219,403 97,590
----------- -----------
Total deferred tax liabilities $ 379,472 $ 230,694
----------- -----------
----------- -----------
</TABLE>
F-10
<PAGE>
Greene County Savings Bank
Notes to Financial Statements, Continued
6. Commitments and Contingent Liabilities
Financial Instruments with off-balance sheet risk and concentrations of
credit:
The Bank enters into financial agreements in the normal course of
business that have off-balance sheet risk. These agreements include
commitments to extend credit and involve, to varying degrees, elements
of credit risk in excess of the amount recognized on the statement of
financial condition.
The Bank uses the same credit policies in making commitments as it does
for on-balance sheet instruments.
Contract amounts of financial instruments that represent credit risk at
June 30, 1998 are as follows:
<TABLE>
<S> <C>
Commercial lines of credit $ 235,000
Commitments to extend credit 2,154,300
---------------
$ 2,389,300
---------------
---------------
</TABLE>
Commitments to extend credit and commercial lines of credit are
agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have
fixed expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to expire
without being fully drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's credit worthiness on a case-by-case basis.
The amount of collateral, if any, required by the Bank upon the
extension of credit is based on management's credit evaluation of the
customer. Commitments to extend credit are primarily secured by a first
lien on real estate. Collateral on extensions of commercial lines of
credit varies but may include accounts receivable, inventory, property,
plant and equipment, and income producing commercial property.
7. Employee Benefit Plans
Substantially all Bank employees who have completed one year of service
and attained the age of 21 are covered by a noncontributory,
multi-employer, defined benefit pension plan. Under the plan,
retirement benefits are primarily a function of both years of service
and level of compensation. The Bank recognized pension expense in the
amount of $102,000 and $151,000 in 1998 and 1997, respectively.
The Bank also participated in a multi-employer, defined contribution
plan covering substantially all employees who have completed one year
of service. The plan includes Section 401(k) and Thrift provisions as
defined under the Internal Revenue Code. The provisions permit
employees to contribute up to 15% of their total compensation on a
pre-tax basis. The Bank matches 50% of the first 6% of employee
contributions. Company contributions associated with the plan amounted
to $56,000 and $36,000 in 1998 and 1997, respectively.
F-11
<PAGE>
Greene County Savings Bank
Notes to Financial Statements, Continued
8. Lines-of-Credit
At June 30, 1998, the Bank had available two lines-of-credit from other
financial institutions for $2,000,000 and $1,000,000. These credit
lines are collateralized by investment securities and carry interest
based on the federal funds rate or other published rates. At June 30,
1998, there was no outstanding balances on these credit lines.
9. Concentrations of Credit Risk
The Bank grants residential, consumer and commercial loans to customers
primarily located in Greene County, New York. Although the Bank has a
diversified loan portfolio, a substantial portion of its debtors'
ability to honor their contracts is dependent upon the employment and
other economic factors of the County.
10. Fair Value of Financial Instruments
The Company determines fair values based on quoted market values, where
available, or on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future
cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument.
Statement of Financial Accounting Standard No. 107, "Disclosures About
Fair Value of Financial Instruments," excludes certain financial
instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Company. The methods to
determine fair value for each financial instrument are listed in Note
1. The carrying amounts and estimated fair values of financial
instruments as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
June 30, 1998
----------------------------------
Carrying Fair
(in thousands) Amount Value
--------------- ---------------
<S> <C> <C>
Cash and short-term investments $ 8,272 $ 8,272
Investment securities $ 47,374 $ 47,778
Net loans $ 80,260 $ 81,453
Deposits $ 122,324 $ 122,427
</TABLE>
F-12
<PAGE>
Greene County Savings Bank
Notes to Financial Statements, Continued
11. Regulatory Matters
The Bank is subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier I
capital (as defined) to average assets (as defined). Management
believes, as of June 30, 1998, that the Bank meets all capital adequacy
requirements to which it is subject.
<TABLE>
<CAPTION>
To be Well Capitalized
For Capital Under Prompt
Actual Adequacy Purposes Action Provisions
-------------------------- ------------------------- ---------------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998:
Total capital
(to risk weighted $ 16,216,000 21% $ 6,098,000 8% $ 7,622,000 10%
assets)
Tier I Capital
(to risk weighted $ 15,488,000 20% $ 3,049,000 4% $ 4,574,000 6%
assets)
Tier I capital
(to average assets) $ 15,488,000 11% $ 5,588,000 4% $ 6,985,000 5%
</TABLE>
12. Subsequent Event
On July 1, 1998, the Board of Trustees of the Bank adopted a Plan of
Conversion to convert from a state-chartered mutual savings bank to a
state-chartered stock savings bank with the concurrent formation of a
holding company. The holding company will be organized for the purpose
of acquiring and holding all of the outstanding capital stock of the
Bank to be issued in the conversion. The Conversion is expected to be
accomplished through the adoption of a new state stock charter and
bylaws for the Bank and the sale of the holding company's stock in an
underwritten public offering.
F-13
<PAGE>
Greene County Savings Bank
Notes to Financial Statements, Continued
12. Subsequent Event, Continued
At the time of the Conversion, the Bank will establish a liquidation
account in an amount equal to its capital as of the date of the latest
statement of financial condition appearing in the final prospectus. The
liquidation account will be maintained for the benefit of eligible
account holders who continue to maintain their accounts at the Bank
after the Conversion. The liquidation account will be reduced annually
to the extent that eligible account holders have reduced their
qualifying deposits as of each anniversary date. Subsequent increases
will not restore an eligible account holder's interest in the
liquidation account. In the event of a complete liquidation, each
eligible account holder will be entitled to receive a distribution from
the liquidation account in an amount proportionate to the current
adjusted qualifying balances for account then held.
Subsequent to the Conversion, the Bank may not declare or pay cash
dividends on or repurchase any of its shares of common stock if the
effect thereof would cause stockholders' equity to be reduced below
applicable regulatory capital maintenance requirements or if such
declaration and payment would otherwise violate regulatory
requirements.
The registration statement on Form SB-2 is expected to be filed by the
proposed holding company of the Bank with the Securities and Exchange
Commission in the fall of 1998, at which point it will become effective
in accordance with Section 8(a) of the Securities Act of 1933.
F-14
<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 Company or the 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.
Greene County Bancorp, Inc.
(Proposed Holding Company for
Greene County Savings Bank)
Up to 1,096,958 Shares
Common Stock
($.10 par value per share)
----------------------------
PROSPECTUS
----------------------------
FRIEDMAN, BILLINGS RAMSEY & CO., INC.
November____, 1998
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED
Until_________ 1998 or 25 days after the commencement of the Offering, 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 24. Indemnification of Directors and Officers.
Indemnification of Directors and Officers of the Corporation
Article 9 of the Certificate of Incorporation of Greene County Bancorp,
Inc. (the "Corporation") sets forth circumstances under which directors,
officers, employees and agents of the Corporation may be insured or indemnified
against liability which they may incur in their capacities as such.
Article 9:
A. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a Director or an
Officer of the Corporation or is or was serving at the request of the
Corporation as a Director, Officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"), whether
the basis of such proceeding is alleged action in an official capacity as a
Director, Officer, employee or agent or in any other capacity while serving as a
Director, Officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however, that,
except as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation.
B. The right to indemnification conferred in Section A of this
Article 9 shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter and "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee in his or her capacity as a Director or Officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, services to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Section or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Sections A and B of this Article 9 shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article 9 is not paid in
full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expenses of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an
II-1
<PAGE>
actual determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee has not met
such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article 9 or otherwise, shall be on the
Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article 9 shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification and to the advancement
of expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article 9 with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
Item 25. Other Expenses of Issuance and Distribution
<TABLE>
<CAPTION>
Amount
-----------
<S> <C>
* Legal Fees and Expenses...........................................$ 110,000
* Printing, Postage and Mailing..................................... 110,000
* Appraisal and Business Plan Fees and Expenses..................... 25,000
* Accounting Fees and Expenses...................................... 90,000
* Blue Sky Filing Fees and Expenses
(including counsel fees)......................................... 20,000
* Conversion Data Processing........................................ 7,500
** Underwriter's Fees and Expenses................................... 150,000
* Filing Fees (NASD, New York State and SEC)........................ 23,500
* Other Expenses.................................................... 24,000
-----------
* Total ...........................................................$ 560,000
-----------
-----------
</TABLE>
- ----------
* Estimated
** Greene County Bancorp, Inc. has retained Friedman, Billings, Ramsey & Co.,
Inc. ("FBR") to assist in the sale of common stock on a best efforts basis
in the Offering. FBR will receive fees of $110,000, exclusive of estimated
expenses of $40,000.
II-2
<PAGE>
Item 26. Recent Sales of Unregistered Securities
Not Applicable.
Item 27. Exhibits:
The exhibits filed as part of this registration statement are
as follows:
(a) List of Exhibits
1.1 Engagement Letter between Greene County Savings Bank and Friedman,
Billings, Ramsey & Co., Inc.*
1.2 Agency Agreement among Greene County Bancorp, Inc., Greene County
Savings Bank and Friedman, Billings, Ramsey & Co., Inc.*
2 Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding
Company and Stock Issuance Plan*
3.1 Certificate of Incorporation of Greene County Bancorp, Inc.*
3.2 Bylaws of Greene County Bancorp, Inc.*
3.3 Proposed Charter of The Bank of Greene County*
3.4 Proposed Bylaws of The Bank of Greene County*
4 Form of Common Stock Certificate of Greene County Bancorp, Inc.*
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding
legality of securities being registered*
8.1 Form of Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick,
P.C.
8.2 Form of State Tax Opinion of PriceWaterhouseCoopers*
8.3 Opinion of FinPro, Inc. with respect to Subscription Rights*
10.1 Form of Employment Agreement*
10.2 Form of Employee Stock Ownership Plan*
21 Subsidiaries of the Registrant*
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in
Opinions included in Exhibits 5 and 8.1)
23.2 Consent of PriceWaterhouseCoopers
23.3 Consent of FinPro, Inc.*
23.4 Consent of William M. Mercer, Incorporated*
24 Power of Attorney (set forth on signature page)
27.1 EDGAR Financial Data Schedule (in Electronic Filing Only)*
99.1 Appraisal Agreement between Greene County Savings Bank and FinPro,
Inc.*
99.2 Appraisal Report of FinPro, Inc. (separately filed)*
II-3
<PAGE>
99.3 Proxy Statement*
99.4 Marketing Materials*
99.5 Order and Acknowledgment Form and Certification Form
99.6 Opinion of Compensation Expert*
- ----------
* Filed previously
II-4
<PAGE>
Item 28. Undertakings
The undersigned Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement
to:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, 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 end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii)Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
The small business issuer 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 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the questions whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this amendment to the
registration statement to be signed on its behalf by the undersigned, in the
city of Catskill, State of New York on November 9, 1998.
GREENE COUNTY BANCORP, INC.
By:
-----------------------------------------------
J. Bruce Whittaker
President, Chief Executive Officer and Director
(Duly authorized representative)
POWER OF ATTORNEY
We, the undersigned directors and officers of Greene County Bancorp,
Inc. (the "Company") hereby severally constitute and appoint J. Bruce Whittaker
as our true and lawful attorney and agent, to do any and all things in our names
in the capacities indicated below which said J. Bruce Whittaker may deem
necessary or advisable to enable the Company to comply with the Securities Act
of 1933, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with the registration statement on Form SB-2
relating to the offering of the Company's Common Stock, including specifically,
but not limited to, power and authority to sign for us in our names in the
capacities indicated below the registration statement and any and all amendments
(including post-effective amendments) thereto; and we hereby approve, ratify and
confirm all that said J. Bruce Whittaker shall do or cause to be done by virtue
thereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and as of the dates stated.
Signature Title Date
President, Chief Executive November 9, 1998
- ------------------------- Officer and Director (principal
J. Bruce Whittaker executive officer)
Vice President and Treasurer November 9, 1998
- ------------------------- (principal accounting and
Edmund L. Smith, Jr. financial officer)
Chairman of the Board November 9, 1998
- -------------------------
Walter H. Ingalls
Director November 9, 1998
- -------------------------
Richard J. Buck
Director November 9, 1998
- -------------------------
Anthony Camera, Jr.
Director November 9, 1998
- -------------------------
David H. Jenkins, DVM
Director November 9, 1998
- -------------------------
Raphael Klein
II-6
<PAGE>
Director November 9, 1998
- -------------------------
Dennis R. O'Grady
Director November 9, 1998
- -------------------------
Paul Slutzky
Director November 9, 1998
- -------------------------
Martin C. Smith
II-7
<PAGE>
EXHIBIT INDEX
1.1 Engagement Letter between Greene County Savings Bank and Friedman,
Billings, Ramsey & Co., Inc.*
1.2 Agency Agreement among Greene County Bancorp, Inc., Greene County
Savings Bank and Friedman, Billings, Ramsey & Co., Inc.*
2 Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding
Company and Stock Issuance Plan*
3.1 Certificate of Incorporation of Greene County Bancorp, Inc.*
3.2 Bylaws of Greene County Bancorp, Inc.*
3.3 Proposed Charter of The Bank of Greene County^*
3.4 Proposed Bylaws of The Bank of Greene County^*
4 Form of Common Stock Certificate of Greene County Bancorp, Inc.*
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding
legality of securities being registered*
8.1 Form of Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick,
P.C.*
8.2 Form of State Tax Opinion of PriceWaterhouseCoopers*
8.3 Opinion of FinPro, Inc. with respect to Subscription Rights*
10.1 Form of Employment Agreement*
10.2 Form of Employee Stock Ownership Plan*
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 PriceWaterhouseCoopers
23.3 Consent of FinPro, Inc.*
23.4 Consent of William M. Mercer, Incorporated*
24 Power of Attorney (set forth on signature page)
27.1 EDGAR Financial Data Schedule (in Electronic Filing Only)*
99.1 Appraisal Agreement between Greene County Savings Bank and FinPro,
Inc.*
99.2 Appraisal Report of FinPro, Inc. (separately filed)*
99.3 Proxy Statement*
99.4 Marketing Materials*
99.5 Order and Acknowledgment Form and Certification Form
99.6 Opinion of Compensation Expert*
- ----------
* Filed previously
<PAGE>
[Letterhead]
WRITER'S DIRECT DIAL NUMBER
(202) 274-2000
September 18, 1998
Board of Trustees
Greene County Savings Bank
425 Main and Church Streets
Catskill, New York 12414-1317 182
Re: Mutual Holding Company Formation and Stock Issuance
Ladies and Gentlemen:
We have been requested as special counsel to Greene County Savings Bank
to express our opinion concerning certain Federal income tax matters relating to
the proposed Reorganization (as defined below) of Greene County Savings Bank, a
New York-chartered mutual savings bank ("Bank") into the MHC structure. As part
of the Reorganization, the Bank will convert to a New York-chartered stock
savings bank (the "Stock Bank"), and Greene County Bancorp, MHC, a New
York-chartered mutual holding company ("MHC ") will be formed to own a majority
of the common stock of Greene County Bancorp, Inc., a Delaware chartered
corporation ("Holding Company"), which will own 100% of the common stock of the
Stock Bank.
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 Trustees of the Bank on July 1, 1998 (the
"Plan of Reorganization"), and certain other documents relating to the
Reorganization, some of which are described or referred to in the Plan of
Reorganization and which we have 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 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
<PAGE>
Board of Trustees
Greene County Savings Bank
September 18, 1998
Page 2
under Federal income tax laws except on the basis of the documents and
assumptions described above.
For purposes of this opinion, we are relying on the representations
provided to us by the Bank, which are incorporated herein by reference and
attached hereto.
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. The Bank's exchange of its New York mutual savings bank charter for
a New York stock savings bank 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)).
<PAGE>
Board of Trustees
Greene County Savings Bank
September 18, 1998
Page 3
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)).
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 depositors will recognize no gain or loss upon the constructive
receipt of Stock Bank common stock solely in exchange for their ownership
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 depositors (which basis is -0-) will be the same as their
basis in their ownership 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 depositors of the Bank will include the period during which the
Bank depositors held their ownership interests, provided that the ownership
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 Ownership
Interests (the "351 Transaction"):
10. The exchange of Stock Bank stock by the Stock Bank depositors in
exchange for ownership 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 Stock Bank
in exchange for ownership interests in the MHC . (Code Section 351).
12. Stock Bank depositor's basis in the MHC ownership interests
received in the 351 Transaction (which basis is -0-) will be the same as the
basis of the property transferred in exchange therefor, reduced by the sum of
the liabilities assumed by MHC or to which assets transferred are taken subject.
(Code Section 358(a)(1)).
<PAGE>
Board of Trustees
Greene County Savings Bank
September 18, 1998
Page 4
13. Stock Bank depositor's holding period for the ownership interests
in MHC received in the transaction will include the period during which the
property exchanged was held by 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 ownership interests in the MHC .
(Code Section 1032(a)).
15. Mutual Holding Company'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. Mutual Holding Company'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) and 357(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 shareholder's
holding period for Common Stock acquired through the exercise of subscription
rights will begin on the date the rights are exercised.
PROPOSED TRANSACTION
On July 1, 1998, the Board of Trustees of the Bank adopted the Plan of
Reorganization. For what are represented to be valid business purposes, the
Bank's Board of Trustees has decided to convert to a MHC structure pursuant to
certain federal and state laws and regulations. The following steps are
proposed:
<PAGE>
Board of Trustees
Greene County Savings Bank
September 18, 1998
Page 5
(i) The Bank will organize an interim New York-chartered stock
savings bank (Interim One) as its wholly-owned subsidiary;
(ii) Interim One will organize a Delaware mid-tier holding company
as its wholly-owned subsidiary (Holding Company); and
(iii) Interim One will also organize another interim New
York-chartered 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 New York stock
savings bank charter and will become a stock savings bank that
will constructively issue its common stock to depositors of
the Bank;
(v) Interim One will cancel its outstanding stock and exchange its
charter for a New York 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 depositors of the Bank who
constructively hold stock in the Bank will exchange their
stock in the Bank for membership interests in the MHC ;
(vii) The MHC will contribute the Bank's stock to the Holding
Company, a wholly-owned subsidiary of the MHC , for additional
shares of Holding Company; and
(viii) Contemporaneously, with the contribution set forth in "(vii)"
the Stock Holding Company will offer to sell 44.51% of its
Common Stock in the Subscription Offering and, if applicable,
the Community Offering. In addition, the Bank intends to
establish a charitable foundation (the "Charitable
Foundation") to which the Holding Company will contribute
shares of Common Stock equal to 1.96% of the shares of Common
Stock outstanding.
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
<PAGE>
Board of Trustees
Greene County Savings Bank
September 18, 1998
Page 6
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 who had liquidation rights with respect to the Bank immediately
prior to the Reorganization will continue to have such rights solely with
respect to the MHC so long as they continue to hold deposit accounts with the
Stock Bank. All new depositors of the Stock Bank after the completion of the
Reorganization will have liquidation 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 depositors
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.
<PAGE>
Board of Trustees
Greene County Savings Bank
September 18, 1998
Page 7
It is expressly understood that the opinions set forth above represent
our conclusions based upon the documents reviewed by us and the facts presented
to us. Any material amendments to such documents or changes in any significant
fact would affect the opinions expressed herein.
We have not been asked to, and we do not, render any opinion with
respect to any matters other than those expressly set forth above.
We hereby consent to the filing of the opinion as an exhibit to the
Bank's Form 86-AC Application for Approval of a Mutual Savings Bank Holding
Company Reorganization and Minority Stock Issuance as filed with the New York
State Banking Department and to the Holding Company's Registration Statement on
Form SB-2 as filed with the SEC. We also consent to the references to our firm
in the Prospectus contained in the Forms 86-AC and SB-2 under the captions "The
Reorganization and Offering - Federal and State Tax Consequences of the
Reorganization" and "Legal and Tax Matters," and to the summarization of our
opinion in such Prospectus.
Very truly yours,
LUSE LEHMAN GORMAN POMERENK & SCHICK
A Professional Corporation
<PAGE>
REPRESENTATIONS OF
GREENE COUNTY SAVINGS BANK
Set forth below are the representations required of Greene County
Savings Bank in order for Luse Lehman Gorman Pomerenk & Schick, A Professional
Corporation, to provide an opinion of counsel with respect to the federal income
tax consequences of the Reorganization and Conversion. All terms capitalized
herein shall have the same meaning as set forth in the opinion of counsel dated
September 17, 1998.
1. The fair market value of the Stock Bank stock constructively received
by the depositors of the Bank in exchange for their equity interest in
the Bank will be approximately equal to the fair market value of the
equity interest in the Bank constructively surrendered in the exchange.
2. There is no plan or intention by the depositors of the Bank, to sell,
exchange, or otherwise dispose of any of the shares of Stock Bank stock
constructively received in the transaction, other than as described
herein (i.e., the transfer to Mutual Holding Company).
3. Immediately following the Bank Conversion, the depositors of the Bank
will own all of the outstanding Stock Bank stock and will own such
stock solely by reason of their ownership of all of the equity
interests in Bank immediately prior to the transaction.
4. Stock Bank has no present plan or intention to issue additional shares
of its stock following the Bank Conversion.
5. Immediately following Bank Conversion, Stock Bank will possess the same
assets and liabilities, except for assets used to pay expenses incurred
in connection with the transaction, as those possessed by Bank
immediately prior to the transaction. Depositors will not have
dissenters rights in connection with the Bank Conversion. Also there
will be no property distributed to any shareholder in connection with
the Bank Conversion and no distributions other than the regular
distributions (i.e., interest credited to accounts).
6. At the time of the Bank Conversion, Bank will not have outstanding any
warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock of Bank.
7. Stock Bank has no plan or intention to reacquire any of its stock
issued in the Bank Conversion.
8. Stock Bank has no plan or intention to sell or otherwise dispose of any
of the assets of Bank acquired in the Bank Conversion, except for
dispositions made in the ordinary course of business.
<PAGE>
9. The liabilities of Bank assumed by Stock Bank plus the liabilities, if
any, to which the transferred assets are subject were incurred by Bank
in the ordinary course of its business and are associated with the
assets transferred.
10. Following the Bank Conversion, Stock Bank will continue the historic
business of Bank or use a significant portion of Bank's historic
business assets in a business.
11. The shareholders will pay their respective expenses, if any, incurred
in connection with the Bank Conversion.
12. Bank is not under the jurisdiction of a court in a Title 11 ^
bankruptcy, a receivership, foreclosure or similar proceeding.
13. No stock or securities will be issued for services rendered to or for
the benefit of the Mutual Holding Company in connection with the 351
Transaction, and no stock or securities will be issued for indebtedness
of the Mutual Holding Company that is not evidenced by a security, or
for interest on indebtedness of the Mutual Holding Company which
accrued on or after the beginning of the holding period for the debt.
14. None of the assets to be transferred were received by the Stock Bank
depositors as part of a plan of liquidation of another corporation.
15. The property to be transferred to the Mutual Holding Company will not
include accounts receivable, loans receivable, or commissions. Solely
stock of Stock Bank will be transferred.
16. The only stock to be transferred by the Stock Bank depositors to
the Mutual Holding Company in the 351 transaction will be common stock
of the Bank.
17. The Stock Bank depositors did not incur any acquisition indebtedness
with respect to stock of Stock Bank that is part of the property being
transferred to the Mutual Holding Company.
18. The transfer is not the result of the solicitation by a promoter,
broker, or investment firm.
19. The Stock Bank depositors will not retain any right or continuing
interest in the property being transferred to the Mutual Holding
Company.
20. The adjusted basis and the fair market value of the assets to be
transferred to Mutual Holding Company by Stock Bank depositors will, in
each instance, equal or exceed the sum of the liabilities to be assumed
by Mutual Holding Company plus the liabilities to which the transferred
assets are subject.
21. The Mutual Holding Company will assume no liabilities of the Stock Bank
depositors in connection with the 351 Transaction.
22. There is no indebtedness between the Mutual Holding Company and Stock
Bank depositors, and there will be no indebtedness created as a result
of the 351 Transaction.
<PAGE>
23. The transfers and exchanges will occur pursuant to the Plan which was
agreed upon before the 351 Transaction and under which the rights of
the parties are defined.
24. All exchanges will occur on approximately the same date.
25. There is no plan or intention on the part of the Mutual Holding Company
to redeem or otherwise reacquire any stock or securities to be issued
in the 351 Transaction.
26. Taking into account any issuance of additional shares of Mutual Holding
Company's equity, any issuance of stock for services, the exercise of
any stock rights, warrants or subscriptions; a public offering of
stock; and the sale, exchange, transfer by gift, or other disposition
of any equity of the Mutual Holding Company to be received in the 351
Transaction, the Stock Bank depositors will ^ own equity interests in
the Mutual Holding Company ^ possessing at least 80 percent of the
total combined voting power of all classes of equity interests entitled
to vote and 80 percent of all other classes of equity interest in the
Mutual Holding Company, if any.
27. The Stock Bank depositors will receive ownership interests in the
Mutual Holding Company approximately equal to the fair market value of
the property transferred to Mutual Holding Company.
28. Mutual Holding Company will remain in existence and retain and use the
property transferred to it in a trade or business.
29. There is no plan or intention by Mutual Holding Company to dispose of
the transferred property other than in the normal course of business
operations.
30. Each of the parties to the 351 Transaction will pay its own expenses,
if any, incurred in connection with the proposed transaction.
31. Mutual Holding Company will not be ^ a regulated investment company, a
real estate investment company or, a corporation more than 80 percent
of the value of whose assets (excluding cash and non convertible debt
obligations from consideration) are held for investment and are readily
marketable stock or securities, or investments in regulated investment
companies or real estate investment trusts.
^32. The Bank is not entitled to use a net operating loss carryover and
does not have a net operating loss for the taxable year in which the
351 transaction occurs.
33. No stock or securities will be issued for services rendered to or
for the benefit of the Holding Company in connection with the transfer
of Stock Bank stock in the Secondary 351 Transaction and cash by the
Mutual Holding Company and Minority Stockholders (the "Transferor
Group"), and no stock or securities will be issued for indebtedness of
the Holding Company that is not evidenced by a security, or for
interest on indebtedness of the Holding Company which accrued on or
after the beginning of the holding period for the debt.
<PAGE>
^34. None of the assets to be transferred in the Secondary 351
Transaction were received by the Mutual Holding Company as part of a
plan of liquidation of another corporation.
^35. The property to be transferred to the Holding Company in the
Secondary 351 Transaction will not include accounts receivable, loans
receivable, or commissions. Solely stock of Stock Bank and cash will be
transferred.
^36. The only stock to be transferred ^ to the Holding Company by the
Mutual Holding Company in the Secondary 351 Transaction will be common
stock of the Bank.
^37. The transfer in the Secondary 351 Transaction is not the result of the
solicitation by a promoter, broker, or investment firm.
^38. The Transferor Group will not retain any right or continuing
interest in the property being transferred to the Holding Company.
39. The adjusted basis and the fair market value of the assets to be
transferred to Holding Company by the Transferor Group will, in each
instance, equal or exceed the sum of the liabilities to be assumed by
Holding Company plus the liabilities to which the transferred assets
are subject.
40. The Holding Company will assume no liabilities of any member of the
Transferor Group in connection with the Secondary 351 Transaction.
41. There is no indebtedness between the Holding Company and the
Transferor Group, and there will be no indebtedness created as a result
of the Secondary 351 Transaction.
42. The transfers and exchanges will occur pursuant to the Plan which
was agreed upon before the Secondary 351 Transaction and under which
the rights of the parties are defined.
43. All exchanges will occur on approximately the same date.
44. There is no plan or intention on the part of the Holding Company to
redeem or otherwise reacquire any stock or securities to be issued in
the Secondary 351 Transaction.
45. Taking into account any issuance of additional shares of Holding
Company's equity, any issuance of stock for services, the exercise of
any stock rights, warrants or subscriptions; a public offering of
stock; and the sale, exchange, transfer by gift, or other disposition
of any equity of the Holding Company to be received in the Secondary
351 Transaction^, the = Transferor Group will ^ own stock in the
Holding Company possessing at least 80 percent of the total combined
voting power of all classes of stock entitled to vote and at least 80
percent of the total number of shares of all other classes of issued
and outstanding stock of the Holding Company.
46. Holding Company will remain in existence and retain and use the
property transferred to it in a trade or business.
<PAGE>
^47. There is no plan or intention by Holding Company to dispose of the
transferred property other than in the normal course of business
operations.
^48. Each member of the Transferor Group will pay its own expenses, if
any, incurred in connection with the Secondary 351 Transaction.
^49. Holding Company will not be ^ a regulated investment company, a
real estate investment company or, a corporation more than 80 percent
of the value of whose assets (excluding cash and non convertible debt
obligations from consideration ) are held for investment and are
readily marketable stock or securities, or investments in regulated
investment companies or real estate investment trusts.
50. The Mutual Holding Company is not under the jurisdiction of a court
in a Title 11 ^ bankruptcy, a receivership, foreclosure or similar
proceeding and the equity interests in Holding Company received in the
Exchange will not be used to satisfy any indebtedness.
51. The Stock Bank is not ^ entitled to use a net operating loss
carryover and does not have a net operating loss for the taxable year
in which the Secondary 351 Transaction occurs.
Under penalties of perjury, I declare that I have examined the above
Representations of Greene County Savings Bank and to the best of my knowledge
and belief the facts presented in support of the requested rulings are true,
correct and complete.
Dated this ______ day of ____________, 1998.
GREENE COUNTY SAVINGS BANK
By:
---------------------------------------
Authorized Officer
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 of
our report dated August 7, 1998, except for Note 13 as to which the date is
September 15, 1998, on our audits of the financial statements of Greene
County Savings Bank. We also consent to the reference to our firm under the
caption "EXPERTS".
PricewaterhouseCoopers LLP
Syracuse, New York
November 9, 1998
<PAGE>
Exhibit 99.5
(Greene County Logo)
Item (5) -(continued)
Account Title (Names on Account) Account Number
Item (9) - (continued)
List below all other orders submitted by you or your Associates (as defined) or
by persons acting in concert with you.
Account Title (Names on Account) Account Number
The term "associate," when used to indicate a relationship with any person., is
defined to mean (i) a corporation or organization (other than Greene County
Bancorp, Inc., Greene County Bancorp, MHC or Greene County Savings Bank) of
which such person is a trustee, 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 capacity, provided, however, that such term shall not include any
tax qualified employee stock benefit plan of Greene County Bancorp, Inc., Greene
County Bancorp, MHC or Greene County Savings Bank in which such person has a
substantial beneficial interest or serves as a trustee or in a similar fiduciary
capacity, and (iii) any relative or spouse of such person, or any relative of
such spouse, who has the same home as such person or who is a trustee or officer
of Greene County Bancorp, Inc., Greene County Bancorp, MHC or Greene County
Savings Bank.
CERTIFICATION FORM
(This form must be dated and signed along with your dated and
signed Stock Order Form on the reverse side.)
I ACKNOWLEDGE THAT THE SHARES OF COMMON STOCK, $1.00 PAR VALUE PER SHARE (THE
"COMMON STOCK") OF GREENE COUNTY BANCORP, INC. (THE "COMPANY"), THE PROPOSED
HOLDING COMPANY FOR GREENE COUNTY SAVINGS BANK (THE "BANK"), ARE NOT FEDERALLY
INSURED AND ARE NOT GUARANTEED BY THE COMPANY, THE BANK, OR THE FEDERAL
GOVERNMENT.
If anyone asserts that the shares of Common Stock are federally insured or
guaranteed, or are as safe as an insured deposit, I should call the Federal
Deposit Insurance Corporation's New York State Director, Mr. ____, at (xxx)
xxx-xxxx.
I further certify that, before purchasing shares of Common Stock of the Company,
I received a copy of the Prospectus dated November XX, 1998 which discloses the
nature of the shares of Common Stock being offered thereby and describes the
following risks involved in an investment in the Common Stock under the heading
"Risk Factors" beginning on page 13 of the Prospectus:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Recent Market Volatility (page 13)
2. Reduced Return on Equity after the Reorganization (page 13)
3. Potential Effects of Changes in Interest Rates and the Current Market Environment (page 13)
4. The Expenses and Dilutive Effect of the Contribution of Shares and Cash to the Charitable
Foundation (page 14)
5. Minority Ownership and Certain Anti-Takeover Provisions (page 14)
6. Dividend Waivers by the Mutual Company (page 15)
7. Lending Risks Associated with Consumer, Commercial Business Lending and Commercial Real Estate (page 15)
8. Strong Competition within the Bank's Market Area (page 15)
9. Intent to Remain Independent (page 15)
10. Regulatory Oversight and Legislation (page 15)
11. Uncertainty as to Future Growth Opportunities (page 16)
12. Absence of Market for Common Stock (page 16)
13. Irrevocability of Orders; Potential Delay in Completion of Offerings (page 16)
14. Expenses Associated with the ESOP and Stock Award Plan (page 16)
15. Dilutive Effect of Stock Award Plan and Stock Option Plan (page 17)
16. Year 2000 Compliance (page 17)
17. Role of the Financial Advisors/Best Efforts Offering (page 17)
18. Possible Adverse Income Tax Consequences of the Distribution of Subscription Rights (page 17)
</TABLE>
Signing this Certification Form will not result in investors waiving their
rights under the Securities Act of 1933.
Signature Date Signature Date
Name (please print) Name (please print)
