As filed with the Securities and Exchange Commission on March 24, 1999
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
HUBCO, INC.
(Exact name of registrant as specified in its charter)
New Jersey
(State or other Jurisdiction of Incorporation or Organization)
6711 22-2405746
(Primary Standard Industrial (I.R.S. Employer Identification No.)
Classification Code Number)
1000 MacArthur Boulevard
Mahwah, New Jersey 07430
201-236-2600
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
Kenneth T. Neilson
Chairman, President
and Chief Executive Officer
HUBCO, Inc.
1000 MacArthur Boulevard
Mahwah, New Jersey 07430
201-236-2600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Please send copies of all communications to:
MICHAEL W. ZELENTY, ESQ. RICHARD FISCH, ESQ.
Pitney, Hardin, Kipp & Szuch Malizia, Spidi, Sloane & Fisch, P.C.
P.O. Box 1945 One Franklin Square
Morristown, New Jersey 07962-1945 1301 K Street, Suite 700 East
(973) 966-8125 Washington, D.C. 20005
(202) 434-4665
<PAGE>
Approximate date of commencement of proposed sale to the public: At the
Effective Date of the Merger, as defined in the Agreement and Plan of Merger
dated January 26, 1999 (the "Merger Agreement"), among the Registrant, Hudson
United Bank, Little Falls Bancorp, Inc. and The Little Falls Bank attached as
Appendix A to the Proxy Statement/Prospectus.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. |_|
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. |_| __________
If this form is a post-effective amendment filed pursuant to
Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. |_| __________
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
================================ =============== ========================= =========================== ====================
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered offering price per aggregate offering price** registration fee***
unit**
<S> <C> <C> <C> <C>
Common Stock, no par value 964,787 $28.04 $27,048,490$ $7,520
Shares*
================================ =============== ========================= =========================== ====================
</TABLE>
* The number of shares of Little Falls Common Stock issuable in the Merger in
exchange for shares of HUBCO Common Stock assuming the maximum exchange ratio of
0.700, as set forth in the Merger Agreement, and assuming that all currently
outstanding options to acquire shares of Little Falls Common Stock are exercised
prior to the Effective Time of the Merger.
** Estimated solely for the purpose of calculating the registration fee for the
filing on Form S-4 pursuant to Rule 457(f)(1) under the Securities Act based on
the average ($19.625) of the high ($19.625) and low ($19.625) prices reported by
The Nasdaq National Market for Little Falls Common Stock as of March 18, 1999, a
date within five business days prior to the filing of this Registration
Statement.
*** $11,901 was previously paid in connection with the filing of the Preliminary
Proxy Materials in connection with the Merger on March 5, 1999.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
[LITTLE FALLS LOGO]
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Board of Directors of Little Falls Bancorp, Inc. has approved the
merger of Little Falls into HUBCO, Inc. We have called a special meeting for you
to vote on the merger.
In the merger, 49% of the Little Falls common stock will be converted
into cash and 51% will be converted into shares of HUBCO common stock. Little
Falls shareholders will elect whether to receive cash or stock, or they may
state no preference. In order to maintain the 49/51 ratio, some Little Falls
shareholders, chosen by lot, may not obtain the form of consideration they
elect. The merger will be tax-free to shareholders receiving only HUBCO common
stock and will be taxable to shareholders receiving cash.
The cash consideration will be $20.64 per share of Little Falls common
stock. The stock consideration will depend on the median closing price of HUBCO
common stock during the ten trading days that end with the day that final bank
regulatory approval for the merger is received.
If the median The number of
HUBCO stock HUBCO shares per
price is Little Falls share will be
Below $27.143 0.700
Between $27.143 $19.00 divided by the
and $29.00 HUBCO median price
Between $29.01
and $34.50 0.650
Between $34.51 $22.3795 divided by the
and $37.30 HUBCO median price
Above $37.30 0.600
The merger cannot be completed unless Little Falls' shareholders
approve it. Your Board of Directors unanimously recommends that you vote to
approve the merger at the meeting, which is scheduled to be held on:
Tuesday, April 27, 1999
1:00 p.m.
The Bethwood
38 Lackawanna Avenue
Totowa, New Jersey 07512
Only shareholders of record as of March 19, 1999 are entitled to attend
and vote at the meeting.
When the merger is completed, Little Falls shareholders as a whole will
own about 900,000 shares, or 2.25% of HUBCO's common stock.
Your vote is very important. Whether or not you plan to attend the
meeting, please take the time to vote by completing and mailing the enclosed
proxy card to us. If you sign, date and mail your proxy card without indicating
how you want to vote your proxy will be counted as a vote in favor of the
merger.
Leonard G. Romaine
President
Little Falls Bancorp, Inc.
- --------------------------------------------------------------------------------
HUBCO common stock is listed on the Nasdaq National Market under the
symbol "HUBC". Based on HUBCO's March 19, 1999 closing price of $33.94 per
share, 0.650 shares of HUBCO common stock had a value of $22.06.
Neither the Securities and Exchange Commission, nor any bank regulatory agency,
nor any state securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
This proxy statement-prospectus is dated March [__], 1999,
and is first being mailed to Little Falls shareholders
on March [__], 1999
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY 1
What this Document is About 1
Vote on the Merger 1
The Companies 1
The Merger 1
SUMMARY FINANCIAL DATA OF HUBCO 7
SUMMARY FINANCIAL DATA OF LITTLE
FALLS 8
ACTUAL AND PRO FORMA
COMPARATIVE PER SHARE DATA 9
SUMMARY PRO FORMA FINANCIAL
INFORMATION 11
RISK FACTORS 12
INTRODUCTION 13
FORWARD LOOKING STATEMENTS 13
CERTAIN INFORMATION ABOUT HUBCO 14
CERTAIN INFORMATION ABOUT LITTLE FALLS 15
THE MEETING 16
Date, Time and Place 16
Purpose 16
Board Recommendation 16
Record Date; Required Vote 16
Voting Rights; Proxies 17
Solicitation of Proxies 17
Quorum 17
THE PROPOSED MERGER 18
General Description 18
Consideration; Cash instead of
Fractional Shares 18
Election Form; Exchange of Shares 19
Employee, Management and Directors;
Stock Plans 19
Conversion of Little Falls Options 20
Background of and Reasons for the
Merger 20
Interests of Certain Persons in the Merger 23
Opinion of Little Falls' Financial Advisor 24
Resale Considerations Regarding
HUBCO Common Stock 29
Conditions to the Merger 29
Conduct of Business Pending the Merger 30
Stock Option to HUBCO for Little Falls
Shares 30
Representations, Warranties and
Covenants 31
Regulatory Approvals 31
Management and Operations After
the Merger 31
Little Falls Shareholders' Rights 32
Amendments 32
Termination 32
Accounting Treatment of the Merger 33
Federal Income Tax Consequences 33
No Dissenters Rights 34
PRO FORMA FINANCIAL INFORMATION 34
DESCRIPTION OF HUBCO CAPITAL
STOCK 38
General 38
Description of HUBCO Common Stock 38
Description of HUBCO Series B Preferred
Stock 39
COMPARISON OF THE RIGHTS OF
SHAREHOLDERS OF HUBCO AND
LITTLE FALLS 40
Voting Requirements 40
Removal of Directors; Number of
Directors 41
Classified Board of Directors 42
Preferred Stock 42
Shareholder Consent to Corporate Action 42
Dividends 43
By-laws 43
SHAREHOLDER PROPOSALS 43
INFORMATION INCORPORATED BY
REFERENCE 44
OTHER MATTERS 45
LEGAL OPINION 45
EXPERTS 45
APPENDIX A Merger Agreement A-1
APPENDIX B Stock Option Agreement B-1
APPENDIX C FinPro Fairness Opinion C-1
APPENDIX D Little Falls' Form 10-K/A
for year ended December 31,
1998 (without exhibits) D-1
APPENDIX E 1998 Annual Report to
Little Falls shareholders E-1
HOW TO GET COPIES OF RELATED DOCUMENTS
This document incorporates important business and financial information
about HUBCO, Inc. and Little Falls Bancorp, Inc. which is not included in or
delivered with this document. You can obtain documents incorporated by reference
in this proxy statement-prospectus by requesting them in writing or by telephone
from the appropriate company at the following addresses:
HUBCO, Inc. Little Falls Bancorp, Inc.
1000 MacArthur Boulevard 86 Main Street
Mahwah, New Jersey 07430 Little Falls, New Jersey 07424
Attn: D. Lynn Van Borkulo-Nuzzo Attn: Richard A. Capone
Telephone: (201) 236-2600 (973) 256-6100
We will respond to your request within one business day by sending the requested
documents by first class mail or other equally prompt means. You will not be
charged for any of these items that you request. In order to ensure timely
delivery of the documents in advance of the meeting, please make your request by
April 22, 1999. See "Information Incorporated By Reference" on page 44.
<PAGE>
SUMMARY
This is a summary of certain information regarding the proposed merger
and the shareholder meeting to vote on the merger. We urge you to carefully read
the entire document, including the Appendixes, before deciding how to vote.
What this Document is About
The Board of Directors of Little Falls Bancorp, Inc. has approved the
merger of Little Falls into HUBCO, Inc. The terms of the proposed merger are
included in the merger agreement signed by Little Falls and HUBCO and their bank
subsidiaries, Hudson United Bank and Little Falls Bank. The merger agreement is
attached as Appendix A to this document. The merger cannot be completed unless
the shareholders of Little Falls approve it. The Little Falls Board has called a
special meeting of shareholders to vote on the merger. This document is the
proxy statement used by the Little Falls Board to solicit proxies for the
meeting. It is also HUBCO's prospectus regarding its common stock to be issued
if the merger is completed.
Vote on the Merger
Shares Entitled to Vote... You can vote at the special meeting if you owned
Little Falls common stock as of the close of
business on March 19, 1999. On that date,
2,470,551 Little Falls shares were outstanding and
entitled to vote.
Vote Required to Approve
the Merger.................. Approval of the merger requires that a majority of
the votes cast at the meeting be in favor of the
merger. The Companies
HUBCO..................... HUBCO, a New Jersey corporation, is the bank
holding company for Hudson United Bank. Hudson
United Bank is a New Jersey chartered bank that
operates over 85 branches in northern New Jersey,
45 branches in Connecticut, and 30 branches in
Dutchess, Orange, Putnam, and Rockland counties in
New York State. At December 31, 1998, HUBCO had
consolidated assets of $6.8 billion. HUBCO's main
office is located at 1000 MacArthur Boulevard,
Mahwah, New Jersey 07430 and its telephone number
is (201) 236-2600.
Little Falls................ Little Falls, a New Jersey corporation, is the
savings and loan holding company for Little Falls
Bank. Little Falls Bank is a federally chartered
bank that operates six banking offices located in
Passaic County and Hunterdon County, New Jersey.
At December 31, 1998, Little Falls had
consolidated assets of $350.6 million. Little
Falls' main office is located 86 Main Street,
Little Falls, New Jersey 07424 and its telephone
number is (973) 256-6100.
The Merger
General Description....... Little Falls proposes to merge with HUBCO. HUBCO
will continue as the surviving corporation, and
will be governed by New Jersey corporate law. The
merger will be completed if a majority of the
votes cast at the special meeting approve the
merger, we obtain all required regulatory
approvals, and all other conditions are satisfied.
The merger agreement is attached as Appendix A to
this document. We encourage you to read the merger
agreement because it is the legal document
governing the merger.
<PAGE>
Consideration to Little
Falls Shareholders: HUBCO
Common Stock or $20.64 in
Cash........................ In the merger, 49% of Little Falls shares will be
exchanged for cash and 51% of the shares will be
converted into shares of HUBCO common stock.
Shareholders receiving cash in the merger will get
$20.64 for each share of Little Falls common
stock. Shareholders receiving HUBCO common stock
in the merger will not know in advance the exact
number of HUBCO shares they will get for each
share of Little Falls common stock. That number,
the "exchange ratio," will depend on HUBCO's stock
price during a ten trading day period that ends on
and includes the day that final regulatory
approval for the merger is received. To determine
the exchange ratio, we will first find the median
HUBCO stock price during the ten day period, which
is the average of the two closing prices left
after discarding the four highest and four lowest
closing prices during the period. Using the median
HUBCO stock price, the exchange ratio will be
determined by using the table below.
<TABLE>
<CAPTION>
If the median HUBCO stock price is: The exchange ratio will be:
<S> <C>
Below $27.143 0.700
Between $27.143 and $29.00 $19.00 divided by the HUBCO
median price
Between $29.01 and $34.50 0.650
Between $34.51 and $37.30 $22.3795 divided by the HUBCO
median price
Above $37.30 0.600
</TABLE>
The closing price of HUBCO common stock on March
19, 1999, was $33.94.
If there is a stock split, stock dividend or
similar transaction affecting HUBCO common stock
before the closing, the median closing price and
the exchange ratio will be adjusted appropriately.
Selecting the Form of
Consideration you will
Receive..................... Enclosed with this proxy statement is an election
form, which you should use to indicate your
preference to receive HUBCO common stock or cash
in exchange for your shares of Little Falls common
stock. If you choose to make no election or if you
fail to make any election, the type of
consideration you will receive will be determined
by the elections of other Little Falls
shareholders. After the deadline for submitting
election forms has passed, the exchange agent
which is Hudson United Bank, Trust Department,
chosen by HUBCO will allocate the consideration to
comply with the requirement that in the aggregate
49% of the outstanding shares of Little Falls will
be converted into cash and the other 51% will be
converted into HUBCO common stock. If everyone's
stated preference can be met while keeping this
ratio, the exchange agent will do so. If holders
of more than the specified percentage of Little
Falls stock elect either cash or stock, then a
lottery system will be used to determine which
Little Falls shareholders will be denied their
preference in order to maintain the 49/51 ratio.
Election Deadline........... The deadline for returning your form of election
will be three days before the merger closing date.
HUBCO and Little Falls currently hope to close the
merger on May 14, 1999, which would result in a
May 11 election deadline. As soon as HUBCO and
Little Falls are certain of the closing date, they
will send you a notice by mail to tell you the
closing date and the election deadline.
Exchanging Your Stock
Certificates................ The form of election will also serve as your
letter of transmittal. The form contains
instructions on how to exchange your Little Falls
stock certificates. Your certificates representing
shares of Little Falls common stock MUST be sent
in with your form of election.
No Dissenters Rights........ You do not have dissenters' rights of appraisal in
connection with the merger.
Tax Consequences of the
Merger..................... The merger will be a taxable event to those Little
Falls shareholders receiving cash in exchange for
their Little Falls shares.
Little Falls shareholders receiving HUBCO common
stock in the merger will recognize no taxable gain
or loss until they sell their new shares of HUBCO
common stock. The tax basis of the HUBCO common
stock received by each Little Falls shareholder
will be the tax basis of the Little Falls common
stock converted in connection with the merger. The
holding period of the HUBCO common stock will
include the holding period of the Little Falls
common stock converted.
We urge you to read the more complete description
of the merger's tax consequences on pages 33-34
and to consult your own tax advisors regarding the
specific tax consequences of the merger to you
under applicable tax laws.
Cash Instead of Fractional
Shares...................... If your Little Falls shares are converted into
HUBCO common stock, you will not receive any
fractional shares of HUBCO common stock. Instead
you will receive, without interest, cash equal to
the fractional share interest you otherwise would
have received, multiplied by the value of HUBCO
common stock. For this purpose, HUBCO stock will
be valued at the median closing price during the
ten-day period which ends on and includes the day
that we receive final regulatory approval for the
merger.
Reselling any Stock You
Receive in the Merger....... The HUBCO common stock issued in the merger will
be freely transferable by holders of those shares,
except for directors, executive officers and
others who may be deemed "affiliates" of Little
Falls. Those persons have entered into agreements
restricting their ability to transfer the shares
they will get in the merger.
Conversion of Little Falls
Stock Options............... In the merger, outstanding options to purchase
Little Falls common stock will be converted into
options to purchase HUBCO common stock. The new
options will have the same terms and conditions as
the old options, except that the number of shares
and the exercise price will be adjusted to reflect
the exchange ratio in the merger.
Reasons for the Merger..... HUBCO entered into the merger agreement as part of
HUBCO's ongoing strategy of growth through
acquisitions.
Little Falls believes that the merger will result
in a company with expanded opportunities for
profitable growth. In addition, Little Falls
anticipates that the merger will improve its
ability to compete in the changing and competitive
financial services industry.
Opinion of Little Falls'
Financial Advisor........... FinPro, Inc. is Little Falls' financial advisor on
the merger. As of the date of this proxy
statement, FinPro considers the merger to be fair
to Little Falls shareholders from a financial
point of view. You can read FinPro's opinion at
Appendix C to this document. For information on
how FinPro arrived at its opinion, see pages
24-29.
Differences in
Shareholders' Rights....... In the merger, some of you will become HUBCO
shareholders. Your rights as Little Falls
shareholders are currently governed by New Jersey
corporate law and Little Falls' certificate of
incorporation and by-laws. The rights of HUBCO
shareholders are governed by New Jersey corporate
law and HUBCO's certificate of incorporation and
by-laws. The rights of Little Falls and HUBCO
shareholders differ with respect to voting
requirements and various other matters. See pages
40-43.
Conditions to the Merger.... Completion of the merger is contingent on a number
of conditions, including:
* Approval of the merger by Little Falls
shareholders at the meeting;
* Receipt of bank regulatory approval;
* Receipt of an updated opinion from HUBCO's
counsel regarding the tax consequences of
* the merger for HUBCO and Little Falls (this
condition will not be waived without
resoliciting the votes of the Little Falls
shareholders);
* Receipt of the fairness opinion of FinPro, at
Appendix C to this document; and
* Fulfilling other usual conditions to closing.
Regulatory Approval......... HUBCO and Little Falls cannot complete the merger
unless it is approved by the FDIC and by the New
Jersey Department of Banking and Insurance.
Approval by any regulatory agency does not
constitute an endorsement of the merger or a
determination that the terms of the merger are
fair to Little Falls shareholders. HUBCO and
Little Falls have applied for the necessary bank
regulatory approvals. Although we do not know of
any reason why we cannot obtain the appropriate
regulatory approvals in a timely manner, we cannot
be certain when or if we will obtain them.
Terminating the Merger
Agreement................... Either Little Falls or HUBCO can terminate the
merger agreement if the other suffers a materially
adverse change from its condition as of September
30, 1998, or if the merger has not been completed
by September 30, 1999. For a more complete
description of these and other termination rights
available to Little Falls and HUBCO, see page 32.
Amending the Merger
Agreement................... HUBCO and Little Falls may amend the merger
agreement any time before the merger is completed.
However, an amendment to change the form of
consideration to be paid to Little Falls
shareholders in the aggregate and certain other
types of amendments cannot be made following
approval of the merger by Little Falls
shareholders without obtaining their consent.
Little Falls has Agreed Not
to Solicit Alternative
Transactions................ In the merger agreement, Little Falls has agreed
not to encourage, negotiate with, or provide any
information to any person other than HUBCO
concerning an acquisition transaction involving
Little Falls or Little Falls Bank. However, Little
Falls may take certain of these actions if its
Board of Directors determines that it should do
so. This determination by the Board must be made
after the Board consults with counsel, and must be
based on the Board's fiduciary duties. This
restriction, along with the option described in
the following paragraph, may deter other potential
acquirors of control of Little Falls.
Little Falls has Granted
HUBCO a Stock Option........ In connection with the merger agreement, Little
Falls granted HUBCO a stock option that was
designed to deter other companies from attempting
to acquire control of Little Falls. The option
gives HUBCO the right to purchase for $19.25 per
share up to 493,000 shares of Little Falls common
stock, representing 19.9% of the outstanding
Little Falls shares when the option was granted.
The option is exercisable only under certain
circumstances and only if the merger does not
occur. HUBCO has no right to vote the shares
covered by the option prior to its exercise.
Little Falls agreed to grant the option in order
to induce HUBCO to enter into the merger
agreement. The option could have the effect of
discouraging other companies from trying to
acquire Little Falls. The option agreement is
attached as Appendix B to this document.
Financial Interests of
Little Falls' Directors and
Officers in the Merger...... The directors and officers of Little Falls have
interests in the merger in addition to their
interests as shareholders of Little Falls. Those
interests include the following:
* HUBCO will pay $200,000 to Leonard G.
Romaine, President and CEO of Little Falls,
upon termination of his existing employment
agreement, and HUBCO will enter into a
consulting contract with Mr. Romaine.
* HUBCO will appoint the directors of Little
Falls to a HUBCO advisory board for 36
months, for which they each will be paid
$1,440 a month.
* HUBCO will pay the directors of Little
Falls, as a group, up to $400,000 in
satisfaction of Little Falls' obligations to
them under its Directors Consultation and
Retirement Plan, and up to $230,000 in
satisfaction of Little Falls' obligations to
them under its Health Benefits Plan.
* Each outstanding Little Falls option will be
converted into an option to purchase HUBCO
stock.
* Any Little Falls options that have not yet
vested will vest as a result of the merger.
* HUBCO will indemnify the directors and
officers of Little Falls against certain
liabilities for a six-year period following
the merger.
On March 19, 1999, directors and executive
officers of Little Falls and their affiliates
owned 268,296 shares or 10.59% of the Little Falls
common stock.
For additional information on the benefits of the
merger to Little Falls management, see pages
23-24.
<PAGE>
SUMMARY FINANCIAL DATA OF HUBCO
The following is a summary of certain historical consolidated financial
data for HUBCO. The data presented for the years 1994 through 1998, and as of
the end of those years, comes from HUBCO's audited consolidated financial
statements. HUBCO's audited consolidated financial statements as of December 31,
1998 and 1997, and for each of the years in the three-year period ended December
31, 1998, are incorporated by reference in this document. See page 44.
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
(Dollars in thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C>
Earnings Summary:
Interest income $ 468,547 $ 471,215 $ 442,514 $ 406,991 $ 344,341
Interest expense 214,353 216,280 200,566 173,695 139,916
------------ ------------ ------------- ----------- -----------
Net interest income 254,194 254,935 241,948 233,296 204,425
Provision for possible loan losses 14,374 12,775 17,140 20,072 15,109
------------ ------------ ------------- ----------- -----------
Net interest income after provision
for possible loan losses 239,820 242,160 224,808 213,224 189,316
Other income 33,299 54,180 40,257 28,624 32,641
Other expenses 232,096 181,308 204,679 169,924 163,077
---------- ------------ ------------- ----------- -----------
Income before income taxes 41,023 115,032 60,386 71,924 58,880
Income tax provision 17,872 45,205 23,490 23,597 21,311
============ ============ ============= =========== ===========
Net income $ 23,151 $ 69,827 $ 36,896 $ 48,327 $ 37,569
============ ============ ============= =========== ===========
Share Data:
Weighted average common shares
Outstanding (in thousands):
Basic 40,640 41,362 42,402 41,469 32,370
Diluted 41,696 43,635 44,990 44,066 35,299
Basic earnings per share $ 0.57 $ 1.67 $ 0.85 $ 1.14 $ 1.15
Diluted earnings per share 0.56 1.60 0.82 1.10 1.06
Cash dividend per common share 0.88 0.73 0.64 0.55 0.33
Book value per common share 11.30 12.19 12.67 12.99 11.21
Balance Sheet Summary:
Securities held to maturity $ 634,971 $ 764,831 $ 761,244 $ 910,738 $ 1,305,508
Securities available for sale 2,260,625 1,499,306 1,585,985 948,538 515,260
Loans 3,386,811 3,600,061 3,608,943 3,254,610 3,074,157
Total assets 6,778,661 6,606,140 6,498,856 5,642,997 5,400,971
Deposits 5,051,390 5,252,956 5,334,673 4,684,451 4,571,450
Stockholders' equity 456,815 507,101 533,364 536,042 395,419
Performance Ratios:
Return on average assets 0.35% 1.08% 0.60% 0.88% 0.72%
Return on average equity 4.75 13.56 6.93 9.79 10.74
Dividend payout 154.39 43.71 75.29 48.25 28.70
Average equity to average assets 7.34 7.99 8.68 9.02 6.72
Net interest margin 4.10 4.25 4.23 4.55 4.25
Asset Quality Ratios:
Allowance for possible loan losses to
total 1.58% 1.83% 1.72% 1.72% 2.03%
Loans
Allowance for possible loan losses to
non-performing loans 256 98 91 124 82
Non-performing loans to total loans 0.62 1.86 1.88 1.39 3.28
Non-performing assets to total loans,
plus other real estate 0.73 2.18 2.39 2.24 4.39
Net charge-offs to average loans 0.81 0.33 0.47 0.84 1.10
</TABLE>
<PAGE>
SUMMARY FINANCIAL DATA OF LITTLE FALLS
The following is a summary of certain historical consolidated financial
data for Little Falls. The data presented for the years 1994 through 1998, and
as of the end of those years, comes from Little Falls' audited consolidated
financial statements. Little Falls' audited consolidated financial statements as
of December 31, 1998 and 1997, and for each of the years in the three-year
period ended December 31, 1998, are incorporated by reference in this document.
See page 44.
The data shown for 1996 reflects a $1.2 million charge in the third
quarter of that year connected with a one-time special assessment from the
Savings Association Insurance Fund. No per share information is shown for years
prior to 1996, because no shares of Little Falls common stock were outstanding
until January 5, 1996.
<PAGE>
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994
(Dollars in thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C>
Earnings Summary:
Interest income $ 22,746 $ 21,064 $ 18,776 $ 13,813 $ 13,075
Interest expense 14,695 12,920 11,258 9,314 7,170
-------------- ------------ ------------- ------------- ------------
Net interest income 8,051 8,144 7,518 4,499 5,905
Provision for possible loan losses 161 240 183 131 356
-------------- ------------ ------------- ------------- ------------
Net interest income after provision for
possible loan losses 7,890 7,904 7,335 4,368 5,549
Other income 404 427 408 178 144
Other expenses 5,702 5,403 6,747 3,841 2,912
-------------- ------------ ------------- ------------- ------------
Income before income taxes 2,592 2,928 996 705 2,781
Income tax provision 844 1,072 385 241 1,066
============== ============ ============= ============= ============
Net income $ 1,748 $ 1,856 $ 611 $ 464 $ 1,715
============== ============ ============= ============= ============
Share Data:
Weighted average shares outstanding
(in thousands):
Basic 2,208 2,389 2,728 N/A N/A
Diluted 2,311 2,466 2,737 N/A N/A
Basic earnings per share $ 0.79 $ 0.78 $ 0.22 N/A N/A
Diluted earnings per share 0.76 0.75 0.22 N/A N/A
Cash dividend per common share 0.22 0.16 0.05 N/A N/A
Book value per common share 15.11 14.68 14.73 N/A N/A
Balance Sheet Summary:
Securities held to maturity $ 101,951 $ 148,945 $ 163,843 $ 148,019 $ 87,810
Securities available for sale 53,394 13,929 -- -- --
Loans 149,062 147,033 117,116 96,230 94,754
Total assets 350,617 328,522 303,518 310,355 193,385
Deposits 243,048 230,133 228,312 247,851 176,173
Stockholders' equity 37,445 38,295 40,448 16,223 15,715
Performance Ratios:
Return on average assets 0.51% 0.60% 0.21% 0.22% 0.86%
Return on average equity 4.65 4.74 1.44 2.89 11.62
Dividend payout 28.94 20.62 22.28 N/A N/A
Average equity to average assets 10.92 12.57 14.78 7.64 7.62
Net interest margin 2.42 2.72 2.75 2.25 3.07
Asset Quality Ratios:
Allowance for possible loan losses to 0.88% 0.79% 0.92% 0.98% 1.21%
total loans
Allowance for possible loan losses to
non-performing loans 132.60 90.97 57.34 49.33 27.82
Non-performing loans to total loans 0.67 0.87 1.60 2.50 4.36
Non-performing assets to total loans,
plus other real estate 0.87 1.27 2.31 3.97 6.08
Net charge-offs to average loans 0.00 0.12 0.05 0.36 0.01
</TABLE>
<PAGE>
ACTUAL AND PRO FORMA
COMPARATIVE PER SHARE DATA
Below, we set forth the earnings per share, period-end book value per
share and cash dividends per share for the common stock of HUBCO and Little
Falls for the period noted. The data is set forth on an historical and pro forma
basis, as well as pro forma equivalent per share data for Little Falls. The
historical per share data were derived from the financial statements of HUBCO
and Little Falls that are incorporated by reference herein. The pro forma
combined share data was derived after giving effect to the Little Falls merger
as if it occurred at the beginning of the period presented using the purchase
method of accounting. The pro forma assumes a minimum exchange ratio of 0.60, a
maximum exchange ratio of 0.70, and a cash value of $20.64. The pro forma
equivalent per Little Falls share was calculated by multiplying the pro forma
combined HUBCO and Little Falls data by the minimum and maximum exchange ratio.
The historical per share data for HUBCO has been restated to retroactively
reflect the effect of stock dividends and stock splits.
<TABLE>
<CAPTION>
Pro forma Pro forma
Combined Equivalent
Historical Historical HUBCO and per Little
HUBCO Little Falls Little Falls Falls Share
------------ ------------- -------------- ------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1998
Earnings Per Share:
Basic - maximum exchange ratio $ 0.57 $ 0.79 $ 0.51 $ 0.36
Basic - minimum exchange ratio 0.57 0.79 0.52 0.31
Diluted - maximum exchange ratio 0.56 0.76 0.50 0.35
Diluted - minimum exchange ratio 0.56 0.76 0.50 0.30
Book Value Per Common Share:
Maximum exchange ratio 11.30 15.11 11.76 8.23
Minimum exchange ratio 11.30 15.11 11.80 7.08
Cash Dividends Per Common Share:
Maximum exchange ratio 0.88 0.22 0.88 0.62
Minimum exchange ratio 0.88 0.22 0.88 0.53
</TABLE>
<PAGE>
The first table below presents, for the periods indicated, the high and
low closing prices per share of HUBCO common stock and Little Falls common
stock. HUBCO's information has been restated to give retroactive effect to stock
dividends and stock splits. The second table presents information concerning the
last sale price of HUBCO common stock and Little Falls common stock on January
25, 1999 (the last business day before the merger agreement was announced) and
on March 19, 1999 (a date shortly before the date of this proxy
statement-prospectus). The second table also presents the equivalent value of
HUBCO common stock per Little Falls share, which we computed by multiplying the
last sale price of HUBCO common stock on the dates indicated by the 0.650
exchange ratio. Both HUBCO common stock and Little Falls common stock are listed
on the Nasdaq National Market. We urge you to obtain current market quotations
for HUBCO common stock and Little Falls common stock in the merger. Little Falls
shareholders are not assured of receiving any specific market value of HUBCO
common stock. The price of HUBCO common stock when the merger takes effect may
be higher or lower than its price when the merger agreement was signed, when
this proxy statement was mailed or when Little Falls shareholders meet to vote
on the merger.
<TABLE>
<CAPTION>
Closing Sale Closing Sale
Price Per Share Price Per Share
of HUBCO of Little Falls
Common Stock Common Stock
High Low High Low
<S> <C> <C> <C> <C>
1997:
First Quarter.................... $ 25.03 $ 21.44 $ 14.13 $ 12.25
Second Quarter................... 27.57 20.86 15.88 12.63
Third Quarter.................... 31.11 26.16 18.50 15.25
Fourth Quarter................... 37.99 30.05 20.50 16.25
1998:
First Quarter.................... 37.86 32.28 20.50 17.50
Second Quarter................... 37.62 31.25 22.25 18.25
Third Quarter.................... 35.00 25.38 22.00 14.00
Fourth Quarter................... 30.13 21.63 21.50 11.50
1999:
First Quarter
(through March 19, 1999)......... 34.25 29.75 21.00 18.63
<CAPTION>
Equivalent
Closing Sale Closing Sale Value of HUBCO
Price Per Share Price Per Share Common Stock Per
Of HUBCO of Little Falls Share of Little Falls
Common Stock Common Stock Common Stock
Date
January 25, 1999................. $ 32.13 $ 19.75 $ 20.88
March 19, 1999................... 33.94 19.88 22.06
</TABLE>
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following tables present certain unaudited combined condensed
financial information derived from the periods and at the dates indicated. The
pro forma combined information gives effect to the proposed merger using the
purchase method of accounting. The pro forma assumes a minimum exchange ratio of
0.60, a maximum exchange ratio of 0.70, and a cash value of $20.64.
This summary pro forma information is derived from, and should be read
in conjunction with, the pro forma financial information and the related notes
thereto on pages 34-37 and the consolidated financial statements and related
notes of HUBCO and Little Falls incorporated by reference in this document. See
"Information Incorporated By Reference" on page 44. The pro forma financial
information does not necessarily indicate the results of operations which would
have been achieved had the merger been consummated as of the beginning of the
periods for which the data are presented and should not be construed as being
representative of future periods.
<PAGE>
<TABLE>
<CAPTION>
Summary Pro Forma Unaudited Combined Condensed Financial Information
(Dollars in thousands, except for per share amount)
Year Ended
December 31, 1998
Results of Operations:
<S> <C>
Net interest income before provision for possible loan losses......... $ 260,309
Provision for possible loan losses.................................... 14,535
Net interest income after provision for possible loan losses.......... 245,774
Income before income taxes............................................ 39,385
Net income (loss)..................................................... 21,366
Earnings (loss) per share
Basic-maximum exchange ratio..................................... 0.51
Basic-minimum exchange ratio..................................... 0.52
Diluted-maximum exchange ratio................................... 0.50
Diluted-minimum exchange ratio................................... 0.50
As of December 31, 1998
Balance Sheet:
Total assets.......................................................... $ 7,135,900
Total deposits........................................................ 5,296,003
Total stockholders' equity............................................ 485,860
Book value per common share
Maximum exchange ratio........................................... 11.76
Minimum exchange ratio........................................... 11.80
</TABLE>
<PAGE>
RISK FACTORS
A form of election is included with this document. You should use that
form to tell the exchange agent your preference to receive either cash or stock
in the merger. Receiving cash will result in a taxable event; receiving stock
will not result in a taxable event. Therefore, you should be aware of a
particular risk and uncertainty that is applicable in choosing stock or cash.
The merger agreement requires HUBCO to maintain a 49/51 ratio of cash
to stock consideration in the merger. If holders of more than this specified
ratio elect either cash or stock, then a lottery system will be used to
determine which Little Falls shareholders will be denied their preference.
Although you may vote for the merger and elect stock over cash, you may still
receive cash for your Little Falls stock, which will result in a taxable event.
For additional information on the federal income tax consequences of the
transaction, see pages 33-34.
<PAGE>
INTRODUCTION
The Board of Directors of Little Falls Bancorp, Inc. has approved an
Agreement and Plan of Merger, dated as of January 26, 1999, among HUBCO, Inc.,
HUBCO's subsidiary, Hudson United Bank, Little Falls and Little Falls'
subsidiary, Little Falls Bank. The merger agreement provides for Little Falls to
be merged with HUBCO, with HUBCO as the surviving corporation. The merger cannot
be completed unless Little Falls' shareholders approve it.
This document serves two purposes. It is the proxy statement being used
by the Little Falls Board to solicit proxies for use at a special Little Falls
shareholders meeting called by the Board to seek approval of the merger. It is
also the prospectus of HUBCO regarding the HUBCO common stock to be issued if
the merger is completed. Thus, we sometimes refer to this document as the proxy
statement-prospectus.
This document describes the merger agreement in detail. A copy of the
merger agreement is attached as Appendix A to this document and is incorporated
herein by reference. We urge you to read this entire document and the Appendixes
carefully.
All information and statements contained or incorporated by reference
in this document about Little Falls were supplied by Little Falls, and all
information and statements about HUBCO were supplied by HUBCO.
No person has been authorized to give any information or to make any
representation other than what is included in this document. If any information
or representation is given or made, it must not be relied upon as having been
authorized.
FORWARD LOOKING STATEMENTS
This proxy statement-prospectus contains certain forward looking
statements with respect to the financial condition, results of operations and
business of HUBCO and Little Falls. Such statements are not historical facts and
include expressions about HUBCO's and Little Falls' confidence, strategies and
expectations about earnings, new and existing programs and products,
relationships, opportunities, technology and market conditions. These statements
may be identified by forward-looking terminology such as "expect", "believe", or
"anticipate", or expressions of confidence like "strong" or "on-going", or
similar statements or variations of such terms. Factors that may cause actual
results to differ materially from those contemplated by such forward looking
statements include, among others, the following possibilities:
* Expected cost savings or revenue enhancements from the merger or
HUBCO's other acquisitions cannot be realized as anticipated.
* Deposit attrition, customer loss or revenue loss following the
merger or HUBCO's other acquisitions is greater than expected.
* Competitive pressure in the banking and financial services industry
increases significantly.
* Changes in the interest rate environment may reduce interest rate
margins.
* General economic conditions, either nationally or in the states of
New Jersey, New York or Connecticut, are less favorable than
expected.
* Disruptions of the operations of HUBCO, Little Falls, or any other
governmental or private entity may occur as a result of the "Year
2000 Problem."
HUBCO and Little Falls assume no responsibility to update such forward looking
statements in the future.
<PAGE>
CERTAIN INFORMATION ABOUT HUBCO
HUBCO is a New Jersey corporation and bank holding company. HUBCO's
principal operating subsidiary is Hudson United Bank. On March 19, 1999, HUBCO's
two other subsidiary banks (Lafayette American Bank, based in Connecticut, and
Bank of The Hudson, based in New York) were merged into Hudson United Bank.
Hudson United Bank is a full service commercial bank that serves small and
mid-sized businesses and customers through:
* more than 85 branches in Northern New Jersey,
* more than 45 offices located mainly in Fairfield, Hartford,
Middlesex and New Haven counties in Connecticut, and
* more than 30 branches in Dutchess, Orange, Putnam and Rockland
Counties in New York.
HUBCO's strategy is to enhance profitability and build market share
through both internal growth and acquisitions. HUBCO has completed over 25
acquisitions since 1990, and HUBCO has added over 140 branches and over $6
billion in assets through acquisitions this decade. HUBCO expects to continue
its acquisition strategy.
HUBCO is continually evaluating acquisition opportunities and
frequently conducts discussions, certain financial analyses and due diligence
activities in connection with possible acquisitions. As a result, acquisition
discussions and, in some cases, negotiations frequently take place and future
acquisitions involving cash, debt or equity securities can be expected.
Acquisitions typically involve the payment of a premium over book and market
values, and, therefore, some dilution of HUBCO's book value and net income per
common share may occur in connection with any future transactions. From time to
time, HUBCO may issue new equity or debt securities to fund its acquisition
plans or for other purposes. In the past, HUBCO has successfully managed its
acquisitions to improve its core earnings. However there can be no assurance
that HUBCO will continue to effectively manage the risks involved. If
acquisitions are not managed effectively or acquired institutions are not
assimilated efficiently, HUBCO's business, financial condition, and results of
operations may be adversely impacted.
As of December 31, 1998, HUBCO had:
* consolidated assets $6.8 billion
* deposits $5.1 billion
* stockholders' equity $456.8 million
* loans $3.4 billion
HUBCO's principal executive offices and telephone number are:
1000 MacArthur Boulevard
Mahwah, New Jersey 07430
(201) 236-2600
<PAGE>
CERTAIN INFORMATION ABOUT LITTLE FALLS
Little Falls is a New Jersey corporation and holding company for Little
Falls Bank. Little Falls was formed in connection with the mutual to stock
conversion of Little Falls Bank completed on January 5, 1996.
At December 31, 1998 Little Falls had consolidated:
* assets $350.6 million
* deposits $243.0 million
* shareholders' equity $37.4 million
* loans $149.1 million
Little Falls' principal executive offices and telephone number are:
86 Main Street
Little Falls, New Jersey 07424
(973) 256-6100
Little Falls Bank was originally chartered in 1887 as the Little Falls
Building and Loan Association and is presently a federally chartered stock
savings bank headquartered in Little Falls, New Jersey. Little Falls Bank
conducts its business from its main office in Little Falls, New Jersey, and five
branch offices located in Passaic County and Hunterdon County, New Jersey. It
attracts deposits from the general public and has historically used the deposits
primarily to originate residential loans in its market area. To a lesser extent,
Little Falls Bank also originates a limited number of commercial real estate,
residential construction, and consumer loans, which mainly consist of home
equity lines of credit. Additionally, Little Falls Bank invests in
mortgage-backed and investment securities.
<PAGE>
THE MEETING
Date, Time and Place
This document solicits, on behalf of the Little Falls Board, proxies to
be voted at a special meeting of Little Falls shareholders and at any
adjournments or postponements thereof. The meeting is scheduled for:
Tuesday, April 27, 1999
1:00 p.m.
The Bethwood
38 Lackawanna Avenue
Totowa, New Jersey 07512
Purpose
At the meeting, Little Falls shareholders will consider and vote on:
* approval and adoption of the merger
* any other matters that may properly be brought before the meeting.
Board Recommendation
The Little Falls Board of Directors has unanimously approved the merger
and unanimously recommends a vote "FOR" approval and adoption of the merger.
Record Date; Required Vote
The Little Falls Board has fixed the close of business on March 19,
1999, as the record date for the meeting. Only holders of record of Little Falls
common stock at that time are entitled to get notice of the meeting and to vote
at the meeting. On the record date, there were 2,470,551 shares of Little Falls
common stock outstanding. Each of those shares will be entitled to one vote on
each matter properly submitted to the meeting.
The merger cannot be completed without Little Falls shareholder
approval. The affirmative vote, in person or by proxy, of a majority of the
votes cast at the special meeting is required in order to approve the merger.
On the record date, the directors and executive officers of Little
Falls as a group beneficially owned 204,748 shares of Little Falls common stock,
which is 8.08% of the issued and outstanding shares. These figures are
calculated without counting shares that could be acquired by exercising stock
options since the shares underlying those options cannot be voted at the
meeting. In connection with the execution of the merger agreement, the directors
of Little Falls and Little Falls Bank agreed to vote all the shares they
beneficially own FOR the merger.
The matters to be considered at the meeting are of great importance to
the shareholders of Little Falls. Accordingly, we urge you to read and carefully
consider the information presented in this proxy statement-prospectus, and to
complete, date, sign and promptly return the enclosed proxy in the enclosed
postage paid envelope.
Voting Rights; Proxies
If you execute a proxy card properly and send it to Little Falls in a
timely manner, your proxy will be voted in accordance with the instructions you
indicate on the proxy card, unless you revoke your proxy prior to the vote. If
you send us a properly signed proxy card that does not instruct us how to vote,
your shares will be voted FOR approval and adoption of the merger.
The Little Falls Board is not aware of any matters that will come
before the meeting other than the vote on the merger. If any other matters come
before the meeting, the persons named on the enclosed proxy card will have the
discretion to vote on those matters using their best judgment, unless you
specifically withhold that authorization when you complete your proxy card.
You may revoke any proxy that you give at any time before it is used to
cast your vote. Simply showing up at the meeting will not automatically revoke
your proxy. To revoke a proxy, you must either file a written notice of
revocation with the Little Falls Corporate Secretary, or deliver a properly
executed proxy with a later date to the Little Falls Corporate Secretary. The
Little Falls Corporate Secretary will attend the meeting and she can be reached
before the meeting at the following address:
Anne Bracchitta
Corporate Secretary
Little Falls Bancorp, Inc.
86 Main Street
Little Falls, New Jersey 07424
The election inspectors appointed for the meeting, who will determine
whether or not a quorum is present, will tabulate votes cast by proxy or in
person at the meeting. Abstentions and "broker non-votes" will be treated as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum. Abstentions occur when proxies are marked as abstentions,
or when shareholders appear in person but abstain from voting. "Broker
non-votes" occur when a broker indicates on a proxy that it does not have
discretionary authority regarding certain shares.
Solicitation of Proxies
In addition to using the mails, the directors, officers and employees
of Little Falls may solicit proxies from shareholders in person or by telephone.
These directors, officers and employees will not be specifically compensated for
their services. Little Falls has retained Morrow & Co., Inc., a proxy-soliciting
firm, to assist it in soliciting proxies. Morrow & Co. will be paid a fee of
$3,000 and will be reimbursed for certain out-of-pocket expenses, estimated to
be $2,000. Little Falls will also make arrangements with brokerage firms and
other custodians, nominees and fiduciaries to send proxy materials to their
principals and will reimburse those parties for their expenses in doing so.
Little Falls will bear all costs of soliciting proxies for the meeting.
Quorum
The presence, in person or by proxy, of at least a majority of the
Little Falls common stock issued and outstanding and entitled to be voted at the
meeting is necessary to constitute a quorum.
THE PROPOSED MERGER
A copy of the merger agreement is attached as Appendix A to this proxy
statement-prospectus and is incorporated by reference herein. Descriptions of
the merger and the merger agreement are qualified in their entirety by reference
to the merger agreement.
General Description
The merger agreement provides for the merger of Little Falls with and
into HUBCO, with HUBCO as the surviving entity. The merger will close on a date
chosen by HUBCO. That date must be within twenty business days after Little
Falls' shareholders approve the merger, and we receive all regulatory approvals
and the regulatory waiting periods expire. However, HUBCO and Little Falls may
agree on a different closing date. The parties currently hope to close on May
14, 1999, but this date is subject to change. The merger will become effective
at the time specified in a certificate of merger, which HUBCO and Little Falls
will prepare, and which HUBCO will file with the New Jersey Secretary of State
following the closing. The time that the merger takes effect is referred to as
the "effective time." HUBCO and Little Falls anticipate that the merger will
become effective on the closing date. Immediately after the merger is effective,
HUBCO will merge Little Falls Bank with Hudson United Bank, with Hudson United
Bank as the surviving entity. The exact closing date and time the merger takes
effect are dependent upon satisfaction of numerous conditions, some of which are
not under HUBCO or Little Falls' control.
Consideration; Exchange Ratio; Cash instead of Fractional Shares
In the merger, 49% of the outstanding Little Falls common stock will be
exchanged for cash and 51% will be converted into HUBCO common stock. HUBCO
reserves the right to change the percentages in the limited circumstances in
which maintaining the percentages would result in certain adverse tax
consequences. Shareholders receiving cash in the merger will get $20.64 for each
share of Little Falls common stock. Shareholders receiving HUBCO common stock in
the merger will not know in advance the exact number of HUBCO shares they will
get for each share of Little Falls common stock. That number, the "exchange
ratio," will depend on HUBCO's stock price during a ten trading day period that
ends on and includes the day that final regulatory approval for the merger is
received. To determine the exchange ratio, we will first find the median HUBCO
stock price during the ten day period, which is the average of the two closing
prices left after discarding the four highest and four lowest closing prices
during the period. Using the median HUBCO stock price, you can determine the
exchange ratio by using the table below.
If the median HUBCO stock price is: The exchange ratio will be:
Below $27.143 0.700
Between $27.143 and $29.00 $19.00 divided by the HUBCO median price
(rounded to four decimals)
Between $29.01 and $34.50 0.650
Between $34.51 and $37.30 $22.3795 divided by the HUBCO median price
(rounded to four decimals)
Above $37.30 0.600
The closing price of HUBCO common stock on March 19, 1999, shortly before this
document was mailed to you, was $33.94.
If there is a stock split, stock dividend or similar transaction
affecting HUBCO common stock prior to the closing, the median closing price and
the exchange ratio will be adjusted appropriately. Certain shares of Little
Falls common stock held by Little Falls or by HUBCO or its subsidiaries will be
cancelled in the merger and will not be converted into HUBCO common stock.
If your Little Falls shares are converted into HUBCO common stock, you
will not receive any fractional shares of HUBCO common stock. Instead you will
receive, without interest, cash equal to the fractional share interest you
otherwise would have received, multiplied by the value of HUBCO common stock.
For this purpose, HUBCO stock will be valued at the median closing price during
the ten-day period which ends on, and includes, the day that final regulatory
approval for the merger is received.
The price of HUBCO common stock at the time the merger takes effect may
be higher or lower than the price: (1) when the merger agreement was signed; (2)
when this proxy statement was mailed; (3) when the Little Falls shareholders
meet to vote on the merger; or (4) when Little Falls shareholders receive HUBCO
stock certificates from the exchange agent following the merger. We urge you to
obtain current market quotations for the HUBCO common stock and the Little Falls
common stock.
Election Form; Exchange of Shares
Along with this document we have sent you a "form of election." You
should use this form to tell the exchange agent your preference to receive cash
or stock in the merger, or to signify that you have no preference. Failure to
return the form by the election deadline will be treated as a "no preference"
election. HUBCO must maintain a 49/51 ratio of cash to stock consideration in
the merger. If everyone's stated preference can be met while keeping this ratio,
HUBCO will do so. If holders of more than the specified percentage of Little
Falls stock elect either cash or stock, then a lottery system will be used to
determine which Little Falls shareholders will be denied their preference in
order to maintain the 49/51 ratio. Although you may vote for the merger and
elect stock over cash, you may still receive cash for your Little Falls stock,
which will result in a taxable event. HUBCO reserves the right to change the
ratio in the limited circumstances in which maintaining the 49/51 ratio would
result in certain adverse tax consequences.
The deadline for returning your form of election will be three days
before the merger closing date. HUBCO and Little Falls currently hope to close
the merger on May 14, 1999, which would result in a May 11 election deadline. As
soon as HUBCO and Little Falls are certain of the closing date, they will send
you a notice by mail to tell you the closing date and the election deadline.
Your form of election will also serve as a letter of transmittal, which
is the form you use to send your stock certificate to the exchange agent to be
exchanged in the merger. The form will have explicit instructions on how to
exchange your Little Falls stock certificates. Your certificates representing
shares of Little Falls common stock MUST be sent in with your form of election.
Do not send your stock certificates with your proxy card.
After you surrender your Little Falls stock certificates to the
Exchange Agent and after the time the merger takes effect, you will receive
either cash or a certificate representing your shares of HUBCO common stock. At
the time the new stock certificate is issued, you will also receive a check for
any fractional shares.
Employee, Management, and Directors Stock Plans
The ESOP trustee intends to elect to receive sufficient cash necessary
so that the trust may repay the outstanding ESOP debt as of the time the merger
takes effect. The balance of the ESOP trust assets will be allocated to
participants in accordance with the ESOP plan terms. The ESOP trustee intends to
permit each ESOP participant to elect to receive stock or cash with respect to
their individual ESOP account assets.
The recipients of stock awards under other management and director
stock compensation plans will be permitted to submit election forms in the same
manner as other Little Falls shareholders.
Conversion of Little Falls Options
Options to acquire Little Falls common stock have been issued pursuant
to the Little Falls Bancorp, Inc. 1996 Stock Option Plan. The merger agreement
provides that the outstanding options at the time the merger takes effect will
be converted into options to purchase HUBCO common stock. The terms of the new
options will be determined as follows:
* the right to purchase shares of Little Falls common stock pursuant
to the old option will be converted in a new option with the right
to purchase that same number of shares of HUBCO common stock
multiplied by the exchange ratio;
* the option exercise price per share of HUBCO common stock will be
the previous option exercise price per share of Little Falls common
stock divided by the exchange ratio; and
* in all other material respects the new option will be subject to the
same terms and conditions as governed the old option on which it was
based, including the length of time within which the option may be
exercised.
HUBCO has reserved for issuance the number of shares of HUBCO common
stock necessary to satisfy HUBCO's obligations under the converted options.
HUBCO has agreed to register those shares pursuant to the Securities Act as soon
as practicable after the time the merger takes effect. As of March 19, 1999,
there were options outstanding for 240,167 shares of Little Falls common stock
which would be converted in the merger as described above.
Background of and Reasons for the Merger
Background of the Merger.
On November 5, 1998, Little Falls and Skylands Community Bank
terminated the proposed merger between the two companies, which had been
announced on August 12, 1998. This merger was terminated by mutual agreement as
both companies recognized the possibility that certain conditions to the closing
of the merger might not be satisfied. Accordingly, the boards of directors of
both companies concluded that it was in the mutual interest of both companies to
terminate the merger, and avoid any additional expense.
During the week of November 11, 1998, and as a result of the
termination of the merger with Skylands Community Bank, the Little Falls Board
discussed and evaluated alternatives intended to enhance shareholder value,
including the potential sale of the company. Based upon increased competition,
declining net interest spreads, limited profitability, lack of asset generation
capability and equity market volatility, the Little Falls Board determined that
the most effective means of increasing shareholder value was the sale of Little
Falls. The Board decided to contact potential merger partners on a select and
confidential basis, in order to make the process manageable and to minimize its
impact on its day-to-day operations. The Board authorized FinPro, Inc., its
financial advisor, to compile a confidential offering memorandum and to
proactively approach potential interested parties.
FinPro provided Little Falls with a comprehensive list of potentially
interested parties. Little Falls reviewed and narrowed the list. A total of 24
institutions were approached to ascertain their interest. These institutions
varied in size and structure and included small community banks, super-regional
institutions, large mutual thrifts, and public thrifts. Interested parties were
given confidentiality agreements, process letters, and offering memoranda.
Little Falls originally set a deadline of December 1, 1998, for parties to
submit indications of interest. The deadline was later extended to December 8,
1998, due to the level of interest and the number of parties requesting
extensions. FinPro reviewed the expressions of interest and ranked them
according to the benefits offered to all shareholders. When ranking the
expressions of interest, FinPro considered among other things the ability of the
interested party to complete the merger without contingencies, the consideration
offered, the tax consequences, the liquidity of any non-cash consideration, and
the underlying value of any non-cash consideration. At a Board meeting on
December 8, 1998, FinPro reviewed with the Little Falls Board the expressions of
interest it had received by December 8. At that meeting, the Little Falls Board
instructed management to allow the top two prospective buyers to conduct due
diligence. On December 17, 1998, a third institution increased the dollar value
of its consideration. Little Falls' Board instructed management on December 23,
1998, to allow this third institution to conduct due diligence.
At about the same time, an additional institution approached FinPro for
an opportunity to express its interest and the Little Falls Board authorized
permission to do so. This institution's indication of interest was substantially
lower than those of the institutions selected to perform due diligence, and the
Little Falls Board instructed FinPro to inform the institution that its proposal
was inadequate.
Due diligence was completed by all institutions during the week of
December 27, 1998. Little Falls provided the prospective buyers with the
opportunity to present a final indication of interest and to clarify their
indications of interest on specific issues to provide a common basis for
comparison. Based on final indications of interest as of December 30, 1998,
FinPro prepared an analysis on each one individually and compared them in terms
of conditions and shareholder value. After reviewing FinPro's analysis, the
Board determined that HUBCO's final indication of interest was superior to the
others. The Board authorized FinPro to continue negotiations with HUBCO and
authorized Malizia, Spidi, Sloane & Fisch, P.C., Little Falls' counsel, to
negotiate a definitive agreement with HUBCO.
During the week of January 4, 1999, HUBCO amended the structure and the
value of its proposal and placed contingencies on the proposed transaction.
Based upon this development, the Little Falls Board determined that another
party's final indication of interest was at that time more beneficial to the
shareholders of Little Falls than the amended HUBCO indication of interest.
(This other institution had increased the value of its indication of interest on
both December 23, 1998,and again on December 30, 1998). FinPro told HUBCO of the
implications of this change and informed HUBCO that Little Falls was going to
negotiate with another party and not continue discussions with HUBCO. The Little
Falls Board authorized FinPro to continue negotiations with the second
institution and authorized counsel to begin negotiating a definitive agreement
with the second institution. On January 8, 1999, the second institution sent
Little Falls its draft definitive agreement. During the drafting and negotiating
of the definitive agreement and based on Little Falls' and its advisors due
diligence on the second institution, a critical business issue arose as to the
liquidity and market value of that institution's stock. The second institution's
stock price fell over 20% during the drafting and negotiating period, causing
the Little Falls Board to request a narrowing of the pricing range. The second
institution, through their advisor and counsel, informed FinPro that there was
no room to negotiate on the price range on January 20, 1999, and reiterated this
point to FinPro on January 21, 1999, and to Little Falls' counsel on both
January 21 and 22, 1999.
Informed of the lack of negotiability on the price range, on January
20, 1999, FinPro contacted Albert Weite, Little Falls' Chairman, and advised Mr.
Weite of the potential ramifications of this matter and suggested that FinPro
could re-approach HUBCO to determine if it had any interest in revising its
indication of interest. The Chairman of Little Falls polled the other directors
on whether FinPro could approach HUBCO one final time. On the evening of January
20, 1999, based upon the directors' positive responses, Mr. Weite authorized
FinPro to approach HUBCO and contact with HUBCO was initiated.
HUBCO responded verbally on the evening of January 21, 1999, indicating
it intended to restructure its indication of interest. Many of the terms
contained in its initial indication of interest were reinstated. Mr. Weite
polled a majority of the directors, that being all the directors he was able to
reach at the time, regarding whether FinPro should negotiate further with HUBCO.
Based on the directors' affirmative response, the Chairman authorized FinPro to
re-open negotiations and instructed Little Falls' counsel to begin negotiating a
definitive agreement with HUBCO's counsel, following receipt of a draft
agreement. On January 23, 1999, Little Falls' counsel received from HUBCO's
counsel a draft definitive agreement representing HUBCO's offer. Negotiations
regarding the terms of the HUBCO transaction proceeded over the next few days.
Little Falls and its advisors completed due diligence on HUBCO on January 25,
1999.
On January 26, 1999, the Little Falls Board met with its legal counsel
and FinPro to discuss the terms of the definitive agreement. FinPro provided the
Board with an oral opinion that the merger terms were fair to the shareholders
of Little Falls from a financial perspective and that the merger with HUBCO
constituted the best indication of interest available from the financial
perspective of the Little Falls shareholders. The Little Falls Board approved
the definitive agreement, which was completed and signed on January 26, 1999.
Little Falls' Reasons for the Merger.
In reaching its determination that the merger is fair to, and in the
best interests of, Little Falls and its shareholders, the Little Falls Board
considered a number of factors, including the following:
* the current condition and growth prospects of Little Falls and
Little Falls Bank, its historical results of operations and its
prospective results of operations were Little Falls to remain
independent;
* the economic, business and competitive climate for banking and
financial institutions in New Jersey, with special consideration
given to recent transactions that have increased the competitive
environment in the financial services and banking industry;
* the consideration offered to Little Falls shareholders by HUBCO
* in absolute terms;
* as compared to the value of other offers received from
qualified and informed potential acquirers; and
* as compared to recent mergers and acquisitions involving other
banking and financial institutions in New Jersey and
nationally;
* the potential market value, liquidity and dividend yield of Little
Falls common stock if Little Falls were to remain independent;
* the historically greater liquidity represented by the HUBCO common
stock to be received in the merger;
* the greater financial and management resources and customer product
offerings of HUBCO which could increase the competitiveness of the
combined institution in Little Falls' market area and the ability to
serve the depositors, customers and communities currently served by
Little Falls;
* the historical results of operation and financial condition of HUBCO
and the future prospects for HUBCO, including anticipated benefits
of the merger;
* the future growth prospects of HUBCO following the merger;
* the fact that the merger will be a tax-free exchange to Little Falls
shareholders for federal income tax purposes to the extent they
receive HUBCO common stock as consideration in exchange for their
shares of Little Falls common stock;
* the number of acquisitions completed by HUBCO in recent years; and
* the presentation of FinPro and the fact that FinPro would render an
opinion that the consideration to be received in the merger by
Little Falls shareholders was fair to such holders from a financial
point of view.
This list of factors is not intended to be an exhaustive list, but is
intended to include the material factors considered by the Little Falls Board.
In reaching its determination to approve and recommend the merger, the Little
Falls Board did not assign any relative or specific weights to the these
factors, and the individual directors may have given differing weights to
different factors.
Recommendations of the Little Falls Board of Directors
The Little Falls Board believes that the merger is fair to, and in the
best interests of, Little Falls and its shareholders. Accordingly, the Board
unanimously approved the merger.
The Little Falls Board of Directors unanimously recommends that all
shareholders of Little Falls approve the merger.
HUBCO's Reasons for the Merger
HUBCO entered into the merger agreement with Little Falls as part of
HUBCO's ongoing strategy of growth through acquisitions. HUBCO's strategy is to
enhance profitability and build market share through both internal growth and
acquisitions. HUBCO has completed over 25 acquisitions since 1990, and has added
over 140 branches and over $6 billion in assets through acquisitions this
decade. HUBCO expects to continue its acquisition strategy. See page 14 for a
brief description of HUBCO's history of acquisitions.
Interests of Certain Persons in the Merger
In considering the recommendation of the Little Falls Board regarding
the merger, Little Falls shareholders should know that certain directors and
officers of Little Falls have interests in the merger in addition to their
interests as shareholders of Little Falls. All those additional interests are
described below, to the extent they are material and are known to Little Falls.
The Little Falls Board was aware of these interests and considered them, among
other matters, in approving the merger.
Consulting Agreement. HUBCO will pay Leonard G. Romaine a lump sum of
$200,000 as a termination payment at the time the merger takes effect in
settlement of his employment contract. Additionally, the merger agreement
provides that HUBCO will enter into a 36-month consulting agreement with Mr.
Romaine at the rate of $3,333 per month. Mr. Romaine is currently President and
Chief Executive Officer of Little Falls and Little Falls Bank.
Advisory Board Membership. The merger agreement provides that HUBCO
will appoint all Little Falls directors to a HUBCO advisory board at the time
the merger takes effect. The advisory board members will receive $1,440 per
month for a period of 36 months.
Directors' Consultation and Retirement Plan and Health Benefits Plan.
Currently, Little Falls has a Directors' Consultation and Retirement Plan and a
Director Health Benefits Plan. At the time the merger takes effect, HUBCO will
pay the Little Falls directors, as a group, up to $400,000 in satisfaction of
Little Falls' obligations to them under the Consultation and Retirement Plan,
and up to $230,000 in satisfaction of Little Falls' obligations to them under
the Health Benefits Plan.
Stock Benefits. At the time the merger takes effect, each outstanding
Little Falls Option will be converted into an option to purchase HUBCO common
stock. All outstanding, non-vested options will vest as a result of the merger.
See "Conversion of Little Falls Options" on page 20.
Indemnification; Directors and Officers. The merger agreement requires
HUBCO to indemnify, for a period of six years following the merger, each
director and officer of Little Falls and Little Falls Bank to the fullest extent
permitted under applicable law and its certificate of incorporation and by-laws.
The merger agreement also requires HUBCO and Hudson United Bank to advance
expenses in connection with the indemnification to the fullest extent permitted
under applicable law and its certificate of incorporation and by-laws.
Share Ownership. As of the March 19, 1999, record date for the meeting,
the directors of Little Falls and Little Falls Bank beneficially owned in the
aggregate approximately 194,088 of the issued and outstanding shares of Little
Falls common stock. In connection with the execution of the merger agreement,
the directors of Little Falls and Little Falls Bank agreed to vote all the
shares they beneficially own in favor of the merger. As of the record date,
executive officers of Little Falls who are not also directors beneficially owned
in the aggregate 10,660 of the issued and outstanding shares of Little Falls
common stock.
Employee Stock Ownership Plan. As of the time the merger takes effect,
the ESOP will be terminated and all participant accounts will be 100% vested and
non-forfeitable. After repayment of the ESOP debt with stock held as collateral
on the debt, the balance of unallocated Little Falls stock, estimated at 93,000
shares, will be allocated to ESOP participant accounts pro rata. It is estimated
that Mr. Romaine, a participant with the ESOP and Mr. Pullara, a director and
former participant under the ESOP, will be allocated 17,200 shares and 7,400
shares, respectively, in that pro rata allocation.
Opinion of Little Falls' Financial Advisor
On May 17, 1998, Little Falls retained FinPro as its financial advisor.
Little Falls retained FinPro to provide general financial advisory services and
to specifically advise Little Falls in connection with its merger and
acquisition activities and act as independent financial advisor.
FinPro provides investment banking services to the bank and thrift
industry, including appraisals and valuations of bank and thrift institutions
and their securities in connection with mergers, acquisitions and other
securities transactions. FinPro has knowledge of and experience with the New
Jersey bank and thrift market and financial institutions operating in that
market. The Little Falls Board chose FinPro because of FinPro's expertise,
experience and familiarity with the bank and thrift industry.
FinPro delivered an oral opinion to the Little Falls Board at the
January 26, 1999, meeting at which the Little Falls Board approved the merger
agreement. On that date, FinPro opined orally that as of January 26, 1999, the
cash consideration and the exchange ratio was fair to the Little Falls
shareholders from a financial point of view. FinPro has since delivered to
Little Falls a written opinion dated March 26, 1999 that as of the date of the
opinion, the cash consideration and exchange ratio is fair to the Little Falls
shareholders from a financial point of view. We have attached the full text of
that opinion as Appendix C to this document and incorporate it herein by
reference. The description of the opinion set forth herein is qualified in its
entirety by reference to Appendix C. We encourage you to read the opinion in its
entirety for a description of the procedures followed, assumptions made, matters
considered, and qualifications on the review undertaken by FinPro. The opinion
is directed only to the cash consideration and exchange ratio and does not
constitute a recommendation to any Little Falls shareholder as to how the
shareholder should vote at the Little Falls meeting.
FinPro will review and possibly revise its fairness opinion prior to
closing based on the trading value of HUBCO's stock and market conditions at
that time. It is a condition to Little Falls' obligation to complete the merger
that FinPro provide an updated opinion that the cash consideration and exchange
ratio are fair, from a financial point of view, to the Little Falls
shareholders.
The Little Falls Board did not impose any limitations on FinPro with
respect to the investigation made or procedures followed by FinPro in rendering
its fairness opinion. In connection with rendering its opinion, FinPro performed
a variety of financial analyses. The following is a summary of the material
financial analyses performed by FinPro. FinPro believes that its analyses must
be considered as a whole and that selecting portions of the analyses and the
factors considered therein, without considering all factors and analyses, could
create an incomplete view of the analyses and the processes underlying the
fairness opinion of FinPro. The preparation of a fairness opinion is a complex
process involving subjective judgments and is not necessarily susceptible to
partial analyses or summary description. In its analyses, FinPro made numerous
assumptions with respect to industry performance, business and economic
conditions and various other matters, many of which are beyond the control of
Little Falls and HUBCO. Any estimates contained in FinPro's analyses are not
necessarily indicative of future results or values, which may be significantly
more or less favorable than the estimates Finpro used. Estimates of values of
companies do not purport to be appraisals or necessarily reflect the prices at
which the companies or their securities may be sold.
The following is a summary of selected analyses prepared by FinPro in
connection with FinPro's January 26, 1999, opinion and analyzed by FinPro in
connection with that opinion and the March 26, 1999, opinion delivered in
connection with this proxy statement. In preparing its March 26 opinion, FinPro
updated certain analyses described below to reflect certain market conditions
and events occurring since the date of its January 26 opinion. These reviews and
updates led FinPro to conclude that it was not necessary to change the
conclusions it had reached in its January 26 opinion.
Analysis of Publicly Traded Companies
In preparing its presentation, FinPro used publicly available
information to compare selected financial and market information for Little
Falls and other publicly traded thrifts, including:
* book value;
* tangible book value;
* earnings, asset quality ratios;
* loan loss reserve levels;
* profitability; and
* capital adequacy.
FinPro compared Little Falls to a "Peer Group" which was composed of
thrifts not involved in a merger, located in either the Mid Atlantic, New
England or South Eastern regions with market values less than $100 million, a
tangible equity to assets ratio between 10.00% and 15.00% and a return on
average equity less than 8.00%. FinPro also compared Little Falls to all fully
converted New Jersey thrifts. The relevant financial data as follows:
<TABLE>
<CAPTION>
New Jersey
Peer Publicly Traded
Little Falls Group Median Thrift Medians
<S> <C> <C> <C>
Return on Average Assets 0.51% 0.76% 0.85%
Return on Average Equity 4.67% 5.75% 8.18%
Asset Growth 6.73% 5.27% 6.44%
Yield on Interest Bearing Assets 6.88% 7.55% 7.20%
Cost of Interest Bearing Liabilities 4.90% 4.79% 4.34%
Net Interest Margin 2.44% 3.20% 3.37%
Non-interest Income/Average Assets 0.10% 0.37% 0.28%
Non-interest Expense/Average Assets 1.57% 2.34% 1.98%
Non-performing Loans/Loans 0.39% 0.37% 0.46%
Loan Loss Reserves/Loans 0.88% 0.68% 0.99%
Loan Loss Reserves/Non-Performing Loans 98.01% 139.75% 104.43%
Efficiency Ratio 60.22% 61.81% 56.26%
Tangible Equity/Tangible Assets 10.04% 12.76% 10.85%
</TABLE>
The price ranges obtained by applying the median trading multiples to
Little Falls financial data were as follows:
* Peer Group $11.92 to $17.01
* New Jersey Thrifts $15.09 to $27.00
Analyses of Selected Merger Transactions
FinPro reviewed merger and acquisition transactions announced involving
public thrifts as acquirees. In its analysis, FinPro evaluated price to
earnings, price to equity, price to tangible equity and core deposit premium
multiples for two different groups. Among those reviewed were:
* FinPro's "Comparable" Group, composed of all thrifts that announced
sales between January 1, 1998 and March 19, 1999 with deal values
less than $200 million, a tangible equity to assets ratio between
10.00% and 15.00% and a return on average equity less than 8.00%.
* All New Jersey Thrifts that announced sales between January 1, 1998
and March 19, 1999.
<PAGE>
FinPro reviewed and computed maximum, minimum, mean, and median pricing
multiples. FinPro's computations yielded the following range of multiples for
the "Comparable" Transactions and for the New Jersey Transactions, respectively,
as compared with the following indicated multiples for the merger:
<TABLE>
<CAPTION>
HUBCO /
"Comparable" "Comparable" New Jersey New Jersey Little Falls
Maximum Minimum Maximum Minimum Merger
- ---------------------------- ----------------- ------------------ ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Price to Last Twelve
Months Earnings 47.77x 20.27x 44.98x 9.95x 28.01x
Price to Book Value 225.18% 127.41% 284.98% 111.70% 144.77%
Price to Tangible Book
Value 225.18% 144.62% 291.48% 115.13% 155.59%
Core Deposit Premiums 21.47% 8.33% 21.63% 8.36% 9.13%
</TABLE>
Source: SNL Securities data and FinPro calculations.
Based upon the minimum and maximum multiples for "Comparable"
Transactions, FinPro derived an imputed range of values per share of Little
Falls common stock of $15.41 to $36.31. Based upon the minimum and maximum
multiples for New Jersey Transactions, FinPro derived an imputed range of values
per share of Little Falls common stock of $7.56 to $43.06.
No company or transaction used in this analysis is identical to Little
Falls or the merger. Accordingly, an analysis of the result of the foregoing is
not mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that would affect the public trading values of the
companies to which they are being compared.
In addition to the analysis of selected merger transactions, FinPro
considered the potential impact that the volatility of financial stocks would
have on merger and acquisition pricing in the near future along with the
potential impact of possible accounting changes.
Discounted Earnings, Dividend Stream and Terminal Value Analysis
Using a discount earnings, dividend stream, and terminal value
analysis, FinPro estimated the future stream of earnings flows that Little Falls
could be expected to produce through 2009 under various growth assumptions. To
approximate the terminal value of Little Falls common stock at the end of the
period, FinPro applied price to earnings multiples of between 20.0x and 26.0x.
The net income streams and terminal values were then discounted to present
values using different discount rates chosen to reflect different assumptions
regarding the required rates of return holders or prospective buyers of Little
Falls common stock would expect. This analysis assumed that Little Falls
continued its current cash dividend policy and indicated a range between $13.85
and $23.10 per share.
Pro Forma Merger Analysis
FinPro performed pro forma merger analyses that combined Little Falls'
and HUBCO's current and projected incomes and balance sheets based on earnings
forecasts of Little Falls and "street" consensus for HUBCO published by First
Call, which estimated earnings per share for HUBCO of $2.48 in 1999. During
FinPro's due diligence on and analysis of HUBCO, no information was reviewed
which would lead FinPro to believe that these earning projections were
unreasonable at that time. Assumptions and analyses of the accounting treatment,
acquisitions adjustments, operating efficiencies and other adjustments were made
to arrive at a base case pro forma analysis to determine the effect of the
transaction on both Little Falls and HUBCO. FinPro noted that, based on a $33.94
per share price as of March 19, 1999, for HUBCO common stock, the impact of the
merger on HUBCO's earnings per share did not appear to be material.
In connection with rendering its January 26, 1999, opinion and its
updated opinion attached as Appendix C, FinPro reviewed and considered, among
other things:
* the merger agreement;
* the most recent annual report and 10-K report for both institutions;
* quarterly 10-Q reports for both institutions;
* interest rate risk tables for both institutions;
* a listing of securities for both institutions;
* Little Falls' internal loan classification list;
* listing of other real estate owned for both institutions;
* the budget and long range operating plans of both institutions;
* recent regulatory exam reports for both institutions;
* the minutes of the Board of Directors meetings for Little Falls;
* the directors' and officers' liability and blanket bond insurance
policies for Little Falls; and
* other market data, studies and analyses that were considered
appropriate.
FinPro conducted due diligence on HUBCO as part of a team that included
representatives of Malizia, Spidi, Sloane & Fisch, P.C., Little Falls' legal
counsel. FinPro conducted an on-site review of each organization's historical
performance and current financial condition. In rendering its opinions, FinPro
did not independently verify the financial data provided by or on behalf of
Little Falls and HUBCO, but instead relied upon the accuracy and completeness of
data provided.
Pursuant to its agreement with FinPro, Little Falls paid FinPro a fee
for rendering its fairness opinion at the January 26, 1998 meeting of the Little
Falls Board. In addition, Little Falls will pay FinPro a transaction fee equal
to 1.0 % of the aggregate value of the consideration to be paid by HUBCO in the
merger, net of the fees already paid for rendering its fairness opinion.
Approximately 20% of the transaction fee has been paid as a result of work
completed up to the signing of the merger agreement. The remaining portion is
payable at the closing of the merger. Little Falls expects to pay FinPro a total
transaction fee of approximately $540,000 for its services in connection with
the merger.
Little Falls has also agreed to reimburse FinPro for its reasonable
out-of-pocket expense in connection with its engagement and to indemnify FinPro
and its affiliates and their respective partners, directors, officers,
employees, agents and controlling persons against certain expenses and
liabilities, including liabilities under securities laws.
Prior to being retained as Little Falls' financial advisor, FinPro had
provided consulting and professional services to Little Falls. These services
included:
* strategic planning assistance;
* an independent appraisal of Little Falls common stock as part of its
mutual to stock conversion;
* merger and acquisition analysis;
* interest rate risk management consulting;
* loan review reports;
* market feasibility studies; and
* other general consulting engagements.
The revenues derived from these services are insignificant when
compared to the firm's total gross revenues.
Resale Considerations Regarding HUBCO Common Stock
The shares of HUBCO common stock that will be issued if the merger is
consummated have been registered under the Securities Act of 1933. These
registered shares will be freely transferable, except for shares received by
persons, including directors and executive officers of Little Falls, who may be
deemed to be "affiliates" of Little Falls under Rule 145 promulgated under the
Securities Act. An "affiliate" of an issuer is defined generally as a person who
"controls" the issuer. Directors, executive officers and 10% shareholders may be
deemed to control the issuer. Affiliates may not sell their shares of HUBCO
common stock acquired pursuant to the merger, except pursuant to an effective
registration statement under the Securities Act covering the HUBCO common stock
or in compliance with Rule 145 or another applicable exemption from the
registration requirements of the Securities Act.
Persons who may be deemed to be "affiliates" of Little Falls have
delivered letters to HUBCO in which they have agreed to certain restrictions on
their ability to transfer, whether by sale or otherwise, any Little Falls common
stock owned by them and any HUBCO common stock they acquire in the merger. HUBCO
required these restrictions in order to comply with Rule 145 under the
Securities Act. The persons who may be deemed affiliates have agreed to refrain
from transferring HUBCO common stock acquired by them in the merger, except in
compliance with certain restrictions imposed by Rule 145. Certificates
representing the shares of HUBCO common stock issued to those persons pursuant
to the merger will bear a legend reflecting that the shares are restricted in
accordance with the letter signed by the person and may not be transferred
except in compliance with those restrictions.
Conditions to the Merger
The obligation of each party to consummate the merger is subject to
satisfaction or waiver of certain conditions, including:
* approval of the merger by the shareholders of Little Falls;
* receipt of all necessary consents, approvals and authorizations from
federal and state government authorities;
* absence of any litigation that would restrain or prohibit the
consummation of the merger, or that has significant potential to be
resolved in a way that would deprive the terminating party of the
material benefits of the merger;
* receipt of an opinion of Pitney, Hardin, Kipp & Szuch regarding
certain tax consequences of the merger. If this condition is waived,
i.e., if the merger does not necessarily meet the expected tax
consequences, but HUBCO and Little Falls wish to consummate it
anyway, Little Falls will resolicit its shareholders' vote on the
merger.
The obligation of HUBCO to consummate the merger is also conditioned
on, among other things:
* continued accuracy, in all material respects, of the representations
and warranties of Little Falls contained in the merger agreement;
* performance by Little Falls, in all material respects, of its
obligations under the merger agreement; and
* Little Falls' termination of its director retirement plan and
director health benefits plan.
The obligation of Little Falls to consummate the merger is also
conditioned on, among other things:
* continued accuracy, in all material respects, of the representations
and warranties of HUBCO contained in the merger agreement;
* Performance by HUBCO, in all material respects, of its obligations
under the merger agreement; and
* receipt by Little Falls of the fairness opinion letter of FinPro,
Inc. which is attached as Appendix C to this proxy
statement-prospectus, and receipt of an opinion letter updated as of
the time the merger takes effect.
Conduct of Business Pending the Merger
The merger agreement requires Little Falls to conduct its business
prior to the time the merger takes effect only in the ordinary course of
business and consistent with prudent banking practices, except as permitted by
the merger agreement or with the written consent of HUBCO. In the merger
agreement, Little Falls has agreed not to take certain actions without the prior
written consent of HUBCO or unless permitted by the merger agreement, including
the following:
* change any provision of its certificate of incorporation, by-laws or
similar governing documents;
* issue new stock, grant an option, or declare, set aside or pay any
dividend other than Little Falls' regular quarterly cash dividends
of $0.06 per share;
* grant anyone severance or termination pay or enter into or amend any
employment agreement;
* adopt any new employee benefit plan, or award any increase in
compensation or benefits;
* make any capital expenditure greater than of $50,000;
* file any applications or make any contracts regarding branching or
site location or relocation;
* agree to acquire any business or entity (other than to foreclose on
collateral for a defaulted loan);
* make any material change in its accounting methods or practices not
required by generally accepted accounting principles, also known as
"GAAP";
* take any action that would cause any of its representations or
warranties in the merger agreement to be materially untrue or
incorrect at the time the merger takes effect; and
* make or commit to make a new loan for $500,000 or more, renew an
existing loan of $500,000 or more for more than one year, or
increase a borrower's credit outstanding by $500,000 or more.
In the merger agreement, Little Falls has agreed not to encourage or
solicit or hold discussions or negotiations with, or provide any information to,
any person, entity or group (other than HUBCO) concerning any (1) merger, (2)
sale of stock, (3) sale of substantial assets or liabilities outside the
ordinary course of business or (4) similar transactions. However, Little Falls
may enter into discussions or negotiations or provide any information in
connection with an unsolicited possible transaction of this sort if the Little
Falls Board, after consulting with counsel, determines in the exercise of its
fiduciary responsibilities that it should take those actions. Little Falls has
agreed to promptly communicate to HUBCO the terms of any proposal it may receive
with respect to any acquisition transaction. This restriction, along with the
option described in the following section, may deter other potential acquirors
of control of Little Falls.
Stock Option to HUBCO for Little Falls Shares
As a condition to HUBCO entering into the merger agreement, HUBCO
required that Little Falls grant HUBCO an option that was designed to deter
other companies from attempting to acquire control of Little Falls. The option
gives HUBCO the right to purchase for $19.25 per share up to 493,000 shares of
Little Falls common stock, representing 19.9% of the outstanding Little Falls
shares when the option was granted. The option is exercisable only if certain
specific triggering events occur and the merger does not occur. HUBCO has no
right to vote the shares covered by the option prior to its exercise.
HUBCO could recognize a gain if it exercises the option and resells the
shares it acquires for more than the exercise price. The existence of the option
may deter other potential acquirors of control of Little Falls, since it would
probably increase the cost of acquiring all the shares of Little Falls common
stock. HUBCO's exercise of the option could also make pooling-of-interests
accounting treatment unavailable to a subsequent acquiror. The agreement
granting the option is set forth as Appendix B to this document.
Representations, Warranties and Covenants
The merger agreement contains customary mutual representations and
warranties, as well as covenants, relating to, among other things:
* corporate organization and similar corporate matters;
* authorization, execution and enforceability of the merger agreement;
* the accuracy of information contained in each party's filings with
the SEC;
* the accuracy of information supplied by each party in creating this
document;
* compliance with applicable laws;
* the absence of material litigation;
* certain bank regulatory matters;
* the absence of certain material changes or events since September
30, 1998;
* the adequacy of loan loss reserves; and
* each party's preparations to have its data processing systems be
Year 2000 compliant.
Regulatory Approvals
Completion of the merger requires approval by the FDIC and by the New
Jersey Department of Banking and Insurance. Approval by either of these bank
regulators does not constitute an endorsement of the merger or a determination
that the terms of the merger are fair to Little Falls shareholders. HUBCO filed
an application for FDIC approval on February 5, 1999, and with the NJ Banking
Department on February 5, 1999. HUBCO also corresponded with the Federal Reserve
Board and the Office of Thrift Supervision on February 4, 1999, and February 4,
1999, respectively, to confirm that the merger does not require the approval of
these regulatory authorities. We can not assure you that the necessary
regulatory approvals will be granted, or that they will be granted on a timely
basis without conditions unacceptable to HUBCO.
Management and Operations After the Merger
At the time the merger takes effect, Little Falls will be merged with
HUBCO. HUBCO will be the surviving entity. Immediately following the merger,
Little Falls Bank will be merged with and into Hudson United Bank, with Hudson
United Bank as the surviving entity. Hudson United Bank will continue to operate
as a wholly owned subsidiary of HUBCO. The management and operation of HUBCO and
Hudson United Bank will not change in any material aspect due to the merger.
Little Falls Shareholders' Rights
At the time the merger takes effect, you will no longer have any rights
as a Little Falls shareholder. Those Little Falls certificates that are being
converted into HUBCO common stock will automatically represent shares of HUBCO
common stock.
Each share of HUBCO common stock issued in exchange for Little Falls
common stock will be deemed to have been issued at the time the merger takes
effect. Thus, Little Falls shareholders who receive HUBCO common stock in the
merger will be entitled to receive any dividend or other distribution payable to
holders of record of HUBCO common stock as of any date on or after the time the
merger takes effect. However, no dividend or other distribution will actually be
paid with respect to any shares of HUBCO common stock until the certificates
formerly representing shares of Little Falls common stock have been surrendered.
At that time any accrued dividends and other distributions on those shares of
HUBCO common stock will be paid without interest.
Amendments
HUBCO and Little Falls may amend the merger agreement by mutual written
consent at any time before the merger is completed. However, the merger
agreement provides that certain types of amendments (such as an amendment to
change the form of consideration to be paid to Little Falls shareholders) cannot
be made following approval of the merger by the Little Falls shareholders
without their approval.
Termination
HUBCO and Little Falls may terminate the merger agreement by mutual
written consent at any time.
Either HUBCO or Little Falls may terminate the merger agreement for
certain reasons, including the following:
* the merger has not been completed by September 30, 1999;
* the Little Falls shareholders fail to approve the merger agreement
at the meeting; or
* a regulatory approval needed to complete the merger has been denied
or withdrawn.
HUBCO may terminate the merger agreement if:
* there has been a material adverse change in Little Falls' business,
operations, assets or financial condition;
* Little Falls materially breaches the merger agreement; or
* a regulatory approval needed to complete the merger is given with
conditions that materially impair the value of Little Falls to
HUBCO.
Little Falls may terminate the merger agreement if:
* there has been a material adverse change in HUBCO's business,
operations, assets or financial condition; or
* HUBCO materially breaches the merger agreement.
If the merger agreement is terminated, each party will bear its own
expenses and will retain all rights and remedies it may have at law or equity
under the merger agreement.
Accounting Treatment of the Merger
HUBCO expects to account for the merger under the purchase method of
accounting in accordance with GAAP. Under GAAP purchase accounting principles,
the excess of purchase paid over the fair market value of assets and liabilities
acquired is recorded as an intangible asset, which is amortized as an expense
over time. This asset will be reported on HUBCO's financial statements as
"goodwill." See "Pro Forma Financial Information" on pages 34-37.
Federal Income Tax Consequences
The following is a discussion of the material federal income tax
consequences of the merger. The discussion may not apply to special situations,
such as those of any Little Falls stockholders
* who received HUBCO common stock upon the exercise of employee stock
options or otherwise as compensation;
* that hold Little Falls common stock under a tax-qualified Individual
Retirement Account (IRA) or employer retirement plan;
* that hold Little Falls common stock as part of a "straddle" or
"conversion transaction"; or
* that are insurance companies, securities dealers, financial
institutions or foreign persons.
This discussion does not address any aspects of state, local or foreign
taxation. It is based upon laws, regulations, rulings and decisions now in
effect and on proposed regulations. All of these are subject to change by
legislation, administrative action or judicial decision, and the changes could
have retroactive effects. No ruling has been or will be requested from the
Internal Revenue Service on any tax matter relating to the tax consequences of
the merger.
Pitney, Hardin, Kipp & Szuch, counsel to HUBCO, have advised HUBCO and
Little Falls in an opinion dated the date of this proxy statement that:
* The merger will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended.
* Little Falls will not recognize any gain or loss.
* Little Falls shareholders who receive HUBCO common stock in the
merger will not recognize any gain or loss for federal income tax
purposes upon the exchange in the merger of shares of Little Falls
common stock solely for HUBCO common stock (except with respect to
cash received instead of a fractional share interest in HUBCO common
stock).
* The basis of HUBCO common stock received in the merger by Little
Falls shareholders (including the basis of any fractional share
interest in HUBCO common stock) will be the same as the basis of the
shares of Little Falls common stock surrendered in exchange
therefore.
* The holding period of HUBCO common stock will include the holding
period during which the shares of Little Falls common stock
surrendered in exchange therefor were held by the Little Falls
shareholder, provided such shares of Little Falls common stock were
held as capital assets.
* Cash received by a holder of Little Falls common stock instead of a
fractional share interest in HUBCO common stock will be treated as
received in exchange for such fractional share interest. If the
fractional share would have constituted a capital asset in hands of
that holder, the holder generally should recognize a capital gain or
loss equal to the amount of cash received, less the portion of the
adjusted tax basis in Little Falls common stock allocable to the
fractional share interest.
The opinion of Pitney, Hardin, Kipp & Szuch is an exhibit to the
registration statement of which this proxy statement is a part. It is a
condition to HUBCO's and Little Falls obligation to complete the merger that
Pitney, Hardin, Kipp & Szuch deliver an updated opinion at the closing,
addressing the same issues. This closing condition will not be waived without
resoliciting your vote.
The merger will be treated a taxable event for those Little Falls
shareholders receiving cash in exchange for their shares, and those Little Falls
shareholders converting their stock into HUBCO common stock to the extent that
they receive cash for their fractional shares. Little Falls shareholders
receiving any cash will be required to include it on their 1999 income tax
statement for the full amount of any gain realized on the transaction. The
amount of taxable gain to Little Falls shareholders will equal the difference
between the amount realized on the sale and the adjusted basis in the Little
Falls shares.
Because certain tax consequences of the merger may vary depending upon
the particular circumstances of each holder of Little Falls common stock and
other factors, we urge you to consult your own tax advisor to determine the
particular tax consequences to you, including the application and effect of
state and local income and other tax laws.
No Dissenters' Rights
Under applicable New Jersey law, Little Falls shareholders do not have
dissenters' rights of appraisal in connection with the merger.
PRO FORMA FINANCIAL INFORMATION
Presented below is a pro forma combined condensed statement of
condition of HUBCO and Little Falls at December 31, 1998, giving effect to the
merger as if it had been consummated at such date. Also presented are the pro
forma combined condensed statements of income for the year ended December 31,
1998. The unaudited pro forma financial information is based on the historical
financial statements of HUBCO and Little Falls after giving effect to the merger
under the purchase method of accounting and based upon the assumptions and
adjustments contained in the accompanying notes to pro forma combined condensed
financial statements.
The unaudited pro forma financial information has been prepared by
HUBCO's management based upon the historical financial statements and related
notes thereto of HUBCO and Little Falls incorporated herein by reference. The
unaudited pro forma financial information should be read in conjunction with
those historical financial statements and notes. The pro forma financial
information does not give effect to any anticipated cost savings in connection
with the merger. The pro forma combined condensed statements of income are not
necessarily indicative of operating results which would have been achieved had
the merger been consummated as of the beginning of the periods for which the
data are presented and should not be construed as being representative of future
periods.
<PAGE>
<TABLE>
<CAPTION>
Pro forma Unaudited Combined Condensed Balance Sheet
As of December 31, 1998
(Dollars in thousands, except per share amounts)
Pro forma Pro forma
Assets HUBCO Little Falls Adjustments Combined
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 217,954 $ 6,393 $ (25,057)(a) $ 199,290
Federal funds sold 17,697 27,000 44,697
Assets held for sale 14,147 -- 14,147
Securities 2,895,596 159,112 (285)(b) 3,054,423
Loans 3,386,810 150,391 5,474 (b) 3,542,675
Less: Allowance for loan losses (53,499) (1,329) (54,828)
------------ ----------- ----------- -------------
Total loans 3,333,311 149,062 5,474 3,487,847
------------ ----------- ----------- -------------
Other assets 220,966 6,554 2,431 (c) 229,951
Intangibles, net of amortization 78,990 2,496 24,059 (d) 105,545
------------ ----------- ----------- -------------
Total Assets $ 6,778,661 $ 350,617 $ 6,622 $ 7,135,900
------------ ----------- ----------- -------------
Liabilities and Stockholders' Equity
Deposits $ 5,051,390 $ 243,048 $ 1,565 (b)$ 5,296,003
Borrowings 821,593 68,500 -- 890,093
Other liabilities 248,863 1,624 13,457 (e) 263,944
------------ ----------- ----------- -------------
Total Liabilities 6,121,846 313,172 15,022 6,450,040
Subordinated debt 100,000 -- -- 100,000
Capital Trust Securities 100,000 -- -- 100,000
Stockholders' Equity:
Preferred stock 50 -- -- 50
Common stock 72,246 304 1,269 (f) 73,819
Additional paid in capital 269,264 29,204 (1,732)(g) 296,736
Retained earnings 113,787 19,518 (19,518)(h) 113,787
Treasury Stock (5,980) (8,191) 8,191 (h) (5,980)
Employee stock awards and ESOP at cost (2,368) (2,793) 2,793 (h) (2,368)
Unrealized gain (loss) on securities
available for sale 9,816 (597) 597 (h) 9,816
------------ ----------- ----------- -------------
Total Stockholders' Equity 456,815 37,445 (8,400) 485,860
============ =========== =========== =============
Total Liabilities and Stockholders' Equity $ 6,778,661 $ 350,617 $ 6,622 $ 7,135,900
============ =========== =========== =============
Common shares outstanding (in thousands)
Maximum exchange ratio 40,412 2,478 41,296
Minimum exchange ratio 40,412 2,478 41,170
Book value per common share
Maximum exchange ratio $ 11.30 $ 15.11 $ 11.76
Minimum exchange ratio 11.30 15.11 11.80
</TABLE>
See notes to pro forma financial information.
<PAGE>
<TABLE>
<CAPTION>
Pro forma Unaudited Combined Condensed Statements of Income
For the Year Ended December 31, 1998
(Dollars in thousands, except per share amounts)
Pro forma Pro Forma
HUBCO Little Falls Adjustments Combined
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Interest on loans $ 298,311 $ 11,381 $ (547) (i)$ 309,145
Interest on securities 162,783 10,619 114 (i) 173,516
Other interest income 7,453 746 (1,190) (j) 7,009
--------------- ---------------- ---------------- ----------------
Total Interest Income 468,547 22,746 (1,623) 489,670
--------------- ---------------- ---------------- ----------------
Interest on deposits 161,077 10,504 313 (i) 171,894
Interest on borrowings 53,276 4,191 57,467
--------------- ---------------- ---------------- ----------------
Total Interest Expense 214,353 14,695 313 229,361
--------------- ---------------- ---------------- ----------------
Net Interest Income before provision for
loan losses 254,194 8,051 (1,936) 260,309
Provision for loan losses 14,374 161 14,535
--------------- ---------------- ---------------- ----------------
Net Interest Income after provision for
loan losses 239,820 7,890 (1,936) 245,774
Noninterest income 33,299 404 33,703
Noninterest expense 232,096 5,702 2,294 (k) 240,092
--------------- ---------------- ---------------- ----------------
Income (loss) before income taxes 41,023 2,592 (4,230) 39,385
Income tax provision 17,872 844 (697) (l) 18,019
=============== ================ ================ ================
Net Income (loss) $ 23,151 $ 1,748 $ (3,533) $ 21,366
=============== ================ ================ ================
Earnings per share:
Basic - maximum exchange ratio $ 0.57 $ 0.79 $ 0.51
Basic - minimum exchange ratio 0.57 0.79 0.52
Diluted - maximum exchange ratio 0.56 0.76 0.50
Diluted - minimum exchange ratio 0.56 0.76 0.50
Weighted Average Shares:
(in thousands)
Basic - maximum exchange ratio 40,640 2,208 41,524
Basic - minimum exchange ratio 40,640 2,208 41,398
Diluted - maximum exchange ratio 41,696 2,311 42,644
Diluted - minimum exchange ratio 41,696 2,311 42,521
See notes to pro forma financial information.
</TABLE>
<PAGE>
Notes to Pro Forma Financial Information
1. The pro forma financial information assumes the merger was
consummated as of December 31, 1998, for the pro forma unaudited combined
condensed balance sheet and as of January 1, 1998, for the pro forma unaudited
combined condensed statements of income. The pro forma information presented is
not necessarily indicative of the results of operations or the combined
financial position that would have resulted had the merger been consummated at
the beginning of the periods indicated, nor is it necessarily indicative of the
results of operations in future periods or the future position of the combined
entities.
2. It is assumed that the merger will be accounted for on a
purchase accounting basis. The related pro forma adjustments reflect, where
applicable, a maximum exchange ratio of 0.70 and a minimum exchange ratio of
0.60 shares of HUBCO common stock for each of 1,263,578 outstanding shares (51%
of the total 2,477,525 common shares outstanding) of Little Falls common stock
which were outstanding at December 31, 1998. Each of the remaining 1,213,987
shares of Little Falls common stock (49% of the total outstanding) will be
exchanged for $20.64 in cash.
3. The pro forma financial information presented herein gives
effect to the cancellation of 564,225 shares of Little Falls common stock held
in Little Falls' treasury at a cost of $8,191,308.
The pro forma information reflects adjustments for the merger
accounted for using the purchase method of accounting assuming the maximum
exchange ratio, as follows ($ in 000's):
(a) Cash purchase price of $25,057.
(b) Valuation adjustment based upon yield and maturity.
(c) Deferred tax asset on merger related cost.
(d) Elimination of Little Falls' existing goodwill of
$2,495 and the addition of the resulting goodwill of
$26,554 to be amortized on a straight-line basis over
a ten year period.
(e) Gross merger related costs of $13,457, which consists
of severance and change in control contracts,
termination of the Little Falls ESOP and Management
Stock Bonus Plan, branch closings and deal costs.
(f) Elimination of 3,041,750 issued shares of Little
Falls common stock ($0.10 par value) and the issuance
of 884,476 shares of HUBCO common stock at a stated
value of $1.778.
(g) Elimination of Little Falls existing additional paid
in capital and the addition of paid in capital on
newly issued HUBCO common shares of $22,432 and the
effect of the termination of the ESOP and Management
Stock Bonus Plan of $2,050 and $188, respectively,
and the effect of the value of the HUBCO stock
options that will be issued in exchange for the
existing Little Falls stock options.
(h) Elimination of existing capitalization.
(i) Amortization of valuation adjustments over the
remaining life of the asset or liability so as to
produce a constant yield to maturity.
(j) Interest which would have been earned on the cash
purchase price of $25,057 at 4.75%.
(k) Amortization of resulting goodwill on a straight-line
basis over a ten year amortization period.
(l) Tax provision (benefit) on amortization of valuation
adjustments and interest on cash to fund purchase
price.
4. Earnings per share data has been computed based on the
combined historical net income applicable to common shareholders of HUBCO using
the historical weighted average shares outstanding of HUBCO common stock for the
given period and the common stock to be issued in connection with the merger.
<PAGE>
DESCRIPTION OF HUBCO CAPITAL STOCK
General
The authorized capital stock of HUBCO presently consists of 53,045,000
shares of common stock and 10,300,000 shares of preferred stock. As of December
31, 1998, 40,411,521 shares of HUBCO common stock were issued and outstanding.
HUBCO's certificate of incorporation gives the Board of Directors
authority at any time to:
* divide the authorized but unissued shares of preferred stock into
series;
* determine the designations, number of shares, relative rights,
preferences and limitations of any series of preferred stock;
* increase the number of shares of any preferred series; and
* decrease the number of shares in a preferred series, but not to a
number less than the number of shares outstanding.
HUBCO Series A Convertible Preferred Stock was issued under this
authority in connection with HUBCO's acquisition of Washington Bancorp, Inc. on
July 1, 1994. At this time no HUBCO Series A Preferred Stock remains outstanding
and the Series A Preferred Stock has been cancelled. In December 1996, as part
of the acquisition of Westport Bancorp, Inc., HUBCO issued HUBCO Series B
Convertible Preferred Stock. At December 31, 1998, 500 shares of HUBCO Series B
Convertible Preferred Stock still remains outstanding. There are no other shares
of HUBCO preferred stock outstanding. See "Description of HUBCO Series B
Preferred Stock" on pages 39-40.
Except in limited circumstances, HUBCO's certificate of incorporation
authorizes the HUBCO Board of Directors to issue new shares of HUBCO common
stock or preferred stock without further shareholder action. Therefore, the
Board could adversely affect the voting power of holders of HUBCO common stock
or preferred stock by issuing shares of preferred stock with certain voting,
conversion and/or redemption rights. The purpose of this power is the ability to
potentially discourage any attempt to gain control of HUBCO.
Description of HUBCO Common Stock
Dividend Rights
Holders of HUBCO common stock are entitled to dividends when, as and if
declared by the HUBCO Board of Directors out of funds legally available for the
payment of dividends. The only statutory limitation is that such dividends may
not be paid when HUBCO is insolvent. Funds for the payment of dividends by HUBCO
must come primarily from the earnings of HUBCO's bank subsidiaries. Thus, as a
practical matter, any restrictions on the ability of HUBCO's subsidiaries to pay
dividends will act as restrictions on the amount of funds available for payment
of dividends by HUBCO. As a New Jersey chartered commercial bank, Hudson United
is subject to the restrictions on the payment of dividends contained in the New
Jersey Banking Act. Under the Banking Act, Hudson United Bank may pay dividends
only out of retained earnings, and out of surplus to the extent that surplus
exceeds 50% of stated capital.
Voting Rights
At meetings of shareholders, holders of HUBCO common stock are entitled
to one vote per share. The quorum for a shareholders' meeting is a majority of
the outstanding shares. Except as indicated below, actions and authorizations to
be taken or given by shareholders require the approval of a majority of the
votes cast by holders of HUBCO common stock at a meeting at which a quorum is
present.
The Board of Directors is divided into three classes of directors, each
class being as nearly equal in number of directors as possible. Approximately
one-third of the entire Board of Directors is elected each year and the
directors serve for terms of up to three years, and, in all cases, until their
respective successors are duly elected and qualified.
The exact number of directors and the number constituting each class is
fixed by resolution adopted by a majority of the entire Board of Directors.
Shareholders may remove any director from office for cause. The vote of at least
three-quarters of the shares of HUBCO entitled to vote is required to amend or
repeal the provisions of HUBCO's certificate of incorporation relating to the
classification of the Board of Directors and the removal of directors.
HUBCO's certificate of incorporation contains a "minimum price"
provision. If a "related person" proposes to enter into certain "business
combinations" with HUBCO, the proposed transaction will require the affirmative
vote of at least three-quarters of the outstanding shares entitled to vote on
the transaction. This voting requirement is in effect unless either the proposed
transaction is first approved by a majority of HUBCO's directors or the
shareholders of HUBCO are offered consideration in an amount determined in
accordance with a formula contained in the certificate of incorporation. If
either of these tests are met, the proposed transaction need only be approved by
the vote otherwise required by law, the certificate of incorporation and any
agreement with a national securities exchange. A related person is defined in
the certificate of incorporation to include persons that, together with their
affiliates, own 10% or more of HUBCO's common stock.
Liquidation Rights
Upon a liquidation, dissolution or winding up of HUBCO, holders of
HUBCO common stock are entitled to share equally and ratably in assets available
for distribution after payment of debts and liabilities. However, if shares of
HUBCO preferred stock are outstanding at the time of liquidation, the shares of
preferred stock may have prior rights upon liquidation.
Assessment and Redemption
All outstanding shares of HUBCO common stock are fully paid and
nonassessable. The HUBCO common stock is not redeemable at the option of HUBCO
or the shareholders.
Preemptive and Conversion Rights
Holders of HUBCO common stock do not have conversion rights or
preemptive rights with respect to any securities of HUBCO.
Description of HUBCO Series B Preferred Stock
General
Five hundred shares of HUBCO Series B Convertible Preferred Stock
remain outstanding as of December 31, 1998. This is the only series of preferred
stock outstanding. The following is a description of the existing HUBCO Series B
Preferred Stock.
Dividend Rights
Holders of HUBCO Series B Preferred Stock are entitled to dividends
when, as and if declared by the Board of Directors of HUBCO out of funds legally
available for the payment of dividends. All dividends declared on the HUBCO
Series B Preferred Stock are pro rata per share and noncumulative. The only
statutory limitation is that such dividends may not be paid when HUBCO is
insolvent. However, declaring dividends for preferred stock is subject to the
same practical limitations as declaring dividends for common stock. For the
practical limitations, see "Dividend Rights" on page 38.
Liquidation Rights
The holders of HUBCO Series B Preferred Stock are entitled to receive
$100 per share in any liquidation, dissolution or winding up of HUBCO, subject
to the rights of creditors. These entitlements will be distributed pro rata out
of the net assets of HUBCO legally available for distribution before any
distributions are made with respect to any stock junior to the rights of HUBCO
Series B Preferred Stock.
Redemption
The HUBCO Series B Preferred Stock is not redeemable at the option of
the issuer or the holders thereof.
Preemptive and Conversion Rights
Holders of HUBCO Series B Preferred Stock have an option to convert
such stock into fully paid and shares of HUBCO common stock. As of December 31,
1998, the conversion ratio was 33.2175 shares of common stock for each share of
HUBCO Series B Preferred Stock. This conversion ratio is subject to adjustment
upon certain events.
Voting Rights
Holders of shares of HUBCO Series B Preferred Stock vote together as a
class with holders of HUBCO common stock for the election of directors and all
other matters to which holders of HUBCO common stock are entitled to vote. Each
share of HUBCO Series B Preferred Stock is entitled to a number of votes equal
to the conversion ratio as it may be adjusted from time to time.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF HUBCO AND LITTLE FALLS
At the time the merger takes effect, certain Little Falls shareholders
will become shareholders of HUBCO. Because HUBCO and Little Falls are both
corporations incorporated in New Jersey under the New Jersey Business
Corporation Act, any differences in the rights of their shareholders are due to
difference in the certificates of incorporation and by-laws of the two
companies. The following is a comparison of certain provisions of the
certificates of incorporation and by-laws of Little Falls and HUBCO, and a
description of certain provisions of the New Jersey Business Corporation Act
applicable to HUBCO and Little Falls. This summary is qualified by reference to
the New Jersey Business Corporation Act, which may change from time to time, and
the certificates of incorporation and by-laws of HUBCO and Little Falls, which
also may be changed.
Voting Requirements
Under the Business Corporation Act, unless a greater vote is specified
in the certificate of incorporation, the affirmative vote of a majority of the
votes cast by shareholders entitled to vote on the matter is required to
approve:
* an amendment to the certificate of incorporation;
* the voluntary dissolution of the corporation;
* the sale or other disposition of all or substantially all of the
corporation's assets outside the ordinary course of business; or
* the merger or consolidation of the corporation with another
corporation.
HUBCO's certificate of incorporation presently contains provisions
specifying a seventy-five percent vote of the shares entitled to vote in the
following circumstances in certain transactions involving certain "related
persons." See "Voting Rights" on page 38.
Under Little Falls' certificate of incorporation, repeal, alteration,
amendment or rescission of certain provisions in Little Falls' certificate of
incorporation requires the approval of holders of at least 80% of the
outstanding shares of capital stock eligible to be cast at a meeting for the
election of directors. The provisions subject to the 80% stockholder approval
requirement include provisions relating to:
* preemptive rights;
* special meetings of stockholders;
* stockholder nominations and proposals;
* size and classification of the board of directors;
* removal of directors;
* limitations on voting rights;
* approval of certain business combinations;
* liability of directors and officers;
* indemnification;
* amendment of Little Falls by-laws; and
* amendment of the 80% shareholder approval requirement itself.
Little Falls' certificate of incorporation presently contains
provisions specifying an 80% vote of the shares entitled to vote in the approval
of certain business combinations involving interested stockholders. However,
this 80% requirement does not apply to any business combination approved by
two-thirds of the Little Falls directors.
Removal of Directors; Number of Directors
The Business Corporation Act allows for the removal of directors for
cause by the affirmative vote of the majority of the votes cast by shareholders
entitled to vote for the election of directors. HUBCO's certificate of
incorporation states that shareholders may remove a director from office only
for cause. HUBCO's certificate of incorporation also allows shareholders to
increase or decrease the number of directors constituting the Board by the
affirmative vote of at least three-quarters of all of the outstanding shares of
common stock entitled to vote.
Little Falls' certificate of incorporation provides that two criteria
must be met to remove directors from the board. The criteria are:
(1) there must be cause for the removal; and
(2) the removal is by an affirmative vote of at least 80% of the
outstanding shares entitled to vote or by the majority vote by
the board of directors.
Little Falls' by-laws provide that the number of Little Falls directors
must be between 5 and 21, but the exact number is determined by two-thirds vote
of the directors. Vacancies in the board of directors of Little Falls and newly
created directorships are filled by a majority vote of the directors then in
office.
Classified Board of Directors
The Business Corporation Act permits a New Jersey corporation to
provide for a classified board in its certificate of incorporation. HUBCO
currently has a classified Board of Directors. Both HUBCO's and Little Falls
Boards are divided into three classes, with one class of directors generally
elected for a three-year term at each annual meeting.
HUBCO's certificate of incorporation also allows shareholders to amend
or repeal the certificate of incorporation relating to classification of
directors by the affirmative vote of at least three-quarters of all of the
outstanding shares of common stock entitled to vote, while Little Falls'
certificate of incorporation requires a vote of at least 80% of all the
outstanding shares.
Preferred Stock
The authorized capital stock of HUBCO consists of 53,045,000 shares of
common stock and 10,300,000 shares of preferred stock. As of December 31, 1998,
40,411,521 shares of HUBCO common stock were issued and outstanding, and 500
shares of HUBCO Series B Preferred Stock were outstanding.
HUBCO's certificate of incorporation, gives the Board the authority at
any time to:
* divide the authorized, but unissued, shares of preferred stock into
series;
* determine the designations, number of shares, relative rights,
preferences and limitations of any series of preferred stock;
* increase the number of shares of any preferred series; and
* decrease the number of shares in a preferred series, but not to a
number less than the number of shares outstanding.
Little Falls has authorized 5,000,000 shares of preferred stock, $0.10
par value, none of which is outstanding.
Shareholder Consent to Corporate Action
With certain exceptions, the Business Corporation Act permits
shareholders to take action without a meeting by written consent of at least the
minimum number of shareholders who would have been entitled to approve the
action at a meeting of shareholders at which all were present and voting. No
such action by written consent can be taken if the corporation's certificate of
incorporation provides otherwise. Little Falls' certificate of incorporation
provides that the power for shareholders to take action by non-unanimous action
is specifically denied. HUBCO's certificate of incorporation presently is silent
on this issue. The annual election of directors, if not conducted at a
shareholder meeting, may only be effected by unanimous written consent.
The Business Corporation Act provides that a shareholder vote on a plan
of merger or consolidation may be effected only
* at a shareholders' meeting;
* by unanimous written consent of all shareholders entitled to vote on
the issue; or
* by written consent of shareholders that would have been entitled to
cast the minimum number of votes necessary to authorize the action
at a meeting, with advance notice given to all other shareholders.
Dividends
The Business Corporation Act generally provides that a New Jersey
corporation may declare and pay dividends on its outstanding stock so long as
the corporation is not insolvent and would not become insolvent as a consequence
of the dividend payment. HUBCO's certificate of incorporation does not presently
contain any restriction on HUBCO's ability to pay dividends. Funds for the
payment of dividends by HUBCO must come primarily from the earnings of HUBCO's
bank subsidiaries. Thus, as a practical matter, any restrictions on the ability
of Hudson United Bank to pay dividends act as restrictions on the amount of
funds available for the payment of dividends by HUBCO. At December 31, 1998,
HUBCO had approximately $235 million available for shareholder dividends. For a
description of the regulatory restrictions on dividend payments by Hudson United
Bank, see "Dividend Rights" on page 38.
Little Falls' certificate of incorporation provides that dividends may
be paid on the common stock out of any assets legally available for the payment
of dividends, but only when as declared by the board of directors of Little
Falls. Like HUBCO, funds for the payment of dividends by Little Falls must come
primarily from the earnings of its subsidiary, Little Falls Bank. Generally,
Little Falls Bank may not declare or pay a cash dividend on any of its stock if
the effect of the dividend would cause the bank's regulatory capital account to
be reduced below:
* the amount required for the liquidation account established in
connection with the bank's conversion from mutual to stock form; or
* the regulatory capital requirements imposed by the OTS.
By-laws
Under the Business Corporation Act, the board of directors of a New
Jersey corporation has the power to adopt, amend, or repeal the corporation's
by-laws, unless such powers are reserved in the certificate of incorporation to
the shareholders. HUBCO's certificate of incorporation does not presently
reserve such powers to shareholders. Little Falls' certificate of incorporation
provides that Little Falls' by-laws may be amended by a vote of two-thirds of
the Little Falls Board or by a vote of the holders of 80% of outstanding shares
of capital stock eligible to be cast at a meeting for the election of directors.
SHAREHOLDER PROPOSALS
The New Jersey Business Corporation Act requires that the notice of
shareholders' meeting (for either a regular or special meeting) specify the
purpose or purposes of such meeting. Thus, shareholder proposals must be
referred to in Little Falls' notice of shareholders' meeting for such proposal
to be validly considered at an annual meeting of Little Falls.
Little Falls will hold its 1999 Annual meeting only if the merger is
not completed. Any Little Falls shareholder who wishes to have a proposal
included in Little Falls' notice of shareholders' meeting, proxy statement and
proxy card for its 1999 Annual meeting must submit the proposal to Little Falls
by the applicable deadline. The deadline was December 5, 1998, subject to change
as noted below.
If Little Falls changes its 1999 Annual meeting date to a date more
than 30 days from the date of its 1998 Annual meeting, then the deadline
referred to in the preceding paragraph will be changed to a reasonable time
before Little Falls begins to print and mail its proxy materials. If Little
Falls changes the date of the 1999 Annual meeting in a manner which alters the
deadline, Little Falls will so state under Item 5 of the first quarterly report
on Form 10-Q it files with the SEC after the date change, or will notify its
shareholders by another reasonable means.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by HUBCO (Company File No. 001-08660)
with the SEC are hereby incorporated in this proxy statement-prospectus:
* Annual Report on Form 10-K for the year ended December 31, 1998
* Current Reports on Form 8-K filed with the SEC on January 28, 1999
* The description of HUBCO common stock set forth in HUBCO's
Registration Statement on Form 8-A filed by HUBCO pursuant to
Section 12 of the Exchange Act, and any amendment or report filed
for the purpose of updating such description
The following documents filed by Little Falls (Company File No.
0-27010) with the SEC are hereby incorporated in this proxy
statement-prospectus:
* Form 10-K/A and 1998 Annual Report to Stockholders for the year
ended December 31, 1998
* Current Reports on Form 8-K filed with the SEC on January 27, 1999
* The description of Little Falls common stock set forth in Little
Falls' Registration Statement on Form 8-A filed by Little Falls
pursuant to Section 12 of the Exchange Act, and any amendment or
report filed for the purpose of updating such description
All documents filed by HUBCO or Little Falls pursuant to Sections
13(a), 13(c), 14, or 15(d) of the Exchange Act after the date of this document
but before the earlier of (1) the date of the Little Falls meeting, or (2) the
termination of the merger agreement, are hereby incorporated by reference into
this document and shall be deemed a part of this document from the date they are
filed.
Little Falls' Form 10-K/A and Annual Report to Stockholders for year
ended December 31, 1998 are attached as Appendix D and E and have been sent
along with this proxy statement-prospectus.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this proxy
statement-prospectus to the extent that a statement contained herein or in any
subsequently filed document which is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this proxy statement-prospectus.
The public may read and copy any documents HUBCO or Little Falls file
with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, DC 20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an Internet site that contains reports, proxy and information
statements, and other information about HUBCO and Little Falls at
http://www.sec.gov.
<PAGE>
OTHER MATTERS
As of the date of this proxy statement, the Little Falls Board of
Directors knows of no other matters to be presented for action by the
shareholders at the meeting. If any other matters are properly presented,
however, it is the intention of the persons named in the enclosed proxy to vote
in accordance with their best judgment on such matters.
LEGAL OPINION
Pitney, Hardin, Kipp & Szuch, counsel to HUBCO, will pass upon certain
legal matters relating to the issuance of the shares of HUBCO common stock
offered hereby and certain tax consequences of the merger.
EXPERTS
The consolidated financial statements of HUBCO as of December 31, 1998
and 1997 and for each of the years in the three year period ended December 31,
1998, incorporated by reference herein, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of Little Falls as of December
31, 1998 and 1997 and for each of the years in the three year period ended
December 31, 1998, incorporated by reference herein, have been audited by Radics
& Co., LLC, independent public accountants, as indicated in their report with
respect thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in accounting and auditing.
Representatives of Radics & Co., LLC will be present at the meeting.
They will be given an opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions from shareholders
present at the meeting.
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of January 26,
1999 ("Agreement"), is among HUBCO, Inc. ("HUBCO"), a New Jersey corporation and
registered bank holding company, Hudson United Bank (the "Bank"), a New Jersey
state-chartered commercial banking corporation and wholly-owned subsidiary of
HUBCO, Little Falls Bancorp, Inc., a New Jersey corporation and registered
savings and loan holding company ("LFB"), and Little Falls Bank, a
federally-chartered savings bank and wholly-owned subsidiary of LFB (the
"Association").
RECITALS
The respective Boards of Directors of HUBCO and LFB have each
determined that it is in the best interests of HUBCO and LFB and their
respective shareholders for HUBCO to acquire LFB by merging LFB with and into
HUBCO with HUBCO surviving and LFB shareholders receiving the consideration
hereinafter set forth. Immediately after the merger of LFB into HUBCO, the
Association shall be merged with and into the Bank with the Bank surviving.
The respective Boards of Directors of LFB, HUBCO, the Bank and
the Association have each duly adopted and approved this Agreement and the Board
of Directors of LFB has directed that it be submitted to LFB's shareholders for
approval.
As a condition for HUBCO to enter into this Agreement, HUBCO
has required that it receive an option on certain authorized but unissued shares
of LFB Common Stock (as hereinafter defined) and, simultaneously with the
execution of this Agreement, LFB is issuing an option to HUBCO (the "HUBCO Stock
Option") to purchase certain shares of the authorized and unissued LFB Common
Stock subject to the terms and conditions set forth in the Agreement governing
the HUBCO Stock Option.
NOW, THEREFORE, intending to be legally bound, the parties
hereto hereby agree as follows:
ARTICLE I - THE MERGER
1.1. The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as hereafter defined), LFB shall be merged
with and into HUBCO (the "Merger") in accordance with the New Jersey Business
Corporation Act (the "NJBCA") and HUBCO shall be the surviving corporation (the
"Surviving Corporation").
1.2. Effect of the Merger. At the Effective Time, the
Surviving Corporation shall be considered the same business and corporate entity
as each of HUBCO and LFB and thereupon and thereafter, all the property, rights,
privileges, powers and franchises of each of HUBCO and LFB shall vest in the
Surviving Corporation and the Surviving Corporation shall be subject to and be
deemed to have assumed all of the debts, liabilities, obligations and duties of
each of HUBCO and LFB and shall have succeeded to all of each of their
relationships, as fully and to the same extent as if such property, rights,
privileges, powers, franchises, debts, liabilities, obligations, duties and
relationships had been originally acquired, incurred or entered into by the
Surviving Corporation. In addition, any reference to either of HUBCO and LFB in
any contract or document, whether executed or taking effect before or after the
Effective Time, shall be considered a reference to the Surviving Corporation if
not inconsistent with the other provisions of the contract or document; and any
pending action or other judicial proceeding to which either of HUBCO or LFB is a
party shall not be deemed to have abated or to have discontinued by reason of
the Merger, but may be prosecuted to final judgment, order or decree in the same
manner as if the Merger had not been made; or the Surviving Corporation may be
substituted as a party to such action or proceeding, and any judgment, order or
decree may be rendered for or against it that might have been rendered for or
against either of HUBCO or LFB if the Merger had not occurred.
1.3. Certificate of Incorporation. As of the Effective Time,
the certificate of incorporation of HUBCO shall be the certificate of
incorporation of the Surviving Corporation until otherwise amended as provided
by law.
1.4. Bylaws. As of the Effective Time, the Bylaws of HUBCO
shall be the Bylaws of the Surviving Corporation until otherwise amended as
provided by law.
1.5. Directors and Officers. As of the Effective Time, the
directors and officers of HUBCO shall be the directors and officers of the
Surviving Corporation.
1.6 Closing, Closing Date, Determination Date and Effective
Time. Unless a different date, time and/or place are agreed to by the parties
hereto, the closing of the Merger (the "Closing") shall take place at 10:00
a.m., at the offices of Pitney, Hardin, Kipp & Szuch, 200 Campus Drive, Florham
Park, New Jersey, on a date determined by HUBCO on at least five business days
notice (the "Closing Notice") given to LFB, which date (the "Closing Date")
shall be not more than twenty (20) business days following the receipt of all
necessary regulatory, governmental and shareholder approvals and consents and
the expiration of all statutory waiting periods in respect thereof and the
satisfaction or waiver of all of the conditions to the consummation of the
Merger specified in Article VI hereof (other than the delivery of certificates,
opinions and other instruments and documents to be delivered at the Closing). In
the Closing Notice, HUBCO shall specify the "Determination Date" for purposes of
determining the Median Pre-Closing Price (as hereinafter defined), which date
shall be the first date on which all bank regulatory approvals (and waivers, if
applicable) necessary for consummation of the Merger have been received
(disregarding any waiting period) and either party has notified the other in
writing that all such approvals (and waivers, if applicable) have been received.
Simultaneous with or immediately following the Closing, HUBCO and LFB shall
cause to be filed a certificate of merger, in form and substance satisfactory to
HUBCO and LFB, with the Secretary of State of the State of New Jersey (the
"Certificate of Merger"). The Certificate of Merger shall specify the "Effective
Time" of the Merger, which Effective Time shall be a date and time following the
Closing agreed to by HUBCO and LFB (which date and time the parties currently
anticipate will be the close of business on the Closing Date). In the event the
parties fail to specify the date and time in the Certificate of Merger, the
Merger shall become effective upon (and the "Effective Time" shall be) the time
of the filing of the Certificate of Merger.
1.7 The Bank Merger. Immediately following the Effective Time,
the Association shall be then merged with and into the Bank (the "Bank Merger")
in accordance with the provisions of the New Jersey Banking Act of 1948, as
amended (the "Banking Act"). In the Bank Merger, the Bank shall be the surviving
bank (the "Surviving Bank"). Upon the consummation of the Bank Merger, the
separate existence of the Association shall cease and the Surviving Bank shall
be considered the same business and corporate entity as each of the Association
and the Bank and all of the property, rights, privileges, powers and franchises
of each of the Association and the Bank shall vest in the Surviving Bank and the
Surviving Bank shall be deemed to have assumed all of the debts, liabilities,
obligations and duties of each of the Association and the Bank and shall have
succeeded to all or each of their relationships, fiduciary or otherwise, as
fully and to the same extent as if such property, rights, privileges, powers,
franchises, debts, obligations, duties and relationships had been originally
acquired, incurred or entered into by the Surviving Bank. Upon the consummation
of the Bank Merger, the certificate of incorporation and Bylaws of the Bank
shall be the certificate of incorporation and Bylaws of the Surviving Bank and
the officers and directors of the Bank shall be the officers and directors of
the Surviving Bank. Following the execution of this Agreement, the Association
and the Bank shall execute and deliver a merger agreement (the "Bank Merger
Agreement"), both in form and substance reasonably satisfactory to the parties
hereto, substantially as set forth in Exhibit 1.7 hereto, for delivery to the
Commissioner of the New Jersey Department of Banking and Insurance (the
"Department"), the Federal Deposit Insurance Corporation (the "FDIC"), and the
Office of Thrift Supervision (the "OTS") for approval of the Bank Merger.
1.8 Liquidation Account. The liquidation account established
by the Association pursuant to the plan of conversion adopted in connection with
its conversion from mutual to stock form shall, to the extent required by
applicable law, continue to be maintained by HUBCO after the Bank Merger for the
benefit of those persons and entities who were savings account holders of the
Association on the eligibility and supplemental eligibility record dates for
such conversion and who continue from time to time to have rights therein. If
acquired by the rules and regulations of the OTS, the Surviving Bank will amend
its certificate of incorporation to provide specifically for the continuation of
the liquidation account previously established by the Association.
ARTICLE II - CONVERSION OF LFB SHARES
2.1. Conversion of LFB Common Stock. Each share of common
stock, par value $0.10 per share, of LFB ("LFB Common Stock"), issued and
outstanding immediately prior to the Effective Time (other than Excluded Shares,
as hereinafter defined) shall, by virtue of the Merger and without any action on
the part of the holder thereof, be converted as follows:
(a) Exchange Ratio and Cash Election. Subject to the other
provisions of this Section 2.1, each share of LFB Common Stock issued and
outstanding immediately prior to the Effective Time (other than Excluded Shares,
as hereinafter defined) shall be converted at the Effective Time into (i) the
right to receive 0.65 shares (the "Exchange Ratio") of common stock, no par
value ("HUBCO Common Stock") of HUBCO, or (ii) the right to receive $20.64 in
cash, without interest (the "Per Share Cash Amount"), or (iii) the right to
receive a combination of shares of HUBCO Common Stock and cash determined in
accordance with subparagraph (d) of this Section 2.1; provided, however, that,
(i) in any event, if between the date of this Agreement and
the Effective Time the outstanding shares of HUBCO Common Stock shall have been
changed into a different number of shares or a different class, by reason of any
stock dividend, stock split, reclassification, recapitalization, combination or
exchange of shares, the Exchange Ratio, the Median Pre-Closing Price and related
items shall be correspondingly adjusted to reflect such stock dividend, stock
split, reclassification; and
(ii) If the Median Pre-Closing Price of HUBCO Common Stock is
$29.00 or less, the Exchange Ratio shall be increased, but not beyond 0.7000, to
a number (rounded to four decimals) equal to the quotient, the numerator of
which is $19.00 and the denominator of which is the Median Pre-Closing Price of
HUBCO Common Stock. If the Median Pre-Closing Price of HUBCO Common Stock is
$34.50 or more, the Exchange Ratio shall be decreased, but not beyond 0.6000, to
a number (rounded to four decimals) equal to the quotient, the numerator of
which is $22.3795 and the denominator of which is the Median Pre-Closing Price
of HUBCO Common Stock; and
(iii) The "Median Pre-Closing Price" shall be determined by
taking the price half-way between the Closing Prices left after discarding the 4
lowest and 4 highest Closing Prices in the 10 consecutive trading day period
which ends on (and includes) the Determination Date. The "Closing Price" shall
mean the closing price of HUBCO Common Stock as supplied by the NASDAQ Stock
Market and published in The Wall Street Journal. A "trading day" shall mean a
day for which a Closing Price is so supplied and published. (The NASDAQ Stock
Market, or such other national securities exchange on which HUBCO Common Stock
may be traded after the date hereof, is referred to herein as "NASDAQ").
After the Effective Time, all such shares of LFB Common Stock
shall no longer be outstanding and shall automatically be cancelled and retired
and shall cease to exist, and each certificate previously evidencing any such
shares shall thereafter represent the right to receive the Merger Consideration
(as defined in Section 2.2(b)). The holders of such certificates previously
evidencing such shares of LFB Common Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such shares of LFB
Common Stock except as otherwise provided herein or by law. Such certificates
previously evidencing such shares of LFB Common Stock shall be exchanged for (i)
certificates evidencing shares of HUBCO Common Stock issued in accordance with
the allocation procedures of this Section 2.1 and/or (ii) cash payable in
accordance with the allocation procedures of this Section 2.1, in each case upon
the surrender of such certificates in accordance with the provisions of Section
2.2, without interest. No fractional shares of HUBCO Common Stock may be issued,
and, in lieu thereof, a cash payment shall be made pursuant to Section 2.2(e).
(b) Ratio of HUBCO Common Stock to Cash. Subject to Section
2.1(k), the number of shares of LFB Common Stock to be converted into the right
to receive cash in the Merger (the "Cash Election Number") shall be equal to 49%
(the "Cash Percentage") of the number of shares of LFB Common Stock outstanding
immediately prior to the Effective Time. Subject to Section 2.1(k), the number
of shares of LFB Common Stock to be converted into the right to receive HUBCO
Common Stock in the Merger (the "Stock Election Number") shall be equal to 51%
(the "Stock Percentage") of the number of shares of LFB Common Stock outstanding
immediately prior to the Effective Time.
(c) Elections by Holders of Stock or Cash. Subject to the
allocation and election procedures set forth in this Section 2.1, each record
holder immediately prior to the Effective Time of shares of LFB Common Stock
will be entitled (i) to elect to receive cash for all of such shares (a "Cash
Election"), (ii) to elect to receive HUBCO Common Stock for all of such shares
(a "Stock Election"), or (iii) to indicate that such record holder has no
preference as to the receipt of cash or HUBCO Common Stock for such shares (a
"Non-Election"). All such elections shall be made on a form designed for that
purpose (a "Form of Election") and in form and substance satisfactory to HUBCO
and LFB. Holders of record of shares of LFB Common Stock who hold such shares as
nominees, trustees or in other representative capacities (a "Representative")
may submit multiple Forms of Election, provided that each such Form of Election
covers all the shares of LFB Common Stock held by each Representative for a
particular beneficial owner.
(d) Oversubscription for Cash Election. If the aggregate
number of shares of LFB Common Stock covered by Cash Elections (the "Cash
Election Shares") exceeds the Cash Election Number, all shares of LFB Common
Stock covered by Stock Elections (the "Stock Election Shares") and all shares of
LFB Common Stock covered by Non-Elections (the "Non-Election Shares") shall be
converted into the right to receive HUBCO Common Stock, and the Cash Election
Shares shall be converted into the right to receive HUBCO Common Stock and cash
in the following manner:
(i) the Exchange Agent (as hereinafter defined) will select
from among the holders of Cash Election Shares, by random selection, a
sufficient number of such holders ("Stock Designees") such that the
number of shares of LFB Common Stock held by the Stock Designees will,
when added to the number of Stock Election Shares and Non-Election
Shares, be equal as closely as practicable to the Stock Election
Number, and all such Shares of LFB Common Stock held by the Stock
Designees shall be converted into the right to receive HUBCO Common
Stock; and
(ii) the Cash Election Shares not held by Stock Designees
shall be converted into the right to receive cash.
(e) Oversubscription for Stock Election. If the aggregate
number of Stock Election Shares exceeds the Stock Election Number, all Cash
Election Shares and all Non-Election Shares shall be converted into the right to
receive cash, and all Stock Election Shares shall be converted into the right to
receive HUBCO Common Stock or the right to receive cash in the following manner:
(i) the Exchange Agent (as hereinafter defined) will select
from among the holders of Stock Election Shares, by random selection, a
sufficient number of such holders ("Cash Designees") such that the
number of shares of LFB Common Stock held by the Cash Designees will,
when added to the number of Cash Election Shares and Non-Election
Shares, be equal as closely as practicable to the Cash Election Number,
and all such Shares of LFB Common Stock held by the Cash Designees
shall be converted into the right to receive cash; and
(ii) the Stock Election Shares not held by Cash Designees
shall be converted into the right to receive HUBCO Common Stock.
(f) Selection of Non-Election Shares If No Oversubscription.
In the event that neither paragraph (d) nor subparagraph (e) above is
applicable, all Cash Election Shares shall be converted into the right to
receive cash, all Stock Election Shares shall be converted into the right to
receive HUBCO Common Stock, and the Non-Election Shares shall be converted into
either the right to receive HUBCO Common Stock or the right to receive cash by
random selection by the Exchange Agent so that the Stock Election Number and the
Cash Election Number equal their respective percentages of the number of shares
of LFB Common Stock outstanding as closely as possible.
The random selection process to be used by the Exchange Agent
pursuant to paragraphs (e) and (f) of this Section 2.1 will consist of drawing
by lot or such other process (other than pro rata selection) as the Exchange
Agent deems equitable and necessary to effect the allocations described in such
paragraphs. A selection will be disregarded if, as a consequence, the Stock
Election Number or the Cash Election Number would be exceeded by more than 1,000
shares.
(g) Procedures for Holders' Elections. Elections shall be made
by holders of LFB Common Stock by mailing to the Exchange Agent a Form of
Election. To be effective, a Form of Election must be properly completed, signed
and submitted to the Exchange Agent by the holder and accompanied by the
certificates representing the shares of LFB Common Stock as to which the
election is being made (or properly completed, signed and submitted to the
Exchange Agent by an appropriate bank or trust company in the United States or a
member of a registered national securities exchange or the National Association
of Securities Dealers, Inc. (the "NASD")). HUBCO will have the discretion, which
it may delegate in whole or in part to the Exchange Agent, to determine whether
Forms of Election have been properly completed, signed and submitted and to
disregard immaterial defects in Forms of Election. The good faith decision of
HUBCO (or the Exchange Agent) in such matters shall be conclusive and binding,
provided that HUBCO (and the Exchange Agent) does not act unreasonably and shall
promptly notify LFB of its decision in writing. Neither HUBCO nor the Exchange
Agent will be under any obligation to, but HUBCO and the Exchange Agent may (if
they choose to do so), notify any person of any defect in a Form of Election
submitted to the Exchange Agent. The Exchange Agent shall also make all
computations contemplated by this Section 2.1 and all such computations shall be
conclusive and binding on the holders of LFB Common Stock, provided that the
Exchange Agent does not act unreasonably.
(h) Failure of Holder to Elect. For the purposes hereof, a
holder of LFB Common Stock who does not submit a Form of Election which is
received by the Exchange Agent prior to the Election Deadline (as hereinafter
defined) shall be deemed to have made a Non-Election. If HUBCO or the Exchange
Agent shall determine that any purported Cash Election or Stock Election was not
properly made, such purported Cash Election or Stock Election shall, unless
cured by the Election Deadline (as hereafter defined), be deemed to be of no
force and effect and the shareholder or Representative making such purported
Cash Election or Stock Election shall, for purposes hereof, be deemed to have
made a Non-Election.
(i) Mailing of Election Forms to Holders and Deadline. HUBCO
and LFB shall each use its best efforts to mail the Form of Election to all
persons who are holders of record of LFB Common Stock on the record date for the
Stockholders Meeting (as defined in Section 5.7) and who become holders of LFB
Common Stock during the period between the record date for the Stockholders
Meeting and 10:00 a.m. New York time, on at least the date fifteen calendar days
prior to the anticipated Effective Time and to make the Form of Election
available to all persons who become holders of LFB Common Stock subsequent to
such day and no later than the close of business on the Election Deadline. A
Form of Election must be received by the Exchange Agent by the close of business
on the third business day prior to the Closing (the "Election Deadline") in
order to be effective. All elections will be irrevocable.
(j) Excluded Shares. Each share of LFB Common Stock held in
the treasury of LFB or any of LFB's wholly-owned subsidiaries and each share of
LFB Common Stock owned by HUBCO or any of HUBCO's wholly-owned subsidiaries
(other than shares held as trustee or in a fiduciary capacity and shares held as
collateral on or in lieu of a debt previously contracted) immediately prior to
the Effective Time ("Excluded Shares") shall be cancelled; provided, however,
that the LFB Common Stock held by the LFB Employee Stock Ownership Plan and
Trust (the "LFB ESOP") and the Little Falls Bank Management Stock Bonus Plan
(the "LFB MSBP") and the 1998 Directors Stock Compensation Plan and the 1997
Directors Stock Compensation Plan shall not be covered by this paragraph.
(k) Increase in Stock Election Number Due to Tax Opinion. If
the tax opinion referred to in Section 6.1(d) and to be delivered at the Closing
(The "Tax Opinion") cannot be rendered (as reasonably determined by Pitney,
Hardin, Kipp & Szuch and concurred in by Malizia, Spidi, Sloane & Fisch, P.C.)
as a result of the Merger potentially failing to satisfy continuity of interest
requirements under applicable federal income tax principles relating to
reorganizations under Section 368(a) of the Code (as hereafter defined in
Section 3.8), then the Stock Percentage shall be automatically increased and the
Cash Percentage shall be automatically decreased to the minimum extent necessary
to enable the Tax Opinion to be rendered.
2.2. Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, HUBCO shall
deposit, or shall cause to be deposited, with a bank or trust company designated
by HUBCO, which may be Hudson United Bank, Trust Department (the "Exchange
Agent"), for the benefit of the holders of shares of LFB Common Stock, for
exchange in accordance with this Article II, through the Exchange Agent,
certificates evidencing shares of HUBCO Common Stock and cash in such amount
that the Exchange Agent possesses such number of shares of HUBCO Common Stock
and such amount of cash as are required to provide all of the consideration
required to be exchanged by HUBCO pursuant to the provisions of this Article II
(such certificates for shares of HUBCO Common Stock, together with any dividends
or distributions with respect thereto, and cash being hereinafter referred to as
the "Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable
instructions, deliver the HUBCO Common Stock and cash out of the Exchange Fund
in accordance with Section 2.1. Except as contemplated by Section 2.2(f) hereof,
the Exchange Fund shall not be used for any other purpose.
(b) Exchange Procedures. As soon as reasonably practicable
either before or after the Effective Time, HUBCO will instruct the Exchange
Agent to mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time evidenced outstanding shares of LFB
Common Stock (the "Certificates"), (i) a letter of transmittal (which is
reasonably agreed to by HUBCO and LFB and shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Exchange Agent and shall be in such
form and have such other provisions as HUBCO may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates evidencing shares of HUBCO Common Stock or cash. Upon surrender
of a Certificate for cancellation to the Exchange Agent together with such
letter of transmittal, duly executed, and such other customary documents as may
be required pursuant to such instructions, the holder of such Certificate shall
be entitled to receive in exchange therefor (A) certificates evidencing that
number of whole shares of HUBCO Common Stock which such holder has the right to
receive in respect of the shares of LFB Common Stock formerly evidenced by such
Certificate in accordance with Section 2.1, (B) cash to which such holder is
entitled to receive in respect of the shares of LFB Common Stock formerly
evidenced by such Certificate in accordance with Section 2.1, (C) cash in lieu
of fractional shares of HUBCO Common Stock to which such holder may be entitled
pursuant to Section 2.2(e) and (D) any dividends or other distributions to which
such holder is entitled pursuant to Section 2.2(c), (the shares of HUBCO Common
Stock, dividends, distributions and cash described in clauses (A), (B), (C) and
(D) being collectively, the "Merger Consideration") and the Certificate so
surrendered shall forthwith be cancelled. In the event of a transfer of
ownership of shares of LFB Common Stock which is not registered in the transfer
records of LFB, a certificate evidencing the proper number of shares of HUBCO
Common Stock and/or cash may be issued and/or paid in accordance with this
Article II to a transferee if the Certificate evidencing such shares of LFB
Common Stock is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.2, each Certificate shall be deemed at any time
after the Effective Time to evidence only the right to receive upon such
surrender the applicable type and amount of Merger Consideration.
(c) Distributions with Respect to Unexchanged Shares of HUBCO
Common Stock. No dividends or other distributions declared or made after the
Effective Time with respect to HUBCO Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of HUBCO Common Stock evidenced thereby, and no other part
of the Merger Consideration shall be paid to any such holder, until the holder
of such Certificate shall surrender such Certificate. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to the holder of the certificates evidencing shares of HUBCO Common Stock
issued in exchange therefor, without interest, (i) promptly, the amount of any
cash payable with respect to a fractional share of HUBCO Common Stock to which
such holder may have been entitled pursuant to Section 2.2(e) and the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such shares of HUBCO Common Stock, and (ii) at
the appropriate payment date, the amount of dividends or other distributions,
with a record date after the Effective Time but prior to surrender and a payment
date occurring after surrender, payable with respect to such shares of HUBCO
Common Stock. No interest shall be paid on the Merger Consideration.
(d) No Further Rights in LFB Common Stock. All shares of HUBCO
Common Stock issued and cash paid upon conversion of the shares of LFB Common
Stock in accordance with the terms hereof shall be deemed to have been issued or
paid in full satisfaction of all rights pertaining to such shares of LFB Common
Stock.
(e) No Fractional Shares. No certificates or scrip evidencing
fractional shares of HUBCO Common Stock shall be issued upon the surrender for
exchange of Certificates and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a stockholder of HUBCO. Cash shall
be paid in lieu of fractional shares of HUBCO Common Stock, based upon the
Median Pre-Closing Price of HUBCO Common Stock.
(f) Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the holders of LFB Common Stock for two
years after the Effective Time shall be delivered to HUBCO, upon demand, and any
holders of LFB Common Stock who have not theretofore complied with this Article
II shall thereafter look only to HUBCO for the Merger Consideration to which
they are entitled.
(g) No Liability. Neither HUBCO nor the Bank shall be liable
to any holder of shares of LFB Common Stock for any such shares of HUBCO Common
Stock or cash (or dividends or distributions with respect thereto) delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
(h) Withholding Rights. HUBCO shall be entitled to deduct and
withhold, or cause the Exchange Agent to deduct and withhold, from funds
provided by the holder or from the consideration otherwise payable pursuant to
this Agreement to any holder of LFB Common Stock, the minimum amounts (if any)
that HUBCO is required to deduct and withhold with respect to the making of such
payment under the Code (as defined in Section 3.8), or any provision of state,
local or foreign tax law. To the extent that amounts are so withheld by HUBCO,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of LFB Common Stock in respect of which such
deduction and withholding was made by HUBCO.
2.3. Stock Transfer Books. At the Effective Time, the stock
transfer books of LFB shall be closed and there shall be no further registration
of transfers of shares of LFB Common Stock thereafter on the records of LFB. On
or after the Effective Time, any Certificates presented to the Exchange Agent or
HUBCO for transfer shall be converted into the Merger Consideration.
2.4. LFB Stock Options. Other than the HUBCO Stock Option, all
options which may be exercised for issuance of LFB Common Stock (each, a "Stock
Option" and collectively the "Stock Options") are described in the LFB
Disclosure Schedule and are issued and outstanding pursuant to the LFB 1996
Stock Option Plan (the "LFB Stock Option Plan") and the agreements pursuant to
which such Stock Options were granted (each, an "Option Grant Agreement"). HUBCO
acknowledges and agrees to honor the provisions of the LFB Stock Option Plan and
the Option Grant Agreements, including those relating to vesting and conversion
in connection with a change in control of LFB. Each Stock Option outstanding at
the Effective Time (each, a "Continuing Stock Option") shall be converted into
an option to purchase HUBCO Common Stock, wherein (i) the right to purchase
shares of LFB Common Stock pursuant to the Continuing Stock Option shall be
converted into the right to purchase that same number of shares of HUBCO Common
Stock multiplied by the Exchange Ratio, (ii) the option exercise price per share
of HUBCO Common Stock shall be the previous option exercise price per share of
the LFB Common Stock divided by the Exchange Ratio, and (iii) in all other
material respects the option shall be subject to the same terms and conditions
as governed the Continuing Stock Option on which it was based, including the
length of time within which the option may be exercised (which shall not be
extended except that the holder of a Stock Option who continues in the service
of HUBCO or a subsidiary of HUBCO shall not be deemed to have terminated service
for purposes of determining the Continuing Stock Option exercise period) and for
all Continuing Stock Options, such adjustments shall be and are intended to be
effected in a manner which is consistent with Section 424(a) of the Code (as
defined in Section 3.8 hereof). Shares of HUBCO Common Stock issuable upon
exercise of Continuing Stock Options shall be covered by an effective
registration statement on Form S-8, and HUBCO shall use its reasonable best
efforts to file a registration statement on Form S-8 covering such shares as
soon as possible after the Effective Time.
2.5. HUBCO Common Stock. The shares of HUBCO Common Stock
outstanding or held in treasury immediately prior to the Effective Time shall
not be effected by the Merger but shall be the same number of shares of the
Surviving Corporation.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF LFB
References herein to "LFB Disclosure Schedule" shall mean all
of the disclosure schedules required by this Article III, dated as of the date
hereof and referenced to the specific sections and subsections of Article III of
this Agreement, which have been delivered on the date hereof by LFB to HUBCO.
LFB hereby represents and warrants to HUBCO as follows:
3.1. Corporate Organization.
(a) LFB is a corporation duly organized and validly
existing under the laws of the State of New Jersey. LFB has the corporate power
and authority to own or lease all of its properties and assets and to carry on
its business as it is now being conducted, and is duly licensed or qualified to
do business in each jurisdiction in which the nature of the business conducted
by it or the character or location of the properties and assets owned or leased
by it makes such licensing or qualification necessary, except where the failure
to be so licensed or qualified would not have a material adverse effect on the
business, operations, assets or financial condition of LFB and the LFB
Subsidiaries (as defined below), taken as a whole. LFB is registered as a
savings and loan holding company under the Home Owners' Loan Act, as amended
(the "HOLA").
(b) Each LFB Subsidiary and its jurisdiction of
incorporation is listed in the LFB Disclosure Schedule. For purposes of this
Agreement, the term "LFB Subsidiary" means any corporation, partnership, joint
venture or other legal entity in which LFB, directly or indirectly, owns at
least a 50% stock or other equity interest or for which LFB, directly or
indirectly, acts as a general partner, provided that to the extent that any
representation or warranty set forth herein covers a period of time prior to the
date of this Agreement, the term "LFB Subsidiary" shall include any entity which
was a LFB Subsidiary at any time during such period. The Association is a
federally chartered bank duly organized and validly existing in stock form under
the laws of the United States. All eligible accounts of depositors issued by the
Association are insured by the Savings Association Insurance Fund of the FDIC
(the "SAIF") or the Bank Insurance Fund of the FDIC ("BIF") to the fullest
extent permitted by law. Each LFB Subsidiary has the corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as it is now being conducted and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the business conducted by
it or the character or location of the properties and assets owned or leased by
it makes such licensing or qualification necessary, except where the failure to
be so licensed or qualified would not have a material adverse effect on the
business, operations, assets or financial condition of LFB and the LFB
Subsidiaries, taken as a whole.
(c) The LFB Disclosure Schedule sets forth true and
complete copies of the Certificate of Incorporation or Charter and Bylaws, as in
effect on the date hereof, of LFB and each LFB Subsidiary. Except as set forth
in Disclosure Schedule 3.1(b), the Association and LFB do not own or control,
directly or indirectly, any equity interest in any corporation, company,
association, partnership, joint venture or other entity.
3.2. Capitalization. The authorized capital stock of LFB
consists of 10,000,000 shares of LFB Common Stock and 5,000,000 shares of
preferred stock, $0.10 par value per share ("LFB Preferred Stock"). As of the
date hereof, there were 2,477,525 shares of LFB Common Stock issued and
outstanding and 564,225 treasury shares and no shares of LFB Preferred Stock
issued or outstanding. As of January 1, 1999, there were 247,161 shares of LFB
Common Stock issuable upon exercise of outstanding stock options. The LFB
Disclosure Schedule contains (i) a list of all Stock Options, their exercise
prices and expiration dates, and (ii) true and complete copies of the LFB Stock
Option Plan and a specimen of each form of Option Grant Agreement pursuant to
which any outstanding Stock Option was granted, including a list of each
outstanding Stock Option issued pursuant thereto. All Stock Options will be
fully vested on the Closing Date, in each case in accordance with the terms of
the LFB Stock Option Plan and Option Grant Agreements pursuant to which such
Stock Options were granted. No Stock Option is exercisable more than 90 days
after the termination of employment except in the case of death or disability
when the Stock Option may be exercised for up to one year after the termination
of employment. All issued and outstanding shares of LFB Common Stock, and all
issued and outstanding shares of capital stock of each LFB Subsidiary, have been
duly authorized and validly issued, are fully paid, nonassessable and free of
preemptive rights and are free and clear of any liens, encumbrances, charges,
restrictions or rights of third parties imposed by LFB or any LFB Subsidiary.
Except for the Stock Options listed on the LFB Disclosure Schedule and the award
of 8,845 Plan Share Awards under the 1998 Directors Stock Compensation Plan, and
the 84,148 unvested shares under the 1998 Directors Stock Compensation Plan,
1997 Directors Stock Compensation Plan and the 1996 Management Stock Bonus Plan
for which shares are held in trust and the HUBCO Stock Option, neither LFB nor
the Association has granted nor is bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the transfer, purchase, subscription or issuance of any shares of capital stock
of LFB or the Association or any securities representing the right to purchase,
subscribe or otherwise receive any shares of such capital stock or any
securities convertible into any such shares, and there are no agreements or
understandings with respect to voting of any such shares.
3.3. Authority; No Violation.
(a) Subject to the approval of this Agreement and the
transactions contemplated hereby by all applicable regulatory authorities and by
the shareholders of LFB, and except as set forth in the LFB Disclosure Schedule,
LFB and the Association have the full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby in accordance with the terms hereof. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly approved by the directors of LFB and the Association in
accordance with their respective Certificate of Incorporation and Bylaws and
applicable laws and regulations. Except for such approvals, no other corporate
proceedings not otherwise contemplated hereby on the part of LFB or the
Association are necessary to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by LFB and the
Association, and constitutes a valid and binding obligation of each of LFB and
the Association, enforceable against LFB and the Association in accordance with
its terms, except to the extent that enforcement may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium, conservatorship,
receivership or other similar laws now or hereafter in effect relating to or
affecting the enforcement of creditors' rights generally or the rights of
creditors of federally chartered savings banks or their holding companies, (ii)
general equitable principles, and (iii) laws relating to the safety and
soundness of insured depository institutions and except that no representation
is made as to the effect or availability of equitable remedies or injunctive
relief.
(b) Neither the execution and delivery of this
Agreement by LFB or the Association, nor the consummation by LFB or the
Association of the transactions contemplated hereby in accordance with the terms
hereof, or compliance by LFB or the Association with any of the terms or
provisions hereof, will (i) violate any provision of LFB's or the Association's
Certificate of Incorporation or Charter or Bylaws, (ii) assuming that the
consents and approvals set forth below are duly obtained, violate any statute,
code, ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to LFB, the Association or any of their respective properties or
assets, or (iii) except as set forth in the LFB Disclosure Schedule, violate,
conflict with, result in a breach of any provisions of, constitute a default (or
an event which, with notice or lapse of time, or both, would constitute a
default) under, result in the termination of, accelerate the performance
required by, or result in the creation of any lien, security interest, charge or
other encumbrance upon any of the respective properties or assets of LFB or the
Association under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which LFB or the Association is a party, or by which
they or any of their respective properties or assets may be bound or affected
except, with respect to (ii) and (iii) above, such as individually or in the
aggregate will not have a material adverse effect on the business, operations,
assets or financial condition of LFB and the LFB Subsidiaries, taken as a whole,
and which will not prevent or materially delay the consummation of the
transactions contemplated hereby. Except for consents and approvals of or
filings or registrations with or notices to the Board of Governors of the
Federal Reserve System (the "FRB"), the FDIC, the OTS, the Department, the New
Jersey Department of Environmental Protection (the "DEP") (if required), the New
Jersey Secretary of State, the Securities and Exchange Commission (the "SEC"),
and the shareholders of LFB, no consents or approvals of or filings or
registrations with or notices to any third party or any public body or authority
are necessary on behalf of LFB or the Association in connection with (x) the
execution and delivery by LFB of this Agreement and (y) the consummation by LFB
of the Merger, and the consummation by LFB and the Association of the other
transactions contemplated hereby, except (i) such as are listed in the LFB
Disclosure Schedule and (ii) such as individually or in the aggregate will not
(if not obtained) have a material adverse effect on the business, operations,
assets or financial condition of LFB and the LFB Subsidiaries taken as a whole
or prevent or materially delay the consummation of the transactions contemplated
hereby. To the best of LFB's knowledge, no fact or condition exists which LFB
has reason to believe will prevent it and the Association from obtaining the
aforementioned consents and approvals.
3.4. Financial Statements.
(a) The LFB Disclosure Schedule sets forth copies of
the consolidated statements of financial condition of LFB as of December 31,
1996 and 1997, and the related consolidated statements of income, changes in
stockholders' equity and of cash flows for the periods ended December 31, in
each of the three fiscal years 1995 through 1997, in each case accompanied by
the audit report of Radics & Co., LLC, independent public accountants with
respect to LFB ("R&C"), and the unaudited consolidated statement of condition of
LFB as of September 30, 1998 and the related unaudited consolidated statements
of income and cash flows for the nine months ended September 30, 1998 and 1997,
as reported in LFB's Quarterly Report on Form 10-Q, filed with the SEC under the
Securities Exchange Act of 1934, as amended ("1934 Act") (collectively, the "LFB
Financial Statements"). The LFB Financial Statements (including the related
notes) have been prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied during the periods involved (except as
may be indicated therein or in the notes thereto), and fairly present the
consolidated financial condition of LFB as of the respective dates set forth
therein, and the related consolidated statements of income, changes in
stockholders' equity and cash flows fairly present the results of the
consolidated operations, changes in shareholders' equity and cash flows of LFB
for the respective periods set forth therein.
(b) The books and records of LFB and each of its
Subsidiaries are being maintained in material compliance with applicable legal
and accounting requirements.
(c) Except as and to the extent reflected, disclosed
or reserved against in the LFB Financial Statements (including the notes
thereto), as of September 30, 1998, neither LFB nor any LFB Subsidiary had any
liabilities, whether absolute, accrued, contingent or otherwise, material to the
business, operations, assets or financial condition of LFB and the LFB
Subsidiaries, taken as a whole which were required by GAAP (consistently
applied) to be disclosed in LFB's consolidated statement of condition as of
September 30, 1998 or the notes thereto, except to the extent of the 1998
Directors Stock Compensation Plan and any payments to be made upon benefits
acceleration upon a change in control under various benefit plans. Since
September 30, 1998, neither LFB nor any LFB Subsidiary has incurred any
liabilities except in the ordinary course of business and consistent with
prudent business practice, except as related to the transactions contemplated by
this Agreement or except as set forth in the LFB Disclosure Schedule.
3.5. Broker's and Other Fees. Except for FinPro, Inc.
("FinPro"), neither LFB nor any of its Subsidiaries nor any of their respective
directors or officers has employed any broker or finder or incurred any
liability for any broker's or finder's fees or commissions in connection with
any of the transactions contemplated by this Agreement. The agreement with
FinPro is set forth in the LFB Disclosure Schedule. Other than pursuant to the
agreement with FinPro, there are no fees (other than time charges billed at
usual and customary rates) payable to any consultants, including lawyers and
accountants, in connection with this transaction or which would be triggered by
consummation of this transaction or the termination of the services of such
consultants by LFB or any its Subsidiaries.
3.6. Absence of Certain Changes or Events.
(a) Except as disclosed in the LFB Disclosure
Schedule, there has not been any LFB Material Adverse Change (as hereinafter
defined) since September 30, 1998 and to the best of LFB's knowledge, no fact or
condition exists which LFB believes will cause such an LFB Material Adverse
Change in the future. "LFB Material Adverse Change" means any change which is
material and adverse to the consolidated financial condition, results of
operations, business or assets of LFB and the LFB Subsidiaries taken as a whole,
other than (i) a change in the value of the respective investment and loan
portfolios of LFB and the LFB Subsidiaries as the result of a change in interest
rates generally, (ii) a change occurring after the date hereof in any federal or
state law, rule or regulation or in GAAP, which change affects savings
institutions generally, (iii) reasonable expenses incurred in connection with
this Agreement and the transactions contemplated hereby, (iv) payments to
executive officers or other employees of LFB or the Association pursuant to
agreements or arrangements with such persons, which agreements or arrangements
are included in the LFB Disclosure Schedule, or (v) actions or omissions of LFB
or any LFB Subsidiary either specifically permitted by this Agreement or taken
with the prior written consent of HUBCO in contemplation of the transactions
contemplated hereby (including without limitation any actions taken by LFB or
the Association pursuant to Section 5.15 of this Agreement).
(b) Neither LFB nor any LFB Subsidiary has taken or
permitted any of the actions set forth in Section 5.2 hereof between September
30, 1998 and the date hereof and, except for execution of this Agreement, and
the other documents contemplated hereby, LFB and each LFB Subsidiary has
conducted their respective businesses only in the ordinary course, consistent
with past practice.
3.7. Legal Proceedings. Except as disclosed in the LFB
Disclosure Schedule, and except for ordinary routine litigation incidental to
the business of LFB and the LFB Subsidiaries, neither LFB nor any LFB Subsidiary
is a party to any, and there are no pending or, to the best of LFB's knowledge,
threatened legal, administrative, arbitral or other proceedings, claims, actions
or governmental investigations of any nature against LFB or any LFB Subsidiary
which, if decided adversely to LFB or any LFB Subsidiary, are reasonably likely
to have a material adverse effect on the business, operations, assets or
financial condition of LFB and the LFB Subsidiaries taken as a whole. Except as
disclosed in the LFB Disclosure Schedule, neither LFB nor any LFB Subsidiary is
a party to any order, judgment or decree entered in any lawsuit or proceeding
which is material to LFB or such LFB Subsidiary.
3.8. Taxes and Tax Returns.
(a) LFB and each LFB Subsidiary has duly filed (and
until the Effective Time will so file) all returns, declarations, reports,
information returns and statements ("Returns") required to be filed by it on or
before the Effective Time in respect of any federal, state and local taxes
(including withholding taxes, penalties or other payments required) and has duly
paid (and until the Effective Time will so pay) all such taxes due and payable,
other than taxes or other charges which are being contested in good faith (and
disclosed to HUBCO in writing) or against which reserves have been established.
LFB and each LFB Subsidiary has established (and until the Effective Time will
establish) on its books and records reserves that are adequate for the payment
of all federal, state and local taxes not yet due and payable, but are incurred
in respect of LFB or such LFB Subsidiary through such date. None of the federal
or state income tax returns of LFB or any LFB Subsidiary have been examined by
the Internal Revenue Service (the "IRS") or the New Jersey Division of Taxation
within the past six years. To the best knowledge of LFB, except as disclosed in
the LFB Disclosure Schedule, there are no audits or other administrative or
court proceedings presently pending nor any other disputes pending with respect
to, or claims asserted for, taxes or assessments upon LFB or any LFB Subsidiary,
nor has LFB or any LFB Subsidiary given any currently outstanding waivers or
comparable consents regarding the application of the statute of limitations with
respect to any taxes or Returns.
(b) Except as disclosed in the LFB Disclosure
Schedule, neither LFB nor any LFB Subsidiary (i) has requested any extension of
time within which to file any Return which Return has not since been filed, (ii)
is a party to any agreement providing for the allocation or sharing of taxes,
(iii) is required to include in income any adjustment pursuant to Section 481(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), by reason of a
voluntary change in accounting method initiated by LFB or such LFB Subsidiary
(nor does LFB have any knowledge that the IRS has proposed any such adjustment
or change of accounting method), or (iv) has filed a consent pursuant to Section
341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply.
(c) Neither LFB nor any LFB Subsidiary has any tax
loss carryforwards.
3.9. Employee Benefit Plans.
(a) Except as set forth on the LFB Disclosure
Schedule, neither LFB nor any LFB Subsidiary maintains or contributes to any
"employee pension benefit plan" (the "LFB Pension Plans") within the meaning of
such term in Section 3(2)(A) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), "employee welfare benefit plan" (the "LFB Welfare
Plans") within the meaning of such term in Section 3(1) of ERISA, stock option
plan, stock purchase plan, deferred compensation plan, severance plan, bonus
plan, employment agreement, director retirement program or other similar plan,
program or arrangement. Neither LFB nor any LFB Subsidiary has, since September
2, 1974, contributed to any "Multiemployer Plan," within the meaning of Section
3(37) of ERISA.
(b) LFB has previously delivered to HUBCO, and
included in the LFB Disclosure Schedule, a complete and accurate copy of each of
the following including any amendments thereto with respect to each of the LFB
Pension Plans and LFB Welfare Plans, if any: (i) plan document, summary plan
description, and summary of material modifications (if not available, a detailed
description of the foregoing); (ii) trust agreement or insurance contract, if
any; (iii) most recent IRS determination letter, if any; (iv) most recent
actuarial report and financial statement, if any; and (v) most recent annual
report on Form 5500. The Little Falls Bancorp, Inc. Employee Stock Ownership
Plan (the "LFB ESOP") owns approximately 9.8% of the outstanding LFB Common
Stock; the LFB ESOP owes approximately $2.2 million to LFB which is expected to
be fully discharged by payment to HUBCO from the cash merger consideration
payable to the LFB ESOP upon consummation of the Merger.
(c) Except as disclosed in the LFB Disclosure
Schedule, the present value of all accrued benefits, both vested and non-vested,
under each of the LFB Pension Plans subject to Title IV of ERISA, based upon the
actuarial assumptions used for funding purposes in the most recent actuarial
valuation prepared by such LFB Pension Plan's actuary, did not exceed the then
current value of the assets of such plans allocable to such accrued benefits. To
the best of LFB's knowledge, the actuarial assumptions then utilized for such
plans were reasonable and appropriate as of the last valuation date and reflect
then current market conditions.
(d) During the last six years, the Pension Benefit
Guaranty Corporation ("PBGC") has not asserted any claim for liability against
LFB or any LFB Subsidiary which has not been paid in full.
(e) All premiums (and interest charges and penalties
for late payment, if applicable) due to the PBGC with respect to each LFB
Pension Plan have been paid. All contributions required to be made to each LFB
Pension Plan under the terms thereof, ERISA or other applicable law have been
timely made, and all amounts properly accrued to date as liabilities of LFB
which have not been paid have been properly recorded on the books of LFB .
(f) Except as disclosed in the LFB Disclosure
Schedule, each of the LFB Pension Plans, LFB Welfare Plans and each other
employee benefit plan and arrangement identified on the LFB Disclosure Schedule
has been operated in compliance in all material respects with the provisions of
ERISA, the Code, all regulations, rulings and announcements promulgated or
issued thereunder, and all other applicable governmental laws and regulations.
Furthermore, except as disclosed in the LFB Disclosure Schedule, if LFB
maintains any LFB Pension Plan, LFB has received or applied for a favorable
determination letter from the IRS which takes into account the Tax Reform Act of
1986 and (to the extent it mandates currently applicable requirements)
subsequent legislation, and LFB is not aware of any fact or circumstance which
would disqualify any plan.
(g) To the best knowledge of LFB, no non-exempt
prohibited transaction, within the meaning of Section 4975 of the Code or
Section 406 of ERISA, has occurred with respect to any LFB Welfare Plan or LFB
Pension Plan that would result in any material tax or penalty for LFB or any LFB
Subsidiary.
(h) No LFB Pension Plan or any trust created
thereunder has been terminated, nor have there been any "reportable events"
(notice of which has not been waived by the PBGC), within the meaning of Section
4043(b) of ERISA, with respect to any LFB Pension Plan.
(i) Except as disclosed in the LFB Disclosure
Schedule, no "accumulated funding deficiency," within the meaning of Section 412
of the Code, has been incurred with respect to any LFB Pension Plan.
(j) There are no material pending, or, to the best
knowledge of LFB, material threatened or anticipated claims (other than routine
claims for benefits) by, on behalf of, or against any of the LFB Pension Plans
or the LFB Welfare Plans, any trusts created thereunder or any other plan or
arrangement other than as identified in the LFB Disclosure Schedule.
(k) Except as disclosed in the LFB Disclosure
Schedule, no LFB Pension Plan or LFB Welfare Plan provides medical or death
benefits (whether or not insured) beyond an employee's retirement or other
termination of service, other than (i) coverage mandated by law or pursuant to
conversion or continuation rights set out in such Plan or an insurance policy
providing benefits thereunder, or (ii) death benefits under any LFB Pension
Plan.
(l) Except with respect to customary health, life and
disability benefits or as disclosed in the LFB Disclosure Schedule, there are no
unfunded benefit obligations which are not accounted for by reserves shown on
the LFB Financial Statements and established in accordance with GAAP.
(m) With respect to each LFB Pension Plan and LFB
Welfare Plan that is funded wholly or partially through an insurance policy,
there will be no liability of LFB or any LFB Subsidiary as of the Effective Time
under any such insurance policy or ancillary agreement with respect to such
insurance policy in the nature of a retroactive rate adjustment, loss sharing
arrangement or other actual or contingent liability arising wholly or partially
out of events occurring prior to the Effective Time.
(n) Except (i) for payments and other benefits due
pursuant to the employment agreements included within the LFB Disclosure
Schedule, and (ii) as set forth in the LFB Disclosure Schedule, or as expressly
agreed to by HUBCO in writing either pursuant to this Agreement or otherwise, or
as required by law, the consummation of the transactions contemplated by this
Agreement will not (x) entitle any current or former employee of LFB or any LFB
Subsidiary to severance pay, unemployment compensation or any similar payment,
or (y) accelerate the time of payment or vesting, or increase the amount of any
compensation or benefits due to any current or former employee under any LFB
Pension Plan or LFB Welfare Plan.
(o) Except for the LFB Pension Plans and the LFB
Welfare Plans, and except as set forth on the LFB Disclosure Schedule, LFB has
no deferred compensation agreements, understandings or obligations for payments
or benefits to any current or former director, officer or employee of LFB or any
LFB Subsidiary or any predecessor of any thereof. The LFB Disclosure Schedule
sets forth: (i) true and complete copies of the agreements, understandings or
obligations with respect to each such current or former director, officer or
employee, and (ii) the most recent actuarial or other calculation of the present
value of such payments or benefits.
(p) Except as set forth in the LFB Disclosure
Schedule, LFB does not maintain or otherwise pay for life insurance policies
(other than group term life policies on employees) with respect to any director,
officer or employee. The LFB Disclosure Schedule lists each such insurance
policy and includes a copy of each agreement with a party other than the insurer
with respect to the payment, funding or assignment of such policy. To the best
of LFB `s knowledge, neither LFB nor any LFB Pension Plan or LFB Welfare Plan
owns any individual or group insurance policies issued by an insurer which has
been found to be insolvent or is in rehabilitation pursuant to a state
proceeding.
(q) Except as set forth in the LFB Disclosure
Schedule, LFB does not maintain any retirement plan or retiree medical plan or
arrangement for directors. The LFB Disclosure Schedule sets forth the complete
documentation and actuarial evaluation of any such plan.
(r) On or before the date hereof, LFB has caused the
Little Falls Savings Bank Directors Consultation and Retirement Plan (the
"Director Retirement Plan") to be terminated at the Effective Time and has
obtained in writing the consent of every participant to such termination and
such consents are part of the LFB Disclosure Schedule. LFB has also caused the
[Post-Retirement Health Plan] to be terminated at the Effective Time and each
participant therein has consented to such termination and the consent is
contained in the Disclosure Schedule.
3.10. Reports.
(a) The LFB Disclosure Schedule lists, and as to item
(i) below LFB has previously delivered to HUBCO a complete copy of, each (i)
final registration statement, prospectus, annual, quarterly or current report
and definitive proxy statement filed by LFB since January 1, 1996 pursuant to
the Securities Act of 1933, as amended ("1933 Act"), or the 1934 Act and (ii)
communication (other than general advertising materials, dividend checks, and
press releases) mailed by LFB to its shareholders as a class since January 1,
1996, and each such communication, as of its date, complied in all material
respects with all applicable statutes, rules and regulations and did not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading; provided that information as of a later date shall be deemed to
modify information as of an earlier date.
(b) Since January 1, 1996, (i) LFB has filed all
reports that it was required to file with the SEC under the 1934 Act, and (ii)
LFB and the Association each has duly filed all material forms, reports and
documents which it was required to file with each agency charged with regulating
any aspect of its business, in each case in form which was correct in all
material respects, and, subject to permission from such regulatory authorities,
LFB promptly will deliver or make available to HUBCO accurate and complete
copies of such reports. As of their respective dates, each such form, report, or
document, and each such final registration statement, prospectus, annual,
quarterly or current report, definitive proxy statement or communication,
complied in all material respects with all applicable statutes, rules and
regulations and did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading; provided that information contained in any such
document as of a later date shall be deemed to modify information as of an
earlier date. The LFB Disclosure Schedule lists the dates of all examinations of
LFB or the Association conducted by either the FDIC or the OTS since January 1,
1996 and the dates of any responses thereto submitted by LFB or the Association.
3.11. LFB and Association Information. The information
relating to LFB and the Association, this Agreement, and the transactions
contemplated hereby (except for information relating solely to HUBCO) to be
contained in the Proxy Statement-Prospectus (as defined in Section 5.6(a)
hereof) to be delivered to shareholders of LFB in connection with the
solicitation of their approval of the Merger, as of the date the Proxy
Statement-Prospectus is mailed to shareholders of LFB, and up to and including
the date of the meeting of shareholders to which such Proxy Statement-Prospectus
relates, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
3.12. Compliance with Applicable Law. Except as set forth in
the LFB Disclosure Schedule, LFB and each LFB Subsidiary holds all licenses,
franchises, permits and authorizations necessary for the lawful conduct of its
business and has complied with and is not in default in any respect under any
applicable law, statute, order, rule, regulation, policy and/or guideline of any
federal, state or local governmental authority relating to LFB or such LFB
Subsidiary (including, without limitation, consumer, community and fair lending
laws) (other than where the failure to have a license, franchise, permit or
authorization or where such default or noncompliance will not result in a
material adverse effect on the business, operations, assets or financial
condition of LFB and the LFB Subsidiaries taken as a whole) and LFB has not
received notice of violation of, and does not know of any violations of, any of
the above.
3.13. Certain Contracts.
(a) Except for plans referenced in Section 3.9 and
disclosed in the LFB Disclosure Schedule, (i) neither LFB nor any LFB Subsidiary
is a party to or bound by any written contract or any understanding with respect
to the employment of any officers, employees, directors or consultants, and (ii)
the consummation of the transactions contemplated by this Agreement will not
(either alone or upon the occurrence of any additional acts or events) result in
any payment (whether of severance pay or otherwise) becoming due from LFB or any
LFB Subsidiary to any officer, employee, director or consultant thereof. The LFB
Disclosure Schedule sets forth true and correct copies of all severance or
employment agreements with officers, directors, employees, agents or consultants
to which LFB or any LFB Subsidiary is a party.
(b) Except as disclosed in the LFB Disclosure
Schedule and except for loan commitments, loan agreements and loan instruments
entered into or issued by the Association in the ordinary course of business,
(i) as of the date of this Agreement, neither LFB nor any LFB Subsidiary is a
party to or bound by any commitment, agreement or other instrument which is
material to the business, operations, assets or financial condition of LFB and
the LFB Subsidiaries taken as a whole, (ii) no commitment, agreement or other
instrument to which LFB or any LFB Subsidiary is a party or by which either of
them is bound limits the freedom of LFB or any LFB Subsidiary to compete in any
line of business or with any person, and (iii) neither LFB nor any LFB
Subsidiary is a party to any collective bargaining agreement.
(c) Except as disclosed in the LFB Disclosure
Schedule, neither LFB nor any LFB Subsidiary or, to the best knowledge of LFB,
any other party thereto, is in default in any material respect under any
material lease, contract, mortgage, promissory note, deed of trust, loan or
other commitment (except those under which the Association is or will be the
creditor) or arrangement, except for defaults which individually or in the
aggregate would not have a material adverse effect on the business, operations,
assets or financial condition of LFB and the LFB Subsidiaries, taken as a whole.
3.14. Properties and Insurance.
(a) Except as set forth in the LFB Disclosure
Schedule, LFB or a LFB Subsidiary has good and, as to owned real property,
marketable title to all material assets and properties, whether real or
personal, tangible or intangible, reflected in LFB's consolidated balance sheet
as of September 30, 1998, or owned and acquired subsequent thereto (except to
the extent that such assets and properties have been disposed of for fair value
in the ordinary course of business since September 30, 1998), subject to no
encumbrances, liens, mortgages, security interests or pledges, except (i) those
items that secure liabilities that are reflected in said balance sheet or the
notes thereto or that secure liabilities incurred in the ordinary course of
business after the date of such balance sheet, (ii) statutory liens for amounts
not yet delinquent or which are being contested in good faith, (iii) such
encumbrances, liens, mortgages, security interests, pledges and title
imperfections that are not in the aggregate material to the business,
operations, assets, and financial condition of LFB and the LFB Subsidiaries
taken as a whole and (iv) with respect to owned real property, title
imperfections noted in title reports delivered to HUBCO prior to the date
hereof. Except as affected by the transactions contemplated hereby, LFB or one
or more of its Subsidiaries as lessees have the right under valid and subsisting
leases to occupy, use, possess and control all real property leased by LFB and
such Subsidiaries in all material respects as presently occupied, used,
possessed and controlled by LFB and its Subsidiaries.
(b) Except as set forth in the LFB Disclosure
Schedule, the business operations and all insurable properties and assets of LFB
and each LFB Subsidiary are insured for their benefit against all risks which,
in the reasonable judgment of the management of LFB, should be insured against,
in each case under policies or bonds issued by insurers of recognized
responsibility, in such amounts with such deductibles and against such risks and
losses as are in the opinion of the management of LFB adequate for the business
engaged in by LFB and the LFB Subsidiaries. As of the date hereof, neither LFB
nor any LFB Subsidiary has received any notice of cancellation or notice of a
material amendment of any such insurance policy or bond or is in default under
any such policy or bond, no coverage thereunder is being disputed and all
material claims thereunder have been filed in a timely fashion. The LFB
Disclosure Schedule sets forth in summary form a list of all insurance policies
of LFB and the LFB Subsidiaries.
3.15. Minute Books. The minute books of LFB and the LFB
Subsidiaries contain records of all meetings and other corporate action held of
their respective shareholders and Boards of Directors (including committees of
their respective Boards of Directors) that are complete and accurate in all
material respects.
3.16. Environmental Matters. Except as set forth in the LFB
Disclosure Schedule:
(a) Neither LFB nor any LFB Subsidiary has received
any written notice, citation, claim, assessment, proposed assessment or demand
for abatement alleging that LFB or such LFB Subsidiary (either directly or as a
trustee or fiduciary, or as a successor-in-interest in connection with the
enforcement of remedies to realize the value of properties serving as collateral
for outstanding loans) is responsible for the correction or cleanup of any
condition resulting from the violation of any law, ordinance or other
governmental regulation regarding environmental matters, which correction or
cleanup would be material to the business, operations, assets or financial
condition of LFB and the LFB Subsidiaries taken as a whole. LFB has no knowledge
that any toxic or hazardous substances or materials have been emitted,
generated, disposed of or stored on any real property owned or leased by LFB or
any LFB Subsidiary, as REO or otherwise, or owned or controlled by LFB or any
LFB Subsidiary as a trustee or fiduciary (collectively, "Properties"), in any
manner that violates any presently existing federal, state or local law or
regulation governing or pertaining to such substances and materials, the
violation of which would have a material adverse effect on the business,
operations, assets or financial condition of LFB and the LFB Subsidiaries, taken
as a whole. Except as described in the LFB Disclosure Schedule, none of the
Properties is located outside the State of New Jersey.
(b) LFB has no knowledge that any of the Properties
has been operated in any manner in the three years prior to the date of this
Agreement that violated any applicable federal, state or local law or regulation
governing or pertaining to toxic or hazardous substances and materials, the
violation of which would have a material adverse effect on the business,
operations, assets or financial condition of LFB and the LFB Subsidiaries taken
as a whole.
(c) To the best of LFB's knowledge, LFB, each LFB
Subsidiary and any and all of their tenants or subtenants have all necessary
permits and have filed all necessary registrations material to permit the
operation of the Properties in the manner in which the operations are currently
conducted under all applicable federal, state or local environmental laws,
excepting only those permits and registrations the absence of which would not
have a material adverse effect upon the operations that require the permit or
registration.
(d) Except as disclosed in the LFB Disclosure
Schedule, to the knowledge of LFB, there are no underground storage tanks on, in
or under any of the Properties and no underground storage tanks have been closed
or removed from any of the Properties while the property was owned, operated or
controlled by LFB or any LFB Subsidiary.
3.17. Reserves. As of September 30, 1998, the allowance for
loan losses in the LFB Financial Statements was adequate pursuant to GAAP
(consistently applied), and the methodology used to compute the loan loss
reserve complies in all material respects with GAAP (consistently applied) and
all applicable policies of the OTS. As of September 30, 1998, the reserve for
REO properties (or if no reserve, the carrying value of REO properties) in the
LFB Financial Statements was adequate pursuant to GAAP (consistently applied),
and the methodology used to compute the reserve for REO properties (or if no
reserve, the carrying value of REO properties) complies in all material respects
with GAAP (consistently applied) and all applicable policies of the OTS.
3.18. No Parachute Payments. No officer, director, employee or
agent (or former officer, director, employee or agent) of LFB or any LFB
Subsidiary is entitled now, or will or may be entitled to as a consequence of
this Agreement or the Merger, to any payment or benefit from LFB, a LFB
Subsidiary, HUBCO or any HUBCO Subsidiary which if paid or provided would
constitute an "excess parachute payment", as defined in Section 280G of the Code
or regulations promulgated thereunder.
3.19. Agreements with Bank Regulators. Except as disclosed in
the LFB Disclosure Schedule, neither LFB nor any LFB Subsidiary is a party to
any agreement or memorandum of understanding with, or a party to any commitment
letter, board resolution submitted to a regulatory authority or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, any court, governmental authority or
other regulatory or administrative agency or commission, domestic or foreign
("Governmental Entity") which restricts materially the conduct of its business,
or in any manner relates to its capital adequacy, its credit or reserve policies
or its management, except for those the existence of which has been disclosed in
writing to HUBCO by LFB prior to the date of this Agreement, nor has LFB been
advised by any Governmental Entity that it is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, decree, agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter or similar submission, except as disclosed
in writing to HUBCO by LFB prior to the date of this Agreement. Neither LFB nor
any LFB Subsidiary is required by Section 32 of the Federal Deposit Insurance
Act to give prior notice to a Federal banking agency of the proposed addition of
an individual to its board of directors or the employment of an individual as a
senior executive officer, except as disclosed in writing to HUBCO by LFB prior
to the date of this Agreement.
3.20. Year 2000 Compliance. LFB and the LFB Subsidiaries have
taken all reasonable steps necessary to address the software, accounting and
record keeping issues raised in order for the data processing systems used in
the business conducted by LFB and the LFB Subsidiaries to be substantially Year
2000 compliant on or before the end of 1999 and, except as set forth in the LFB
Disclosure Schedule, LFB does not expect the future cost of addressing such
issues to be material.
3.21. Reorganization. As of the date hereof, after reviewing
the terms of this Agreement with LFB's attorneys, LFB does not have any reason
to believe that the Merger will fail to qualify as a reorganization under
Section 368(a) of the Code.
3.22. Disclosure. No representation or warranty contained in
Article III of this Agreement contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements herein not
misleading.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF HUBCO
References herein to the "HUBCO Disclosure Schedule" shall
mean all of the disclosure schedules required by this Article IV, dated as of
the date hereof and referenced to the specific sections and subsections of
Article IV of this Agreement, which have been delivered on the date hereof by
HUBCO to LFB. HUBCO hereby represents and warrants to LFB as follows:
4.1. Corporate Organization.
(a) HUBCO is a corporation duly organized and validly
existing and in good standing under the laws of the State of New Jersey. HUBCO
has the corporate power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted, and is duly
licensed or qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed, qualified or in good standing would not have a material adverse effect
on the business, operations, assets or financial condition of HUBCO and the
HUBCO Subsidiaries (defined below), taken as a whole. HUBCO is registered as a
bank holding company under the Bank Holding Company Act of 1956, as amended (the
"BHCA").
(b) Each HUBCO Subsidiary is listed in the HUBCO
Disclosure Schedule. For purposes of this Agreement, the term "HUBCO Subsidiary"
means any corporation, partnership, joint venture or other legal entity in which
HUBCO directly or indirectly, owns at least a 50% stock or other equity interest
or for which HUBCO, directly or indirectly, acts as a general partner provided
that to the extent that any representation or warranty set forth herein covers a
period of time prior to the date of this Agreement, the term "HUBCO Subsidiary"
shall include any entity which was an HUBCO Subsidiary at any time during such
period. Each HUBCO Subsidiary is duly organized and validly existing under the
laws of the jurisdiction of its incorporation. The Bank is a state-chartered
commercial banking corporation duly organized and validly existing under the
laws of the State of New Jersey. Lafayette American Bank ("Lafayette") is duly
organized and validly existing under the laws of the State of Connecticut. All
eligible accounts of depositors issued by the Bank and Lafayette are insured by
BIF to the fullest extent permitted by law. Each HUBCO Subsidiary has the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted and is duly licensed
or qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
material adverse effect on the business, operations, assets or financial
condition of HUBCO and the HUBCO Subsidiaries, taken as a whole. The HUBCO
Disclosure Schedule sets forth true and complete copies of the Certificate of
Incorporation and Bylaws of HUBCO as in effect on the date hereof.
4.2. Capitalization. The authorized capital stock of HUBCO
consists of 53,045,000 common shares, no par value ("HUBCO Common Stock"), and
10,300,000 shares of preferred stock ("HUBCO Authorized Preferred Stock"). As of
December 31, 1998, there were 40,411,521 shares of HUBCO Common Stock issued and
outstanding, and 221,683 shares of treasury stock, and 500 shares of HUBCO
Authorized Preferred Stock outstanding all of which were designated Series B, no
par value, Convertible Preferred Stock. Except as described in the HUBCO
Disclosure Schedule, there are no shares of HUBCO Common Stock issuable upon the
exercise of outstanding stock options or otherwise. All issued and outstanding
shares of HUBCO Common Stock and HUBCO Authorized Preferred Stock, and all
issued and outstanding shares of capital stock of HUBCO's Subsidiaries, have
been duly authorized and validly issued, are fully paid, nonassessable and free
of preemptive rights, and are free and clear of all liens, encumbrances,
charges, restrictions or rights of third parties. All of the outstanding shares
of capital stock of the HUBCO Subsidiaries are owned by HUBCO free and clear of
any liens, encumbrances, charges, restrictions or rights of third parties.
Except as described in the HUBCO Disclosure Schedule, neither HUBCO nor any
HUBCO Subsidiary has granted or is bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the transfer, purchase or issuance of any shares of capital stock of HUBCO or
any HUBCO Subsidiary or any securities representing the right to purchase,
subscribe or otherwise receive any shares of such capital stock or any
securities convertible into any such shares, and there are no agreements or
understandings with respect to voting of any such shares.
4.3. Authority; No Violation.
(a) Subject to the receipt of all necessary
governmental approvals, HUBCO has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby in accordance with the terms hereof. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly approved by the Board of Directors of HUBCO in accordance with
its Certificate of Incorporation and applicable laws and regulations. Except for
such approvals, no other corporate proceedings on the part of HUBCO are
necessary to consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by HUBCO and constitutes a valid
and binding obligation of HUBCO, enforceable against HUBCO in accordance with
its terms, except to the extent that enforcement may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium, conservatorship,
receivership or other similar laws now or hereafter in effect relating to or
affecting the enforcement of creditors' rights generally or the rights of
creditors of bank holding companies, (ii) general equitable principles, and
(iii) laws relating to the safety and soundness of insured depository
institutions and except that no representation is made as to the effect or
availability of equitable remedies or injunctive relief.
(b) Neither the execution or delivery of this
Agreement by HUBCO, nor the consummation by HUBCO of the transactions
contemplated hereby in accordance with the terms hereof, or compliance by HUBCO
with any of the terms or provisions hereof will (i) violate any provision of the
Certificate of Incorporation or Bylaws of HUBCO, (ii) assuming that the consents
and approvals set forth below are duly obtained, violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to HUBCO, any HUBCO Subsidiary, or any of their respective properties
or assets, or (iii) violate, conflict with, result in a breach of any provision
of, constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or other encumbrance upon any of the properties or
assets of HUBCO or any HUBCO Subsidiary under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which HUBCO is a party, or
by which it or any of their properties or assets may be bound or affected,
except, with respect to (ii) and (iii) above, such as individually or in the
aggregate will not have a material adverse effect on the business, operation,
assets or financial condition of HUBCO and the HUBCO Subsidiaries, taken as a
whole, and which will not prevent or materially delay the consummation of the
transactions contemplated hereby. Except for consents and approvals of or
filings or registrations with or notices to the FDIC, the FRB, the OTS, the SEC,
the Department, or the Secretary of State of New Jersey, and the possible need
under the NASDAQ rules to obtain HUBCO shareholder approval, no consents or
approvals of or filings or registrations with or notices to any third party or
any public body or authority are necessary on behalf of HUBCO in connection with
(x) the execution and delivery by HUBCO of this Agreement, and (y) the
consummation by HUBCO of the Merger and the other transactions contemplated
hereby, except such as are listed in the HUBCO Disclosure Schedule or in the
aggregate will not (if not obtained) have a material adverse effect on the
business, operation, assets or financial condition of HUBCO and the HUBCO
Subsidiaries, taken as a whole. To the best of HUBCO's knowledge, no fact or
condition exists which HUBCO has reason to believe will prevent it from
obtaining the aforementioned consents and approvals.
4.4. Financial Statements.
(a) The HUBCO Disclosure Schedule sets forth copies
of the consolidated statements of financial condition of HUBCO as of December
31, 1996 and 1997, and the related consolidated statements of income, changes in
stockholders' equity and of cash flows for the periods ended December 31, in
each of the three fiscal years 1995 through 1997, in each case accompanied by
the audit report of Arthur Andersen LLP ("Arthur Andersen"), independent public
accountants with respect to HUBCO and the unaudited consolidated statement of
condition of HUBCO as of September 30, 1998 and the related unaudited
consolidated statements of income and cash flows for the nine months ended
September 30, 1998 and 1997, as reported in HUBCO's Quarterly Report on Form
10-Q, filed with the SEC under the 1934 Act (collectively, the "HUBCO Financial
Statements"). The HUBCO Financial Statements (including the related notes) have
been prepared in accordance with GAAP consistently applied during the periods
involved (except as may be indicated therein or in the notes thereto), and
fairly present the consolidated financial position of HUBCO as of the respective
dates set forth therein, and the related consolidated statements of income,
changes in stockholders' equity and of cash flows (including the related notes,
where applicable) fairly present the consolidated results of operations, changes
in stockholders' equity and cash flows of HUBCO for the respective fiscal
periods set forth therein.
(b) The books and records of HUBCO and the HUBCO
Subsidiaries are being maintained in material compliance with applicable legal
and accounting requirements, and reflect only actual transactions.
(c) Except as and to the extent reflected, disclosed
or reserved against in the HUBCO Financial Statements (including the notes
thereto), as of September 30, 1998 neither HUBCO nor any of the HUBCO
Subsidiaries had any obligation or liability, whether absolute, accrued,
contingent or otherwise, material to the business, operations, assets or
financial condition of HUBCO or any of the HUBCO Subsidiaries which were
required by GAAP (consistently applied) to be disclosed in HUBCO's consolidated
statement of condition as of September 30, 1998 or the notes thereto. Except for
the transactions contemplated by this Agreement, and the other proposed
acquisitions by HUBCO reflected in any press release issued or Form 8-K filed by
HUBCO with the SEC since September 30, 1998, neither HUBCO nor any HUBCO
Subsidiary has incurred any liabilities since September 30, 1998 except in the
ordinary course of business and consistent with past practice (including for
other pending or contemplated acquisitions).
4.5. Broker's and Other Fees. Neither HUBCO nor any of its
directors or officers has employed any broker or finder or incurred any
liability for any broker's or finder's fees or commissions in connection with
any of the transactions contemplated by this Agreement.
4.6. Absence of Certain Changes or Events. There has not been
any HUBCO Material Adverse Change since September 30, 1998 and to the best of
HUBCO's knowledge, no facts or condition exists which HUBCO believes will cause
a HUBCO Material Adverse Change in the future. "HUBCO Material Adverse Change"
means any change which is material and adverse to the consolidated financial
condition, results of operations, business or assets of HUBCO and the HUBCO
Subsidiaries taken as a whole, other than (i) a change in the value of the
respective investment and loan portfolios of HUBCO and the HUBCO Subsidiaries as
the result of a change in interest rates generally, (ii) a change occurring
after the date hereof in any federal or state law, rule or regulation or in
GAAP, which change affects banking institutions generally, (iii) reasonable
expenses incurred in connection with this Agreement and the transactions
contemplated hereby, (iv) changes resulting from acquisitions by HUBCO or any
HUBCO Subsidiary pending on the date hereof and known to LFB, other than changes
resulting from facts not disclosed to, or otherwise known by, LFB on or prior to
the date hereof, or (v) the entry, after the date hereof, by HUBCO or any HUBCO
Subsidiary into an agreement to acquire another entity.
4.7 Legal Proceedings. Except as disclosed in the HUBCO
Disclosure Schedule, and except for ordinary routine litigation incidental to
the business of HUBCO or its Subsidiaries, neither HUBCO nor any of its
Subsidiaries is a party to any, and there are no pending or, to the best of
HUBCO's knowledge, threatened legal, administrative, arbitral or other
proceedings, claims, actions or governmental investigations of any nature
against HUBCO or any of its Subsidiaries which, if decided adversely to HUBCO or
its Subsidiaries, are reasonably likely to have a material adverse effect on the
business, operations, assets or financial condition of HUBCO or its
Subsidiaries, taken as a whole. Except as disclosed in the HUBCO Disclosure
Schedule, neither HUBCO nor any of its Subsidiaries is a party to any order,
judgment or decree entered in any lawsuit or proceeding which is material to
HUBCO or its Subsidiaries.
4.8 Reports. Since January 1, 1996, HUBCO has filed all
reports that it was required to file with the SEC under the 1934 Act, all of
which complied in all material respects with all applicable requirements of the
1934 Act and the rules and regulations adopted thereunder. As of their
respective dates, each such report and each registration statement, proxy
statement, form or other document filed by HUBCO with the SEC, including without
limitation, any financial statements or schedules included therein, did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading,
provided that information as of a later date shall be deemed to modify
information as of an earlier date. Since January 1, 1996, HUBCO and each HUBCO
Subsidiary has duly filed all material forms, reports and documents which they
were required to file with each agency charged with regulating any aspect of
their business.
4.9 HUBCO Information. The information relating to HUBCO and
its Subsidiaries (including, without limitation, information regarding other
transactions which HUBCO is required to disclose), this Agreement and the
transactions contemplated hereby in the Registration Statement and Proxy
Statement-Prospectus (as defined in Section 5.6(a) hereof), as of the date of
the mailing of the Proxy Statement-Prospectus, and up to and including the date
of the meeting of stockholders of LFB to which such Proxy Statement-Prospectus
relates, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Registration Statement shall comply as to form in all
material respects with the provisions of the 1933 Act, the 1934 Act and the
rules and regulations promulgated thereunder.
4.10 Compliance With Applicable Law. Except as set forth in
the HUBCO Disclosure Schedule, each of HUBCO and HUBCO's Subsidiaries holds all
material licenses, franchises, permits and authorizations necessary for the
lawful conduct of its business, and has complied with and is not in default in
any respect under any applicable law, statute, order, rule, regulation, policy
and/or guideline of any federal, state or local governmental authority relating
to HUBCO or HUBCO's Subsidiaries (including without limitation consumer,
community and fair lending laws) (other than where such default or noncompliance
will not result in a material adverse effect on the business, operations, assets
or financial condition of HUBCO and HUBCO's Subsidiaries taken as a whole) and
HUBCO has not received notice of violation of, and does not know of any
violations of, any of the above.
4.11 Funding and Capital Adequacy. At the Effective Time,
after giving pro forma effect to the Merger and any other acquisition which
HUBCO or its Subsidiaries have agreed to consummate, HUBCO will be deemed "well
capitalized" under prompt corrective action regulatory capital requirements.
4.12 HUBCO Common Stock. As of the date hereof, HUBCO has
available and reserved shares of HUBCO Common Stock sufficient for issuance
pursuant to the Merger and upon the exercise of Stock Options subsequent
thereto. The HUBCO Common Stock to be issued hereunder pursuant to the Merger,
and upon exercise of the Stock Options, when so issued, will be duly authorized
and validly issued, fully paid, nonassessable, free of preemptive rights and
free and clear of all liens, encumbrances or restrictions created by or through
HUBCO, with no personal liability attaching to the ownership thereof. The HUBCO
Common Stock to be issued hereunder pursuant to the Merger, and upon exercise of
the Stock Options, when so issued, will be registered under the 1933 Act and
issued in accordance with all applicable state and federal laws, rules and
regulations, and will be approved or listed for trading on NASDAQ.
4.13 Agreements with Bank Regulators. Neither HUBCO nor any
HUBCO Subsidiary is a party to any agreement or memorandum of understanding
with, or a party to any commitment letter, board resolution submitted to a
regulatory authority or similar undertaking to, or is subject to any order or
directive by, or is a recipient of any extraordinary supervisory letter from,
any Government Entity which restricts materially the conduct of its business, or
in any manner relates to its capital adequacy, its credit or reserve policies or
its management, except for those the existence of which has been disclosed in
writing to LFB by HUBCO prior to the date of this Agreement, nor has HUBCO been
advised by any Governmental Entity that it is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, decree, agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter or similar submission, except as disclosed
in writing to LFB by HUBCO prior to the date of this Agreement. Neither HUBCO
nor any HUBCO Subsidiary is required by Section 32 of the Federal Deposit
Insurance Act to give prior notice to a Federal banking agency of the proposed
addition of an individual to its board of directors or the employment of an
individual as a senior executive officer, except as disclosed in writing to LFB
by HUBCO prior to the date of this Agreement.
4.14 Taxes and Tax Returns.
(a) HUBCO and HUBCO's subsidiaries have duly filed
(and until the Effective Time will so file) all Returns required to be filed by
them in respect of any federal, state and local taxes (including withholding
taxes, penalties or other payments required) and have duly paid (and until the
Effective Time will so pay) all such taxes due and payable, other than taxes or
other charges which are being contested in good faith (and disclosed to LFB in
writing). HUBCO and HUBCO's subsidiaries have established on their books and
records reserves that are adequate for the payment of all federal, state and
local taxes not yet due and payable, but are incurred in respect of HUBCO
through such date. The HUBCO Disclosure Schedule identifies the federal income
tax returns of HUBCO and its Subsidiaries which have been examined by the IRS
within the past six years. No deficiencies were asserted as a result of such
examinations which have not been resolved and paid in full. The HUBCO Disclosure
Schedule identifies the applicable state income tax returns of HUBCO and its
Subsidiaries which have been examined by the applicable authorities within the
past six years. No deficiencies were asserted as a result of such examinations
which have not been resolved and paid in full. To the best knowledge of HUBCO,
there are no audits or other administrative or court proceedings presently
pending nor any other disputes pending with respect to, or claims asserted for,
taxes or assessments upon HUBCO or its Subsidiaries, nor has HUBCO or its
Subsidiaries given any currently outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
taxes or Returns.
(b) Except as set forth in the HUBCO Disclosure
Schedule, neither HUBCO nor any Subsidiary of HUBCO (i) has requested any
extension of time within which to file any Return which Return has not since
been filed, (ii) is a party to any agreement providing for the allocation or
sharing of taxes, (iii) is required to include in income any adjustment pursuant
to Section 481(a) of the Code, by reason of a voluntary change in accounting
method initiated by HUBCO or any of its Subsidiaries (nor does HUBCO have any
knowledge that the IRS has proposed any such adjustment or change of accounting
method) or (iv) has filed a consent pursuant to Section 341(f) of the Code or
agreed to have Section 341(f)(2) of the Code apply.
4.15 Employee Benefit Plans.
(a) HUBCO and its Subsidiaries maintain or contribute
to certain "employee pension benefit plans" (the "HUBCO Pension Plans"), as such
term is defined in Section 3(2)(A) of ERISA, and "employee welfare benefit
plans" (the "HUBCO Welfare Plans"), as such term is defined in Section 3(1) of
ERISA. Since September 2, 1974, neither HUBCO nor its subsidiaries have
contributed to any "Multiemployer Plan", as such term is defined in Section
3(37) of ERISA.
(b) HUBCO is not aware of any fact or circumstance
which would disqualify any HUBCO Pension Plan or HUBCO Welfare Plan that could
not be retroactively corrected (in accordance with the procedures of the IRS).
(c) The present value of all accrued benefits under
each of the HUBCO Pension Plans subject to Title IV of ERISA, based upon the
actuarial assumptions used for purposes of the most recent actuarial valuation
prepared by such HUBCO Pension Plan's actuary, did not exceed the then current
value of the assets of such plans allocable to such accrued benefits.
(d) During the last six years, the PBGC has not
asserted any claim for liability against HUBCO or any of its subsidiaries which
has not been paid in full.
(e) All premiums (and interest charges and penalties
for late payment, if applicable) due to the PBGC with respect to each HUBCO
Pension Plan have been paid. All contributions required to be made to each HUBCO
Pension Plan under the terms thereof, ERISA or other applicable law have been
timely made, and all amounts properly accrued to date as liabilities of HUBCO
which have not been paid have been properly recorded on the books of HUBCO.
(f) No "accumulated funding deficiency", within the
meaning of Section 412 of the Code, has been incurred with respect to any of the
HUBCO Pension Plans.
(g) There are no pending or, to the best knowledge of
HUBCO, threatened or anticipated material claims (other than routine claims for
benefits) by, on behalf of or against any of the HUBCO Pension Plans or the
HUBCO Welfare Plans, any trusts created thereunder or any other plan or
arrangement identified in the HUBCO Disclosure Schedule.
(h) Except with respect to customary health, life and
disability benefits or as disclosed in the HUBCO Disclosure Schedule, HUBCO has
no unfunded benefit obligations which are not accounted for by reserves shown on
the financial statements and established under GAAP or otherwise noted on such
financial statements.
4.16 Contracts. Except as disclosed in the HUBCO Disclosure
Schedule, neither HUBCO nor any of its Subsidiaries, or to the best knowledge of
HUBCO, any other party thereto, is in default in any material respect under any
material lease, contract, mortgage, promissory note, deed of trust, loan or
other commitment (except those under which a banking subsidiary of HUBCO is or
will be the creditor) or arrangement, except for defaults which individually or
in the aggregate would not have a material adverse effect on the business,
operations, assets or financial condition of HUBCO and its subsidiaries, taken
as a whole.
4.17 Properties and Insurance.
(a) HUBCO and its Subsidiaries have good and, as to
owned real property, marketable title to all material assets and properties,
whether real or personal, tangible or intangible, reflected in HUBCO's
consolidated balance sheet as of December 31, 1997, or owned and acquired
subsequent thereto (except to the extent that such assets and properties have
been disposed of for fair value in the ordinary course of business since
December 31, 1997), subject to no encumbrances, liens, mortgages, security
interests or pledges, except (i) those items that secure liabilities that are
reflected in said balance sheet or the notes thereto or that secure liabilities
incurred in the ordinary course of business after the date of such balance
sheet, (ii) statutory liens for amounts not yet delinquent or which are being
contested in good faith, (iii) such encumbrances, liens, mortgages, security
interests, pledges and title imperfections that are not in the aggregate
material to the business, operations, assets, and financial condition of HUBCO
and its subsidiaries taken as a whole and (iv) with respect to owned real
property, title imperfections noted in title reports. Except as disclosed in the
HUBCO Disclosure Schedule, HUBCO and its Subsidiaries as lessees have the right
under valid and subsisting leases to occupy, use, possess and control all
property leased by HUBCO or its Subsidiaries in all material respects as
presently occupied, used, possessed and controlled by HUBCO and its
Subsidiaries.
(b) The business operations and all insurable
properties and assets of HUBCO and its Subsidiaries are insured for their
benefit against all risks which, in the reasonable judgment of the management of
HUBCO, should be insured against, in each case under policies or bonds issued by
insurers of recognized responsibility, in such amounts with such deductibles and
against such risks and losses as are in the opinion of the management of HUBCO
adequate for the business engaged in by HUBCO and its Subsidiaries. As of the
date hereof, neither HUBCO nor any of its Subsidiaries has received any notice
of cancellation or notice of a material amendment of any such insurance policy
or bond or is in default under any such policy or bond, no coverage thereunder
is being disputed and all material claims thereunder have been filed in a timely
fashion.
4.18. Environmental Matters. Except as disclosed in the HUBCO
Disclosure Schedule, neither HUBCO nor any of its Subsidiaries has received any
written notice, citation, claim, assessment, proposed assessment or demand for
abatement alleging that HUBCO or any of its Subsidiaries (either directly or as
a successor-in-interest in connection with the enforcement of remedies to
realize the value of properties serving as collateral for outstanding loans) is
responsible for the correction or cleanup of any condition resulting from the
violation of any law, ordinance or other governmental regulation regarding
environmental matters which correction or cleanup would be material to the
business, operations, assets or financial condition of HUBCO and its
Subsidiaries taken as a whole. Except as disclosed in the HUBCO Disclosure
Schedule, HUBCO has no knowledge that any toxic or hazardous substances or
materials have been emitted, generated, disposed of or stored on any property
currently owned or leased by HUBCO or any of its subsidiaries in any manner that
violates or, after the lapse of time is reasonably likely to violate, any
presently existing federal, state or local law or regulation governing or
pertaining to such substances and materials, the violation of which would have a
material adverse effect on the business, operations, assets or financial
condition of HUBCO and its Subsidiaries, taken as a whole.
4.19 Reserves. As of September 30, 1998, the allowance for
possible loan losses in the HUBCO Financial Statements was adequate based upon
all factors required to be considered by HUBCO at that time in determining the
amount of such allowance. The methodology used to compute the allowance for
possible loan losses complies in all material respects with all applicable FDIC
and New Jersey Department of Banking policies. As of September 30, 1998, the
valuation allowance for OREO properties in the HUBCO Financial Statements was
adequate based upon all factors required to be considered by HUBCO at that time
in determining the amount of such allowance.
4.20. Year 2000 Compliance. HUBCO and the HUBCO Subsidiaries
have taken all reasonable steps necessary to address the software, accounting
and record keeping issues raised in order for the data processing systems used
in the business conducted by HUBCO and the HUBCO Subsidiaries to be
substantially Year 2000 compliant on or before the end of 1999 and HUBCO does
not expect the future cost of addressing such issues to be material.
4.21 Reorganization. As of the date hereof, after reviewing
the terms of this Agreement, with HUBCO's attorneys, HUBCO does not have any
reason to believe that the Merger will fail to as a reorganization under Section
368(a) of the Code.
4.22 Disclosure. No representation or warranty contained in
Article IV of this Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements herein not
misleading.
ARTICLE V - COVENANTS OF THE PARTIES
5.1. Conduct of the Business of LFB. During the period from
the date of this Agreement to the Effective Time, LFB and the Association shall,
and shall cause each LFB Subsidiary to, conduct their respective businesses only
in the ordinary course and consistent with past practice, except for
transactions permitted hereunder or with the prior written consent of HUBCO,
which consent will not be unreasonably withheld, provided, however, that the
Association may in its sole discretion cause the 1998 Directors Stock
Compensation Plan to purchase up to 8,845 shares of LFB Common Stock for
delivery to Plan participants, pursuant to the terms of the Plan. Each of LFB
and the Association also shall use its reasonable best efforts to (i) preserve
its business organization and that of the LFB Subsidiaries intact, (ii) keep
available to itself and the LFB Subsidiaries the present services of their
respective employees, and (iii) preserve for itself and HUBCO the goodwill of
its customers and those of the LFB Subsidiaries and others with whom business
relationships exist.
5.2. Negative Covenants. From the date hereof to the Effective
Time, except as otherwise approved by HUBCO in writing, or as set forth in the
LFB Disclosure Schedule, or as permitted or required by this Agreement, neither
LFB nor the Association will:
(a) change any provision of its Certificate of
Incorporation or any similar governing documents;
(b) change any provision of its Bylaws without the
consent of HUBCO which consent shall not be unreasonably withheld;
(c) change the number of shares of its authorized or
issued capital stock (other than upon exercise of stock options or warrants
described on the LFB Disclosure Schedule in accordance with the terms thereof)
or issue or grant any option, warrant, call, commitment, subscription, right to
purchase or agreement of any character relating to its authorized or issued
capital stock, or any securities convertible into shares of such stock, or
split, combine or reclassify any shares of its capital stock, or declare, set
aside or pay any dividend, or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock; provided,
however, that from the date hereof to the Effective Time, LFB may declare, set
aside or pay its regular dividends on the LFB Common Stock in a quarterly amount
equal to $0.06 per share, with the dividend payment dates to be coordinated with
HUBCO, it being the intention of the parties that the shareholders of LFB
receive dividends for any particular calendar quarter on either the LFB Common
Stock or the HUBCO Common Stock acquired in exchange therefor pursuant to the
terms of this Agreement but not both; provided, further, that nothing contained
herein shall be deemed to affect the ability of the Association to pay dividends
on its capital stock to LFB;
(d) grant any severance or termination pay (other
than pursuant to policies or contracts of LFB in effect on the date hereof and
disclosed to HUBCO in the LFB Disclosure Schedule) to, or enter into or amend
any employment or severance agreement with, any of its directors, officers or
employees; adopt any new employee benefit plan or arrangement of any type; or
award any increase in compensation or benefits to its directors, officers or
employees except in each case (i) as required by law or (ii) as specified in
Section 5.2 of the LFB Disclosure Schedule;
(e) sell or dispose of any substantial amount of
assets or voluntarily incur any significant liabilities other than in the
ordinary course of business consistent with past practices and policies or in
response to substantial financial demands upon the business of LFB or the
Association;
(f) make any capital expenditures in excess of
$50,000 in the aggregate, other than pursuant to binding commitments existing on
the date hereof, expenditures necessary to maintain existing assets in good
repair and expenditures described in business plans or budgets previously
furnished to HUBCO, except as set forth in Section 5.2 of the LFB Disclosure
Schedule;
(g) file any applications or make any contract with
respect to branching or site location or relocation;
(h) agree to acquire in any manner whatsoever (other
than to realize upon collateral for a defaulted loan) any business or entity or
make any new investments in securities other than investments in government,
municipal or agency bonds having a maturity of less than five years;
(i) make any material change in its accounting
methods or practices, other than changes required in accordance with generally
accepted accounting principles or regulatory authorities;
(j) take any action that would result in any of its
representations and warranties contained in Article III of this Agreement not
being true and correct in any material respect at the Effective Time or that
would cause any of its conditions to Closing not to be satisfied;
(k) without first conferring with HUBCO, make or
commit to make any new loan or other extension of credit in an amount of
$500,000 or more, renew for a period in excess of one year any existing loan or
other extension of credit in an amount of $500,000 or more, or increase by
$500,000 or more the aggregate credit outstanding to any borrower or group of
affiliated borrowers except such loan initiations, renewals or increases that
are committed as of the date of this Agreement and identified on the LFB
Disclosure Schedule and residential mortgage loans made in the ordinary course
of business in accordance with past practice; or
(l) agree to do any of the foregoing.
5.3. No Solicitation. So long as this Agreement remains in
effect, LFB and the Association shall not, directly or indirectly, encourage or
solicit or hold discussions or negotiations with, or provide any information to,
any person, entity or group (other than HUBCO) concerning any merger or sale of
shares of capital stock or sale of substantial assets or liabilities not in the
ordinary course of business, or similar transactions involving LFB or the
Association (an "Acquisition Transaction"). Notwithstanding the foregoing, LFB
may enter into discussions or negotiations or provide information in connection
with an unsolicited possible Acquisition Transaction if the Board of Directors
of LFB, after consulting with counsel, determines in the exercise of its
fiduciary responsibilities that such discussions or negotiations should be
commenced or such information should be furnished. LFB shall promptly
communicate to HUBCO the terms of any proposal, whether written or oral, which
it may receive in respect of any such Acquisition Transaction and the fact that
it is having discussions or negotiations with a third party about an Acquisition
Transaction.
5.4. Current Information. During the period from the date of
this Agreement to the Effective Time, each of LFB and HUBCO will cause one or
more of its designated representatives to confer with representatives of the
other party on a monthly or more frequent basis regarding its business,
operations, properties, assets and financial condition and matters relating to
the completion of the transactions contemplated herein. On a monthly basis, LFB
agrees to provide HUBCO, and HUBCO agrees to provide LFB, with internally
prepared profit and loss statements no later than 25 days after the close of
each calendar month. As soon as reasonably available, but in no event more than
45 days after the end of each fiscal quarter (other than the last fiscal quarter
of each fiscal year), LFB will deliver to HUBCO and HUBCO will deliver to LFB
their respective quarterly reports on Form 10-Q, as filed with the SEC under the
1934 Act. As soon as reasonably available, but in no event more than 90 days
after the end of each calendar year, LFB will deliver to HUBCO and HUBCO will
deliver to LFB their respective Annual Reports on Form 10-K as filed with the
SEC under the 1934 Act.
5.5. Access to Properties and Records; Confidentiality.
(a) LFB and the Association shall permit HUBCO and
its representatives, and HUBCO shall permit, and cause each HUBCO Subsidiary to
permit, LFB and its representatives, reasonable access to their respective
properties, and shall disclose and make available to HUBCO and its
representatives, or LFB and its representatives as the case may be, all books,
papers and records relating to its assets, stock ownership, properties,
operations, obligations and liabilities, including, but not limited to, all
books of account (including the general ledger), tax records, minute books of
directors' and shareholders' meetings (excluding information related to merger
matters), organizational documents, Bylaws, material contracts and agreements,
filings with any regulatory authority, accountants' work papers, litigation
files, plans affecting employees, and any other business activities or prospects
in which HUBCO and its representatives or LFB and its representatives may have a
reasonable interest. Neither party shall be required to provide access to or to
disclose information where such access or disclosure would violate or prejudice
the rights of any customer, would contravene any law, rule, regulation, order or
judgment or would waive any privilege. The parties will use their reasonable
best efforts to obtain waivers of any such restriction (other than waivers of
the attorney-client privilege) and in any event make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply. Notwithstanding the foregoing, LFB acknowledges that
HUBCO may be involved in discussions concerning other potential acquisitions and
HUBCO shall not be obligated to disclose such information to LFB except as such
information is disclosed to HUBCO's shareholders generally.
(b) All information furnished by the parties hereto
previously in connection with transactions contemplated by this Agreement or
pursuant hereto shall be used solely for the purpose of evaluating the Merger
contemplated hereby and shall be treated as the sole property of the party
delivering the information until consummation of the Merger contemplated hereby
and, if such Merger shall not occur, each party and each party's advisors shall
return to the other party all documents or other materials containing,
reflecting or referring to such information, will not retain any copies of such
information, shall use its reasonable best efforts to keep confidential all such
information, and shall not directly or indirectly use such information for any
competitive or other commercial purposes. In the event that the Merger
contemplated hereby does not occur, all documents, notes and other writings
prepared by a party hereto or its advisors based on information furnished by the
other party shall be promptly destroyed. The obligation to keep such information
confidential shall continue for five years from the date the proposed Merger is
abandoned but shall not apply to (i) any information which (A) the party
receiving the information can establish by convincing evidence was already in
its possession prior to the disclosure thereof to it by the other party; (B) was
then generally known to the public; (C) became known to the public through no
fault of the party receiving such information; or (D) was disclosed to the party
receiving such information by a third party not bound by an obligation of
confidentiality; or (ii) disclosures pursuant to a legal requirement or in
accordance with an order of a court of competent jurisdiction.
5.6. Regulatory Matters.
(a) For the purposes of holding the Shareholders
Meeting (as such term is defined in Section 5.7 hereof), and qualifying under
applicable federal and state securities laws the HUBCO Common Stock to be issued
to LFB shareholders in connection with the Merger, the parties hereto shall
cooperate in the preparation and filing by HUBCO with the SEC of a Registration
Statement including a combined proxy statement and prospectus satisfying all
applicable requirements of applicable state and federal laws, including the 1933
Act, the 1934 Act and applicable state securities laws and the rules and
regulations thereunder (such proxy statement and prospectus in the form mailed
by LFB and HUBCO to the LFB shareholders together with any and all amendments or
supplements thereto, being herein referred to as the "Proxy
Statement-Prospectus" and the various documents to be filed by HUBCO under the
1933 Act with the SEC to register the HUBCO Common Stock for sale, including the
Proxy Statement-Prospectus, are referred to herein as the "Registration
Statement").
(b) HUBCO shall furnish LFB with such information
concerning HUBCO and its Subsidiaries (including, without limitation,
information regarding other transactions which HUBCO is required to disclose) as
is necessary in order to cause the Proxy Statement-Prospectus, insofar as it
relates to such corporations, to comply with Section 5.6(a) hereof. HUBCO agrees
promptly to advise LFB if at any time prior to the Shareholders' Meeting any
information provided by HUBCO in the Proxy Statement-Prospectus becomes
incorrect or incomplete in any material respect and promptly to provide LFB with
the information needed to correct such inaccuracy or omission. HUBCO shall
promptly furnish LFB with such supplemental information as may be necessary in
order to cause the Proxy Statement-Prospectus, insofar as it relates to HUBCO
and the HUBCO Subsidiaries, to comply with Section 5.6(a) after the mailing
thereof to LFB shareholders.
(c) LFB shall furnish HUBCO with such information
concerning LFB as is necessary in order to cause the Proxy Statement-Prospectus,
insofar as it relates to LFB, to comply with Section 5.6(a) hereof. LFB agrees
promptly to advise HUBCO if at any time prior to the Shareholders' Meeting, any
information provided by LFB in the Proxy Statement-Prospectus becomes incorrect
or incomplete in any material respect and promptly to provide HUBCO with the
information needed to correct such inaccuracy or omission. LFB shall promptly
furnish HUBCO with such supplemental information as may be necessary in order to
cause the Proxy Statement-Prospectus, insofar as it relates to LFB and the
Association to comply with Section 5.6(a) after the mailing thereof to LFB
shareholders.
(d) HUBCO shall as promptly as practicable make such
filings as are necessary in connection with the offering of the HUBCO Common
Stock with applicable state securities agencies and shall use all reasonable
efforts to qualify the offering of such stock under applicable state securities
laws at the earliest practicable date. LFB shall promptly furnish HUBCO with
such information regarding the LFB shareholders as HUBCO requires to enable it
to determine what filings are required hereunder. LFB authorizes HUBCO to
utilize in such filings the information concerning LFB and the Association
provided to HUBCO in connection with, or contained in, the Proxy
Statement-Prospectus. HUBCO shall furnish LFB's counsel with copies of all such
filings and keep LFB advised of the status thereof. HUBCO and LFB shall as
promptly as practicable file the Registration Statement containing the Proxy
Statement-Prospectus with the SEC, and each of HUBCO and LFB shall promptly
notify the other of all communications, oral or written, with the SEC concerning
the Registration Statement and the Proxy Statement-Prospectus.
(e) HUBCO shall cause the HUBCO Common Stock issuable
pursuant to the Merger to be listed on NASDAQ at the Effective Time. HUBCO shall
cause the HUBCO Common Stock which shall be issuable pursuant to exercise of
Stock Options to be accepted for listing on NASDAQ when issued.
(f) The parties hereto will cooperate with each other
and use their reasonable best efforts to prepare all necessary documentation, to
effect all necessary filings and to obtain all necessary permits, consents,
approvals and authorizations of all third parties and Governmental Entities
necessary to consummate the transactions contemplated by this Agreement as soon
as possible, including, without limitation, those required by the FDIC, the FRB,
the OTS, the Department, the SEC and (if required) the DEP. Without limiting the
foregoing, the parties shall use reasonable business efforts to file for
approval or waiver by the appropriate bank regulatory agencies within 45 days
after the date hereof. The parties shall each have the right to review in
advance (and shall do so promptly) all filings with, including all information
relating to the other, as the case may be, and any of their respective
subsidiaries, which appears in any filing made with, or written material
submitted to, any third party or Governmental Entity in connection with the
transactions contemplated by this Agreement.
(g) Each of the parties will promptly furnish each
other with copies of written communications received by them or any of their
respective subsidiaries from, or delivered by any of the foregoing to, any
Governmental Entity in respect of the transactions contemplated hereby.
(h) LFB acknowledges that HUBCO is in or may be in
the process of acquiring other banks and financial institutions and that in
connection with such acquisitions, information concerning LFB may be required to
be included in the registration statements, if any, for the sale of securities
of HUBCO or in SEC reports in connection with such acquisitions. HUBCO shall
provide LFB and its counsel with copies of such registration statements at the
time of filing. LFB agrees to provide HUBCO with any information, certificates,
documents or other materials about LFB as are reasonably necessary to be
included in such other SEC reports or registration statements, including
registration statements which may be filed by HUBCO prior to the Effective Time.
LFB shall use its reasonable efforts to cause its attorneys and accountants to
provide HUBCO and any underwriters for HUBCO with any consents, comfort letters,
opinion letters, reports or information which are necessary to complete the
registration statements and applications for any such acquisition or issuance of
securities. HUBCO shall reimburse LFB for reasonable expenses thus incurred by
LFB should this transaction be terminated for any reason. HUBCO shall not file
with the SEC any registration statement or amendment thereto or supplement
thereof containing information regarding LFB unless LFB shall have consented in
writing to such filing, which consent shall not be unreasonably delayed or
withheld.
(i) Between the date of this Agreement and the
Effective Time, LFB shall cooperate with HUBCO to reasonably conform LFB's
policies and procedures regarding applicable regulatory matters to those of
HUBCO, as HUBCO may reasonably identify to LFB from time to time, provided,
however, that implementation of such conforming actions may at LFB's discretion
be delayed until the time period following receipt of shareholder and all
regulatory approvals, as provided at Section 5.15.
5.7. Approval of Shareholders. LFB will (i) take all steps
necessary duly to call, give notice of, convene and hold a meeting of the
shareholders of LFB (the "Shareholders Meeting") for the purpose of securing the
approval of shareholders of this Agreement, (ii) subject to the qualification
set forth in Section 5.3 hereof and the right not to make a recommendation or to
withdraw a recommendation if (x) its investment banker withdraws its fairness
opinion prior to the Shareholders' Meeting or (y) LFB's Board of Directors,
after consulting with counsel, determines in the exercise of its fiduciary
duties that such recommendation should not be made or should be withdrawn,
recommend to the shareholders of LFB the approval of this Agreement and the
transactions contemplated hereby and use its reasonable best efforts to obtain,
as promptly as practicable, such approval, and (iii) cooperate and consult with
HUBCO with respect to each of the foregoing matters.
5.8. Further Assurances.
(a) Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable best efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
satisfy the conditions to Closing and to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
using reasonable efforts to lift or rescind any injunction or restraining order
or other order adversely affecting the ability of the parties to consummate the
transactions contemplated by this Agreement and using its reasonable best
efforts to prevent the breach of any representation, warranty, covenant or
agreement of such party contained or referred to in this Agreement and to
promptly remedy the same. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall take all such necessary action. Nothing in this section shall be construed
to require any party to participate in any threatened or actual legal,
administrative or other proceedings (other than proceedings, actions or
investigations to which it is a party or subject or threatened to be made a
party or subject) in connection with consummation of the transactions
contemplated by this Agreement unless such party shall consent in advance and in
writing to such participation and the other party agrees to reimburse and
indemnify such party for and against any and all costs and damages related
thereto if the Merger is not consummated.
(b) HUBCO agrees that from the date hereof to the
Effective Time, except as otherwise approved by LFB in writing or as permitted
or required by this Agreement, HUBCO will use reasonable business efforts to
maintain and preserve intact its business organization, properties, leases,
employees and advantageous business relationships, and HUBCO will not, nor will
it permit any HUBCO Subsidiary to, take any action: (i) that would result in any
of its representations and warranties contained in Article IV of this Agreement
not being true and correct in any material respect at, or prior to, the
Effective Time, or (ii) that would cause any of its conditions to Closing not to
be satisfied, or (iii) that would constitute a breach or default of its
obligations under this Agreement.
(c) HUBCO, the Bank, LFB and the Association will use
reasonable efforts to cause the Merger to occur on or before June 30, 1999.
5.9. Public Announcements. HUBCO and LFB shall cooperate with
each other in the development and distribution of all news releases and other
public filings and disclosures with respect to this Agreement or the Merger
transactions contemplated hereby, and HUBCO and LFB agree that unless approved
mutually by them in advance, they will not issue any press release or written
statement for general circulation relating primarily to the transactions
contemplated hereby, except as may be otherwise required by law or regulation
upon the advice of counsel.
5.10. Failure to Fulfill Conditions. In the event that HUBCO
or LFB determines that a material condition to its obligation to consummate the
transactions contemplated hereby cannot be fulfilled on or prior to September
30, 1999 (the "Cutoff Date") and that it will not waive that condition, it will
promptly notify the other party. Except for any acquisition or merger
discussions HUBCO may enter into with other parties, LFB and HUBCO will promptly
inform the other of any facts applicable to LFB or HUBCO, respectively, or their
respective directors or officers, that would be likely to prevent or materially
delay approval of the Merger by any Governmental Entity or which would otherwise
prevent or materially delay completion of the Merger.
5.11. Employee Matters.
(a) Following consummation of the Merger, HUBCO
agrees with LFB to honor the existing written employment and severance contracts
with officers and employees of LFB and Association that are included in the LFB
Disclosure Schedule.
(b) Following consummation of the Merger, the Bank
will decide whether to continue each of the Association and/or LFB's pension and
welfare plans for the benefit of employees of the Association and LFB, or to
have such employees become covered under a HUBCO Pension and Welfare Plan. If
HUBCO decides to cover Association and LFB employees under a HUBCO Pension and
Welfare Plan, such employees will receive credit for prior years of service with
the Association and/or LFB for purposes of determining eligibility to
participate, and vesting, if applicable. No prior existing condition exclusion
limitation or uninsured waiting periods shall be imposed with respect to any
medical coverage plan as a result of the Merger.
(c) Any person who was serving as an employee of
either LFB or the Association immediately prior to the Effective Time (other
than those employees covered by either a written employment agreement or the
arrangements set forth in Section 5.11 of the LFB Disclosure Schedule) whose
employment is terminated by HUBCO or the Bank or any of the HUBCO Subsidiaries
within one year after the Effective Time (unless termination of such employment
is for Cause (as defined below)) shall be entitled to a severance payment from
the Bank equal in amount to two weeks' base pay for each full year such employee
was employed by LFB or the Association or any successor or predecessor thereto
or other LFB Subsidiary, subject to a minimum of two weeks' severance and a
maximum of 26 weeks' severance, together with any accrued but unused and unpaid
vacation leave with respect to the calendar year in which termination occurs.
For purposes of this Section 5.11, "Cause" shall mean termination because of the
employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, failure to perform stated duties or
willful violation of any law, rule, or regulation (other than traffic violations
or similar offenses).
(d)(i) Each participant in the LFB ESOP not fully
vested will, in accordance with the terms of the LFB ESOP, become fully vested
in his or her LFB ESOP account as of the Effective Time. As soon as practicable
after the execution of this Agreement, LFB and the Association will cooperate to
cause the LFB ESOP to be amended, if necessary, and other action taken, in a
manner reasonably acceptable to LFB and HUBCO, to provide that the LFB ESOP will
terminate according to its terms upon the Effective Time. Between the date
hereof and the Effective Time, the existing LFB ESOP indebtedness shall be paid
in the ordinary course of business pursuant to the existing loan amortization
schedule and LFB or the Association shall make such contributions to the LFB
ESOP as necessary to fund such payments. Any indebtedness of the LFB ESOP
remaining as of the Effective Time shall be repaid from the Trust associated
with the LFB ESOP through application of cash proceeds or sale of the HUBCO
Common Stock received by the LFB ESOP; provided, however, that any related sale
or distribution of shares by the LFB ESOP shall be effected in accordance with
the requirements of federal and any applicable state securities laws and
regulations, including any rules of the NASD. Upon the repayment of the LFB ESOP
loan, the remaining funds in the LFB ESOP suspense account will be allocated (to
the extent permitted by Sections 401(a), 415 or 4975 of the Code and the
applicable laws and regulations including, without limitation, the applicable
provisions of ERISA) to LFB ESOP participants (as determined under the terms of
the LFB ESOP). LFB and HUBCO agree that, subject to the conditions described
herein, as soon as practicable after the Effective Time and repayment of the LFB
ESOP loan, participants in the LFB ESOP shall be entitled at their election to
have the amounts in their LFB ESOP accounts either distributed to them in a lump
sum or rolled over to another tax-qualified plan (including HUBCO or Bank plans
to the extent permitted by HUBCO) or individual retirement account.
(ii) The actions relating to termination of the LFB
ESOP will be adopted conditioned upon the consummation of the Merger and upon
receiving a favorable determination letter from the Internal Revenue Service
("IRS") with regard to the continued qualification and termination of the LFB
ESOP after any required amendments. LFB will submit appropriate requests for any
such determination letter to the IRS and will use their best efforts to seek the
issuance of such letter as soon as practicable following the date hereof. LFB
and HUBCO will adopt such additional amendments to the LFB ESOP as may be
reasonably required by the IRS as a condition to granting such determination
letter, provided that such amendments do not (A) substantially change the terms
outlined herein, (B) have a Material Adverse Change other than as disclosed in
the LFB Disclosure Schedule on LFB or (C) result in an additional material
liability to HUBCO.
(iii) As of and following the Effective Time, HUBCO
shall cause the LFB ESOP to be maintained for the exclusive benefit of employees
and other persons who were participants or beneficiaries therein prior to the
Effective Time and proceed with termination of the LFB ESOP through distribution
of its assets in accordance with its terms subject to the amendments described
herein and as otherwise may be required to comply with applicable law or to
obtain a favorable determination from the IRS as to the continuing qualified
status of the LFB ESOP, provided, however, that no such termination
distributions of the LFB ESOP shall occur after the Effective Time until a
favorable termination letter has been received from the IRS. LFB shall cause the
LFB ESOP to be amended, effective as of the Effective Time, to provide that the
administrative committee thereof shall consist of two individuals appointed by
HUBCO as of the Effective Time.
(e) HUBCO may elect to continue or terminate LFB's
defined benefit pension plan or merge such plan into HUBCO's defined benefit
pension plan.
(f) HUBCO may elect to continue LFB's 401(k) plan or
merge such plan into HUBCO's 401(k) plan. Employees of LFB and the Association
who become employees of HUBCO or any HUBCO Subsidiary shall either continue in
LFB's 401(k) plan or become entitled to participate in the applicable HUBCO
retirement savings plan ("401(k) Plan") in accordance with its terms.
(g) HUBCO will honor the Little Falls Bank Directors
Consultation and Retirement Plan, as it has been amended to terminate at the
Effective Time and pay-out not more than $400,000 (all of which shall have been
accrued on the books of LFB by Closing) in the aggregate to the participants
thereunder in full satisfaction of the Association's and LFB's obligations.
HUBCO will also honor the Directors Health Benefits Plan as it has been amended
to terminate at the Effective Time and pay-out not more than the $230,000, which
has been accrued on the books of LFB as a liability of LFB in connection
therewith, to the participants thereunder in full satisfaction of the
Association and LFB's obligations thereunder.
(h) At the Effective Time LFB may pay its employees
for all unused vacation as of the Effective Time.
(i) HUBCO at the Closing will offer each director of
LFB a position on a HUBCO advisory board for a period of 36 months with
continuation of current director fees (only for any director receiving direct
fees on the date of this Agreement) of $1,440 per month to such director during
such period as scheduled in the LFB Disclosure Schedule.
(j) As of the Effective Time, all awards under LFB's
Stock Option MSBP and Director Plans shall be vested and non-forfeitable.
(k) Association and LFB shall continue its employee,
officer and director bonus policies as scheduled in the LFB Disclosure Schedule
through Closing.
(l) As of the Effective Time, LFB and the Association
shall terminate Leonard G. Romaine as President and Chief Executive Officer upon
payment of a $200,000 lump sum. On or before Effective Time, HUBCO shall enter
into a Consulting Agreement as detailed at Schedule 5.11(l) of the LFB
Disclosure Schedule.
(m) No employment agreements between the Association
and its employees shall be renewed from the date of this Agreement through the
Effective Time.
5.12. Disclosure Supplements. From time to time prior to the
Effective Time, each party hereto will promptly supplement or amend (by written
notice to the other) its respective Disclosure Schedules delivered pursuant
hereto with respect to any matter hereafter arising which, if existing,
occurring or known at the date of this Agreement, would have been required to be
set forth or described in such Schedules or which is necessary to correct any
information in such Schedules which has been rendered materially inaccurate
thereby. For the purpose of determining satisfaction of the conditions set forth
in Article VI and subject to Sections 6.2(a) and 6.3(a), no supplement or
amendment to the parties' respective Disclosure Schedules which corrects any
representation or warranty which was untrue when made shall eliminate the other
party's right (if any) to terminate this Agreement based on the original untruth
of the representation or warranty; provided, that the other party shall be
deemed to have waived such right if it does not exercise such right within 15
days after receiving the correcting supplement or amendment.
5.13. Transaction Expenses of LFB.
(a) For planning purposes, LFB shall, within 30 days
from the date hereof, provide HUBCO with its estimated budget of
transaction-related expenses reasonably anticipated to be payable by LFB in
connection with this transaction based on facts and circumstances then currently
known, including the fees and expenses of counsel, accountants, investment
bankers and other professionals. LFB shall promptly notify HUBCO if or when it
determines that it will expect to exceed its budget.
(b) Promptly after the execution of this Agreement,
LFB shall ask all of its attorneys and other professionals to render current and
correct invoices for all unbilled time and disbursements within 30 days. LFB
shall accrue and/or pay all of such amounts as soon as possible.
(c) LFB shall cause its professionals to render
monthly invoices within 30 days after the end of each month. LFB shall advise
HUBCO monthly of all out-of-pocket expenses which LFB has incurred in connection
with this transaction.
(d) HUBCO, in reasonable consultation with LFB, shall
make all arrangements with respect to the printing and mailing of the Proxy
Statement-Prospectus.
5.14 Indemnification.
(a) For a period of six years after the Effective
Time, HUBCO shall indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date hereof or who becomes prior to the
Effective Time, a director, officer, employee or agent of LFB or the Association
or serves or has served at the request of LFB or the Association in any capacity
with any other person (collectively, the "Indemnitees") against any and all
claims, damages, liabilities, losses, costs, charges, expenses (including,
without limitation, reasonable costs of investigation, and the reasonable fees
and disbursements of legal counsel and other advisers and experts as incurred),
judgments, fines, penalties and amounts paid in settlement, asserted against,
incurred by or imposed upon any Indemnitee by reason of the fact that he or she
is or was a director, officer, employee or agent of LFB or the Association or
serves or has served at the request of LFB or the Association in any capacity
with any other person, in connection with, arising out of or relating to (i) any
threatened, pending or completed claim, action, suit or proceeding (whether
civil, criminal, administrative or investigative), including, without
limitation, any and all claims, actions, suits, proceedings or investigations by
or on behalf of or in the right of or against LFB or the Association or any of
their respective affiliates, or by any former or present shareholder of LFB
(each a "Claim" and collectively, "Claims"), including, without limitation, any
Claim which is based upon, arises out of or in any way relates to the Merger,
the Proxy Statement/Prospectus, this Agreement, any of the transactions
contemplated by this Agreement, the Indemnitee's service as a member of the
Board of Directors of LFB or the Association or of any committee of LFB's or the
Association's Board of Directors, the events leading up to the execution of this
Agreement, any statement, recommendation or solicitation made in connection
therewith or related thereto and any breach of any duty in connection with any
of the foregoing, or (ii) the enforcement of the obligations of HUBCO set forth
in this Section 5.14, in each case to the fullest extent which LFB or the
Association would have been permitted under any applicable law and their
respective Certificates of Incorporation or Bylaws had the Merger not occurred
(and HUBCO shall also advance expenses as incurred to the fullest extent so
permitted). Notwithstanding the foregoing, but subject to subsection (b) below,
HUBCO shall not provide any indemnification or advance any expenses with respect
to any Claim which relates to a personal benefit improperly paid or provided, or
alleged to have been improperly paid or provided, to the Indemnitee, but HUBCO
shall reimburse the Indemnitee for costs incurred by the Indemnitee with respect
to such Claim when and if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final and nonappealable,
that the Indemnitee was not improperly paid or provided with the personal
benefit alleged in the Claim.
(b) From and after the Effective Time, HUBCO shall
assume and honor any obligation of LFB or the Association immediately prior to
the Effective Time with respect to the indemnification of the Indemnitees
arising out of the Certificate of Incorporation or Bylaws of LFB or the
Association, or arising out of any written indemnification agreements between
LFB and/or the Association and such persons disclosed in the LFB Disclosure
Schedule, as if such obligations were pursuant to a contract or arrangement
between HUBCO and such Indemnitees.
(c) In the event HUBCO or any of its successors or
assigns (i) reorganizes or consolidates with or merges into or enters into
another business combination transaction with any other person or entity and is
not the resulting, continuing or surviving corporation or entity of such
consolidation, merger or transaction, or (ii) liquidates, dissolves or transfers
all or substantially all of its properties and assets to any person or entity,
then, and in each such case, proper provision shall be made so that the
successors and assigns of HUBCO assume the obligations set forth in this Section
5.14.
(d) HUBCO shall cause LFB's and the Association's
officers and directors to be covered under a run-off rider applicable to LFB and
the Association under HUBCO's then current officers' and directors' liability
insurance policy for a period of six years after the Effective Time, or, in the
alternative at HUBCO's option, to be covered under a tail extension of LFB's and
the Association's existing officers' and directors' liability insurance policy.
However, HUBCO shall only be required to insure such persons upon terms and for
coverages substantially similar to LFB's and the Association's existing
officers' and directors' liability insurance.
(e) Any Indemnitee wishing to claim indemnification
under this Section 5.14 shall promptly notify HUBCO upon learning of any Claim,
but the failure to so notify shall not relieve HUBCO of any liability it may
have to such Indemnitee if such failure does not materially prejudice HUBCO. In
the event of any Claim (whether arising before or after the Effective Time) as
to which indemnification under this Section 5.14 is applicable, (x) HUBCO shall
have the right to assume the defense thereof and HUBCO shall not be liable to
such Indemnitees for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnitee in connection with the defense thereof,
except that if HUBCO elects not to assume such defense, or counsel for the
Indemnitees advises that there are issues which raise conflicts of interest
between HUBCO and the Indemnitees, the Indemnitees may retain counsel
satisfactory to them, and HUBCO shall pay the reasonable fees and expenses of
such counsel for the Indemnitees as statements therefor are received; provided,
however, that HUBCO shall be obligated pursuant to this Section 5.14(e) to pay
for only one firm of counsel for all Indemnitees in any jurisdiction with
respect to a matter unless the use of one counsel for multiple Indemnitees would
present such counsel with a conflict of interest that is not waived, and (y) the
Indemnitees will cooperate in the defense of any such matter. HUBCO shall not be
liable for settlement of any claim, action or proceeding hereunder unless such
settlement is effected with its prior written consent. Notwithstanding anything
to the contrary in this Section 5.14, HUBCO shall not have any obligation
hereunder to any Indemnitee when and if a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final and
nonappealable, that the indemnification of such Indemnitee in the manner
contemplated hereby is prohibited by applicable law or public policy.
5.15 Bank Policies and Bank Merger. Notwithstanding that LFB
believes that it has established all reserves and taken all provisions for
possible loan losses required by GAAP and applicable laws, rules and
regulations, LFB recognizes that HUBCO may have adopted different loan, accrual
and reserve policies (including loan classifications and levels of reserves for
possible loan losses). From and after the date of this Agreement to the
Effective Time and in order to formulate the plan of integration for the Bank
Merger, LFB and HUBCO shall consult and cooperate with each other with respect
to (i) conforming to the extent appropriate, based upon such consultation, LFB's
loan, accrual and reserve policies and LFB's other policies and procedures
regarding applicable regulatory matters, including without limitation Federal
Reserve, the Bank Secrecy Act and FDIC matters, to those policies of HUBCO as
HUBCO may reasonably identify to LFB from time to time, (ii) new extensions of
credit or material revisions to existing terms of credits by the Association, in
each case where the aggregate exposure exceeds $500,000, and (iii) conforming,
based upon such consultation, the composition of the investment portfolio and
overall asset/liability management position of LFB and the Association to the
extent appropriate; provided that any required change in LFB's practices in
connection with the matters described in clause (i) or (iii) above need not be
effected (A) more than five days prior to the Effective Time and (B) unless and
until HUBCO agrees in writing that all conditions precedent to the Determination
Date have occurred and HUBCO has provided the Closing Notice. No accrual or
reserve made by LFB or any LFB Subsidiary pursuant to this subsection, or any
litigation or regulatory proceeding arising out of any such accrual or reserve,
shall constitute or be deemed to be a breach or violation of any representation,
warranty, covenant, condition or other provision of this Agreement or to
constitute a termination event within the meaning of Section 7.1(d) or Section
7.1(g) hereof.
5.16 Tax-Free Reorganization Treatment. Before the Effective
Time, neither HUBCO nor LFB shall intentionally take, fail to take, or cause to
be taken or not taken any action within its control, which would disqualify the
Merger as a "reorganization" within the meaning of Section 368(a) of the Code.
Subsequent to the Effective Time, HUBCO shall not take and shall cause the
Surviving Corporation not to take any action within their control that would
disqualify the Merger as such a "reorganization" under the Code.
5.17 Comfort Letters. HUBCO shall cause Arthur Andersen, its
independent public accountants, to deliver to LFB, and LFB shall cause R&C, its
independent public accountants, to deliver to HUBCO and to its officers and
directors who sign the Registration Statement for this transaction, a short-form
"comfort letter" or "agreed upon procedures" letter, dated the date of the
mailing of the Proxy Statement-Prospectus for the Shareholders Meeting of LFB,
in the form customarily issued by such accountants at such time in transactions
of this type.
5.18 Affiliates. Promptly, but in any event within two weeks,
after the execution and delivery of this Agreement, LFB shall deliver to HUBCO
(a) a letter identifying all persons who, to the knowledge of LFB, may be deemed
to be affiliates of LFB under Rule 145 of the 1933 Act, including, without
limitation, all directors and executive officers of LFB and (b) cause each
officer and director, and use its reasonable best efforts to cause each other
person who may be deemed to be an affiliate of LFB, to execute and deliver to
HUBCO a letter agreement, substantially in the form of Exhibit 5.18, agreeing to
comply with Rule 145.
ARTICLE VI - CLOSING CONDITIONS
6.1. Conditions to Each Party's Obligations Under this
Agreement. The respective obligations of each party under this Agreement to
consummate the Merger shall be subject to the satisfaction, or, where
permissible under applicable law, waiver at or prior to the Effective Time of
the following conditions:
(a) Approval of Shareholders; SEC Registration. This
Agreement and the transactions contemplated hereby shall have been approved by
the requisite vote of the shareholders of LFB and, if required, by the requisite
vote of the shareholders of HUBCO. The HUBCO Registration Statement shall have
been declared effective by the SEC and shall not be subject to a stop order or
any threatened stop order, and the issuance of the HUBCO Common Stock shall have
been qualified in every state where such qualification is required under the
applicable state securities laws.
(b) Regulatory Filings. All necessary regulatory or
governmental approvals and consents (including without limitation any required
approval of the FDIC, the OTS, the Department, the FRB, the SEC and (if
necessary) the DEP) required to consummate the transactions contemplated hereby
shall have been obtained without the imposition of any non-standard or
non-customary term or condition which would materially impair the value of LFB
and the Association, taken as a whole, to HUBCO. All conditions required to be
satisfied prior to the Effective Time by the terms of such approvals and
consents shall have been satisfied; and all statutory waiting periods in respect
thereof (including the Hart-Scott-Rodino waiting period if applicable) shall
have expired.
(c) Suits and Proceedings. No order, judgment or
decree shall be outstanding against a party hereto or a third party that would
have the effect of preventing completion of the Merger; no suit, action or other
proceeding shall be pending or threatened by any Governmental Entity in which it
is sought to restrain or prohibit the Merger; and no suit, action or other
proceeding shall be pending before any court or Governmental Entity in which it
is sought to restrain or prohibit the Merger or obtain other substantial
monetary or other relief against one or more parties hereto in connection with
this Agreement and which HUBCO or LFB determines in good faith, based upon the
advice of their respective counsel, makes it inadvisable to proceed with the
Merger because any such suit, action or proceeding has a significant potential
to be resolved in such a way as to deprive the party electing not to proceed of
any of the material benefits to it of the Merger.
(d) Tax Opinion. HUBCO and LFB shall each have
received an opinion, dated as of the Effective Time, of Pitney, Hardin, Kipp &
Szuch, reasonably satisfactory in form and substance to LFB and its counsel and
to HUBCO, based upon representation letters reasonably required by such counsel,
dated on or about the date of such opinion, and such other facts and
representations as such counsel may reasonably deem relevant, to the effect
that: (i) the Merger will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368(a) of the Code;
(ii) no gain or loss shall be recognized upon the exchange of LFB Common Stock
solely for Hubco Common Stock; (iii) in the case of LFB shareholders who receive
cash in whole or in part in exchange for their LFB Common Stock, gain, if any,
realized by the recipient on the exchange shall be recognized, but in an amount
not in excess of the amount of such cash; (iv) in the case of LFB shareholders
who recognize gain on the exchange of their LFB Common Stock and in whose hands
such stock was a capital asset on the date of the exchange, such gain shall be
treated as capital gain (long-term or short-term, depending on the shareholders'
respective holding periods for their LFB Common Stock), except in the case of
any such shareholder as to which the exchange has the effect of a dividend
within the meaning of Section 356(a)(2) of the Code by reason of the
applicability of the stock attribution rules of Section 318 of the Code, it
being understood that the applicability of such attribution rules to any
particular shareholder shall depend on such shareholder's particular factual
circumstances; (v) the basis of any Hubco Common Stock received in exchange for
LFB Common Stock shall equal the basis of the recipient's LFB Common Stock
surrendered on the exchange, reduced by the amount of cash received, if any, on
the exchange, and increased by the amount of the gain recognized, if any, on the
exchange (whether characterized as dividend or capital gain income); and (vi)
the holding period for any Hubco Common Stock received in exchange for LFB
Common Stock will include the period during which the LFB Common Stock
surrendered on the exchange was held, provided such stock was held as a capital
asset on the date of the exchange.
6.2. Conditions to the Obligations of HUBCO Under this
Agreement. The obligations of HUBCO under this Agreement shall be further
subject to the satisfaction or waiver, at or prior to the Effective Time, of the
following conditions:
(a) Representations and Warranties; Performance of
Obligations of LFB and the Association. Except for those representations which
are made as of a particular date, the representations and warranties of LFB
contained in this Agreement shall be true and correct in all material respects
on the Closing Date as though made on and as of the Closing Date, except to the
extent waived pursuant to Section 5.12 hereof. LFB shall have performed in all
material respects the agreements, covenants and obligations to be performed by
it prior to the Closing Date. With respect to any representation or warranty
which as of the Closing Date has required a supplement or amendment to the LFB
Disclosure Schedule to render such representation or warranty true and correct
in all material respects as of the Closing Date, the representation and warranty
shall be deemed true and correct as of the Closing Date only if (i) the
information contained in the supplement or amendment to the Disclosure Schedule
related to events occurring following the execution of this Agreement and (ii)
the facts disclosed in such supplement or amendment would not either alone, or
together with any other supplements or amendments to the LFB Disclosure
Schedule, materially adversely affect the representation as to which the
supplement or amendment relates.
(b) Opinion of Counsel. HUBCO shall have received an
opinion of counsel to LFB, dated the Closing Date, in form and substance
reasonably satisfactory to HUBCO, substantially to the effect set forth in
accordance with Exhibit 6.2(b) hereto.
(c) Certificates. LFB shall have furnished HUBCO with
such certificates of its officers or other documents to evidence fulfillment of
the conditions set forth in this Section 6.2 as HUBCO may reasonably request.
(d) Legal Fees. LFB shall have furnished HUBCO with
letters from all attorneys representing LFB and the Association in any matters
confirming that all legal fees in excess of $5,000 have been paid in full for
services rendered as of the Effective Time.
(e) Merger Related Expense. LFB shall have provided
HUBCO with an accounting of all merger related expenses incurred by it through
the Closing Date, including a good faith estimate of such expenses incurred but
as to which invoices have not been submitted as of the Closing Date. The merger
related expenses of LFB, other than printing expenses (which are within the
control of HUBCO), shall be reasonable, taking into account normal and customary
billing rates, fees and expenses for similar transactions. Any amounts less than
10 percent over budget shall be presumed reasonable.
(f) Termination of Director Retirement,
Post-Employment Health Benefit Plans and Option Grants. LFB shall have
effectively terminated the Director Retirement Plan with no more than $400,000
in required payments and all of the participants shall have agreed to the
termination of such Plan and the limitation on such payments and the waiver of
any other payments or benefits. LFB shall have effectively terminated the
January 1, 1995 Director Health Benefits Plan ("Directors Health Benefits
Plan")with payments no more than the amount accrued as of the Effective Time on
its books (which shall be no more than $230,000 above the amount accrued on the
date hereof) and all of the participants shall have agreed to the termination of
such Plan and the waiver of any other payments or benefits. The Directors of LFB
and/or the Association shall, irrespective of any provision in this Agreement or
in the LFB Stock Option Plan or any of the Option Grant Agreements, consent to
the expiration of all outstanding stock options awarded by LFB to the directors,
if not exercised within 90 days from the Effective Time.
6.3. Conditions to the Obligations of LFB Under this
Agreement. The obligations of LFB under this Agreement shall be further subject
to the satisfaction or waiver, at or prior to the Effective Time, of the
following conditions:
(a) Representations and Warranties; Performance of
Obligations of HUBCO. Except for those representations which are made as of a
particular date, the representations and warranties of HUBCO contained in this
Agreement shall be true and correct in all material respects on the Closing Date
as though made on and as of the Closing Date, except to the extent waived
pursuant to Section 5.12 hereof. HUBCO shall have performed in all material
respects the agreements, covenants and obligations to be performed by it prior
to the Closing Date. With respect to any representation or warranty which as of
the Closing Date has required a supplement or amendment to the HUBCO Disclosure
Schedule to render such representation or warranty true and correct in all
material respects as of the Closing Date, the representation and warranty shall
be deemed true and correct as of the Closing Date only if (i) the information
contained in the supplement or amendment to the Disclosure Schedule related to
events occurring following the execution of this Agreement and (ii) the facts
disclosed in such supplement or amendment would not either alone, or together
with any other supplements or amendments to the HUBCO Disclosure Schedule,
materially adversely affect the representation as to which the supplement or
amendment relates.
(b) Opinion of Counsel to HUBCO. LFB shall have
received an opinion of counsel to HUBCO, dated the Closing Date, in form and
substance reasonably satisfactory to LFB, substantially to the effect set forth
in accordance with Exhibit 6.3(b) hereto.
(c) Fairness Opinion. LFB shall have received an
opinion from FinPro, dated no more than three days prior to the date the Proxy
Statement-Prospectus is mailed to LFB's shareholders (and if it shall become
necessary to resolicit proxies thereafter, dated no more than three days prior
to the date of any substantive amendment to the Proxy Statement-Prospectus), to
the effect that, in its opinion, the consideration to be paid to shareholders of
LFB hereunder is fair to such shareholders from a financial point of view
("Fairness Opinion") and such Fairness Opinion shall be updated as of the
Effective Time.
(d) Certificates. HUBCO shall have furnished LFB with
such certificates of its officers and such other documents to evidence
fulfillment of the conditions set forth in this Section 6.3 as LFB may
reasonably request.
ARTICLE VII - TERMINATION, AMENDMENT AND WAIVER
7.1. Termination. This Agreement may be terminated prior to
the Effective Time, whether before or after approval of this Agreement by the
shareholders of LFB:
(a) by mutual written consent of the parties hereto;
(b) by HUBCO or LFB (i) if the Effective Time shall
not have occurred on or prior to the Cutoff Date unless the failure of such
occurrence shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe its agreements set forth herein to be performed
or observed by such party at or before the Effective Time, or (ii) if a vote of
the shareholders of LFB is taken and such shareholders fail to approve this
Agreement at the meeting (or any adjournment or postponement thereof) held for
such purpose (provided that the terminating party shall not be in material
breach of any of its obligations under Section 5.7 hereof), or (iii) if a vote
of the shareholders of HUBCO is required by applicable NASDAQ rules, such vote
is taken and such shareholders fail to approve this Agreement at the meeting (or
any adjournment or postponement thereof) held for such purpose (provided that
the terminating party shall not be in material breach of any of its obligations
under Section 5.7 hereof);
(c) by HUBCO or LFB upon written notice to the other
if any application for regulatory or governmental approval necessary to
consummate the Merger and the other transactions contemplated hereby shall have
been denied or withdrawn at the request or recommendation of the applicable
regulatory agency or Governmental Entity or by HUBCO upon written notice to LFB
if any such application is approved with conditions (other than conditions which
are customary or standard in such regulatory approvals) which would materially
impair the value of LFB and the Association, taken as a whole, to HUBCO;
(d) by HUBCO if (i) there shall have occurred an LFB
Material Adverse Change from that disclosed by LFB in LFB's Quarterly Report on
Form 10-Q for the nine months ended September 30, 1998 (it being understood that
those matters disclosed in the LFB Disclosure Schedule shall not be deemed to
constitute such a material adverse effect) or (ii) there was a material breach
in any representation, warranty, covenant, agreement or obligation of LFB
hereunder and such breach shall not have been remedied within 30 days after
receipt by LFB of notice in writing from HUBCO to LFB specifying the nature of
such breach and requesting that it be remedied;
(e) by LFB, if (i) there shall have occurred a HUBCO
Material Adverse Change from that disclosed by HUBCO in HUBCO's Report on Form
10-Q for the nine months ended September 30, 1998, which change shall have
resulted in a material adverse effect on HUBCO (it being understood that those
matters disclosed in the HUBCO Disclosure Schedule shall not be deemed to
constitute such a material adverse effect); or (ii) there was a material breach
in any representation, warranty, covenant, agreement or obligation of HUBCO
hereunder and such breach shall not have been remedied within 30 days after
receipt by HUBCO of notice in writing from LFB specifying the nature of such
breach and requesting that it be remedied;
(f) by LFB, if LFB's Board of Directors shall have
approved an Acquisition Transaction after determining, upon advice of counsel,
that such approval was necessary in the exercise of its fiduciary obligations
under applicable laws and have agreed in writing that a Triggering Event has
occurred under the HUBCO Stock Option;
(g) by HUBCO if the conditions set forth in Sections
6.1 and 6.2 are not satisfied and are not capable of being satisfied by the
Cutoff Date; or
(h) by LFB if the conditions set forth in Sections
6.1 and 6.3 are not satisfied and are not capable of being satisfied by the
Cutoff Date.
7.2. Effect of Termination. In the event of the termination
and abandonment of this Agreement by either HUBCO or LFB pursuant to Section
7.1, this Agreement (other than Section 5.5(b), the penultimate sentence of
Section 5.6(h), this Section 7.2 and Section 8.1) shall forthwith become void
and have no effect, without any liability on the part of any party or its
officers, directors or shareholders. Nothing contained herein, however, shall
relieve any party from any liability for any breach of this Agreement.
7.3. Amendment. This Agreement may be amended by action taken
by the parties hereto at any time before or after adoption of this Agreement by
the shareholders of LFB but, after any such adoption, no amendment shall be made
which reduces the amount or changes the form of the consideration to be
delivered to the shareholders of LFB without the approval of such shareholders.
This Agreement may not be amended except by an instrument in writing signed on
behalf of all the parties hereto.
7.4. Extension; Waiver. The parties may, at any time prior to
the Effective Time of the Merger, (i) extend the time for the performance of any
of the obligations or other acts of the other parties hereto; (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant thereto; or (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party against which the waiver is
sought to be enforced.
ARTICLE VIII - MISCELLANEOUS
8.1. Expenses.
(a) Except as otherwise expressly stated herein, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby (including legal, accounting and investment
banking fees and expenses) shall be borne by the party incurring such costs and
expenses. Notwithstanding the foregoing, LFB may bear the expenses of the
Association. (b) Notwithstanding any provision in this Agreement to the
contrary, in the event that either of the parties shall willfully default in its
obligations hereunder, the non-defaulting party may pursue any remedy available
at law or in equity to enforce its rights and shall be paid by the willfully
defaulting party for all damages, costs and expenses, including without
limitation legal, accounting, investment banking and printing expenses, incurred
or suffered by the non-defaulting party in connection herewith or in the
enforcement of its rights hereunder.
8.2. Survival. The respective representations, warranties,
covenants and agreements of the parties to this Agreement shall not survive the
Effective Time, but shall terminate as of the Effective Time, except for Article
II, this Section 8.2 and Sections 5.5(b), 5.8(a) and 5.14.
8.3. Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or by reputable overnight courier or sent by registered or certified
mail, postage prepaid, as follows:
(a) If to HUBCO, to:
HUBCO, Inc.
1000 MacArthur Boulevard
Mahwah, NJ 07430
Attn.: Kenneth T. Neilson, Chairman, President
and Chief Executive Officer
Copy to:
HUBCO, Inc.
1000 MacArthur Boulevard
Mahwah, NJ 07430
Attn.: D. Lynn Van Borkulo-Nuzzo, Esq.
And copy to:
Pitney, Hardin, Kipp & Szuch
(mail to) P.O. Box 1945
Morristown, NJ 07962
(deliver to) 200 Campus Drive
Florham Park, NJ 07932
Attn.: Michael W. Zelenty, Esq.
(b) If to LFB, to:
Little Falls Bancorp, Inc.
86 Main Street
Little Falls, NJ 07424
Attn.: Leonard G. Romaine, President and
Chief Executive Officer
Copy to:
Malizia, Spidi, Sloane & Fisch, P.C.
One Franklin Square
1301 K Street, N.W., Suite 700E
Washington, D.C. 20005
Attn.: Richard Fisch, Esq.
or such other addresses as shall be furnished in writing by any party, and any
such notice or communications shall be deemed to have been given as of the date
actually received.
8.4. Parties in Interest; Assignability. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns. Nothing in this Agreement is intended to
confer, expressly or by implication, upon any other person any rights or
remedies under or by reason of this Agreement except the Indemnitees described
in Section 5.14. This Agreement and the rights and obligations of the parties
hereunder may not be assigned.
8.5. Entire Agreement. This Agreement, which includes the
Disclosure Schedules hereto and the other documents, agreements and instruments
executed and delivered pursuant to or in connection with this Agreement,
contains the entire Agreement between the parties hereto with respect to the
transactions contemplated by this Agreement and supersedes all prior
negotiations, arrangements or understandings, written or oral, with respect
thereto, other than any confidentiality agreements entered into by the parties
hereto.
8.6. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and each of which shall be deemed an original.
8.7. Governing Law. This Agreement shall be governed by the
laws of the State of New Jersey, without giving effect to the principles of
conflicts of laws thereof.
8.8. Descriptive Headings. The descriptive headings of this
Agreement are for convenience only and shall not control or affect the meaning
or construction of any provision of this Agreement.
IN WITNESS WHEREOF, HUBCO, the Bank, LFB and the Association
have caused this Agreement to be executed by their duly authorized officers as
of the day and year first above written.
ATTEST: HUBCO, INC.
By: D. LYNN VAN BORKULO-NUZZO By: KENNETH T. NEILSON
------------------------------------- ------------------
D. Lynn Van Borkulo-Nuzzo, Secretary Kenneth T. Neilson,
Chairman, President and
Chief Executive Officer
ATTEST: LITTLE FALLS BANCORP, INC.
By: ANNE BRACCHITTA By: ALBERT J. WEITE
----------------------------------- ----------------
Corporate Secretary Albert J. Weite, Chairman
ATTEST: HUDSON UNITED BANK
By: D. LYNN VAN BORKULO-NUZZO By: KENNETH T. NEILSON
----------------------------------- ------------------
D. Lynn Van Borkulo-Nuzzo, Secretary Kenneth T. Neilson,
Chairman, President and
Chief Executive Officer
ATTEST: LITTLE FALLS BANK
By: ANNE BRACCHITTA By: ALBERT J. WEITE
----------------------------------- ----------------
Corporate Secretary Albert J. Weite, Chairman
<PAGE>
AGREEMENT OF LFB AND ASSOCIATION DIRECTORS
Reference is made to the Agreement and Plan of Merger, dated
as of January 26, 1999 (the "Merger Agreement"), among HUBCO, Inc. ("HUBCO"), a
New Jersey corporation and registered bank holding company, Hudson United Bank
(the "Bank"), a New Jersey state-chartered commercial banking corporation and
wholly-owned subsidiary of HUBCO, Little Falls Bancorp, Inc., a New Jersey
corporation and registered savings and loan holding company ("LFB"), and Little
Falls Bank, a federally chartered bank and wholly-owned subsidiary of LFB (the
"Association"). Capitalized terms used herein and not otherwise defined have the
meanings given to them in the Merger Agreement.
Each of the following persons, being all of the directors of
LFB and the Association, solely in such person's capacity as a holder of LFB
Common Stock, agrees to vote or cause to be voted all shares of LFB Common Stock
which are held by such person as of the voting record date for the Shareholders
Meeting, or over which such person exercises full voting control (except as
trustee or in a fiduciary capacity, or as nominee), in favor of the Merger,
unless HUBCO or the Bank is then in breach or default in any material respect
with regard to any covenant, agreement, representation or warranty contained in
the Agreement.
It is understood and agreed that this Agreement of LFB and
Association Directors (this "Agreement") relates solely to the capacity of the
undersigned as shareholders or other beneficial owners of shares of LFB Common
Stock and is not in any way intended to affect the exercise by the undersigned
of the undersigned's responsibilities as directors of LFB or the Association. It
is further understood and agreed that this Agreement is not in any way intended
to affect the exercise by the undersigned of any fiduciary responsibility which
the undersigned may have in respect of any shares of LFB Common Stock held by
the undersigned as of the date hereof.
The undersigned also hereby consents at the Effective Time to
(i) the termination of the Director Retirement Plan, with the pay-out thereunder
as detailed in the attached schedule, (ii) the termination of any and all
retiree health benefits provided by the Association and/or LFB including the
Directors Health Benefits Plan, and (iii) the expiration of all stock options
granted to the undersigned that are not exercised within 90 days from the
Effective Time.
I have carefully read the Merger Agreement and this Agreement
and discussed the requirements of such documents and other applicable
limitations upon my ability to transfer HUBCO Common Stock to the extent I felt
necessary with my counsel.
RAOUL G. BARTON ALBERT J. WEITE
- ---------------------------------- --------------------------------
Raoul G. Barton Albert J. Weite
JOHN P. PULLARA GEORGE KUIKEN
- ---------------------------------- --------------------------------
John P. Pullara George Kuiken
NORMAN A. PARKER EDWARD J. SEUGLING
- ---------------------------------- --------------------------------
Norman A. Parker Edward J. Seugling
LEONARD G. ROMAINE
- ----------------------------------
Leonard G. Romaine
Dated: As of January 26, 1999
<PAGE>
APPENDIX B
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Agreement") dated as of January
26, 1999, is by and between HUBCO, Inc., a New Jersey corporation and registered
bank holding company ("HUBCO"), and Little Falls Bancorp, Inc., a New Jersey
corporation and registered savings and loan holding company ("LFB").
BACKGROUND
WHEREAS, HUBCO and LFB, as of the date hereof, are prepared to
execute a definitive agreement and plan of merger (the "Merger Agreement")
pursuant to which LFB will be merged with and into HUBCO (the "Merger"); and
WHEREAS, HUBCO has advised LFB that it will not execute the
Merger Agreement unless LFB executes this Agreement; and
WHEREAS, the Board of Directors of LFB has determined that the
Merger Agreement provides substantial benefits to the shareholders of LFB; and
WHEREAS, as an inducement to HUBCO to enter into the Merger
Agreement and in consideration for such entry, LFB desires to grant to HUBCO an
option to purchase authorized but unissued shares of common stock of LFB in an
amount and on the terms and conditions hereinafter set forth.
AGREEMENT
In consideration of the foregoing and the mutual covenants and
agreements set forth herein and in the Merger Agreement, HUBCO and LFB,
intending to be legally bound hereby, agree:
1. Grant of Option. LFB hereby grants to HUBCO an option to
purchase 493,000 shares of common stock, $.10 par value, of LFB (the "Common
Stock") at a price of $19.25 per share (the "Option Price"), on the terms and
conditions set forth herein (the "Option").
2. Exercise of Option. This Option shall not be exercisable
until the occurrence of a Triggering Event (as such term is hereinafter
defined). Upon or after the occurrence of a Triggering Event (as such term is
hereinafter defined), HUBCO may exercise the Option, in whole or in part, at any
time or from time to time, subject to the terms and conditions set forth herein
and the termination provisions of Section 19 of this Agreement.
The term "Triggering Event" means the occurrence of any of the
following events:
A person or group (as such terms are defined in the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder) other than HUBCO or an affiliate of HUBCO:
a. acquires beneficial ownership (as such term is
defined in Rule 13d-3 as promulgated under the Exchange Act) of at least 25% of
the then outstanding shares of Common Stock, provided, however, that the
continuing ownership by a person or group which as of the date hereof owns more
than 25% of the outstanding Common Stock shall not constitute a Triggering
Event; or
b. enters into a letter of intent or an agreement,
whether oral or written, with LFB pursuant to which such person or any affiliate
of such person would (i) merge or consolidate, or enter into any similar
transaction, with LFB, (ii) acquire all or a significant portion of the assets
or liabilities of LFB, or (iii) acquire beneficial ownership of securities
representing, or the right to acquire beneficial ownership or to vote securities
representing, 25% or more of the then outstanding shares of Common Stock; or
c. makes a filing with any bank or thrift regulatory
authorities with respect to or publicly announces a bona fide proposal (a
"Proposal") for (i) any merger with, consolidation with or acquisition of all or
a significant portion of all the assets or liabilities of, LFB or any other
business combination involving LFB, or (ii) a transaction involving the transfer
of beneficial ownership of securities representing, or the right to acquire
beneficial ownership or to vote securities representing, 25% or more of the
outstanding shares of Common Stock, and in either case thereafter, if such
Proposal has not been Publicly Withdrawn (as such term is hereinafter defined)
at least 15 days prior to the meeting of stockholders of LFB called to vote on
the Merger and LFB's stockholders fail to approve the Merger by the vote
required by applicable law at the meeting of stockholders called for such
purpose; or
d. makes a bona fide Proposal and thereafter, but
before such Proposal has been Publicly Withdrawn, LFB willfully takes any action
in any manner which would materially interfere with its ability to consummate
the Merger or materially reduce the value of the transaction to HUBCO.
The term "Triggering Event" also means at any time after
executing this Agreement the willful taking of any material direct or indirect
action by LFB or any of its directors, senior executive officers, investment
bankers or other person with actual or apparent authority to speak for the Board
of Directors, inviting, encouraging or soliciting any proposal (other than from
HUBCO or an affiliate of HUBCO) which has as its purpose a tender offer for the
shares of Common Stock, a merger, consolidation, plan of exchange, plan of
acquisition or reorganization of LFB, or a sale of a significant number of
shares of Common Stock or any significant portion of its assets or liabilities.
The term "significant portion" means 25% of the assets or
liabilities of LFB. The term "significant number" means 15% of the outstanding
shares of Common Stock.
"Publicly Withdrawn", for purposes of clauses (c) and (d)
above, shall mean an unconditional bona fide withdrawal of the Proposal coupled
with a public announcement of no further interest in pursuing such Proposal or
in acquiring any controlling influence over LFB or in soliciting or inducing any
other person (other than HUBCO or any affiliate) to do so.
Notwithstanding the foregoing, the Option may not be exercised
at any time (i) in the absence of any required governmental or regulatory
approval or consent (including any filing, approval or consent required under
the rules and regulations of the National Association of Securities Dealers,
Inc.) necessary for LFB to issue the shares of Common Stock covered by the
Option (the "Option Shares") or HUBCO to exercise the Option or prior to the
expiration or termination of any waiting period required by law, or (ii) so long
as any injunction or other order, decree or ruling issued by any federal or
state court of competent jurisdiction is in effect which prohibits the sale or
delivery of the Option Shares.
LFB shall notify HUBCO promptly in writing of the occurrence
of any Triggering Event known to it, it being understood that the giving of such
notice by LFB shall not be a condition to the right of HUBCO to exercise the
Option. LFB will not take any action which would have the effect of preventing
or disabling LFB from delivering the Option Shares to HUBCO upon exercise of the
Option or otherwise performing its obligations under this Agreement, except to
the extent required by applicable securities and banking laws and regulations.
In the event HUBCO wishes to exercise the Option, HUBCO shall
send a written notice to LFB (the date of which is hereinafter referred to as
the "Notice Date") specifying the total number of Option Shares it wishes to
purchase and a place and date between two and ten business days inclusive from
the Notice Date for the closing of such a purchase (a "Closing"); provided,
however, that a Closing shall not occur prior to two days after the later of
receipt of any necessary regulatory approvals and the expiration of any legally
required notice or waiting period, if any.
3. Payment and Delivery of Certificates. At any Closing
hereunder (a) HUBCO will make payment to LFB of the aggregate price for the
Option Shares so purchased by wire transfer of immediately available funds to an
account designated by LFB; (b) LFB will deliver to HUBCO a stock certificate or
certificates representing the number of Option Shares so purchased, free and
clear of all liens, claims, charges and encumbrances of any kind or nature
whatsoever created by or through LFB, registered in the name of HUBCO or its
designee, in such denominations as were specified by HUBCO in its notice of
exercise and, if necessary, bearing a legend as set forth below; and (c) HUBCO
shall pay any transfer or other taxes required by reason of the issuance of the
Option Shares so purchased.
If required under applicable federal securities laws as
determined by LFB's counsel, a legend will be placed on each stock certificate
evidencing Option Shares issued pursuant to this Agreement, which legend will
read substantially as follows:
The shares of stock evidenced by this certificate have not been
registered for sale under the Securities Act of 1933 (the "1933 Act").
These shares may not be sold, transferred or otherwise disposed of
unless a registration statement with respect to the sale of such shares
has been filed under the 1933 Act and declared effective or, in the
opinion of counsel reasonably acceptable to Little Falls Bancorp, Inc.,
said transfer would be exempt from registration under the provisions of
the 1933 Act and the regulations promulgated thereunder.
No such legend shall be required if a registration statement is filed and
declared effective under Section 4 hereof.
4. Registration Rights. Upon or after the occurrence of a
Triggering Event and upon receipt of a written request from HUBCO, LFB shall, if
necessary for the resale of the Option or the Option Shares by HUBCO, prepare
and file a registration statement with the Securities and Exchange Commission
and any state securities bureau covering the Option and such number of Option
Shares as HUBCO shall specify in its request, and LFB shall use its best efforts
to cause such registration statement to be declared effective in order to permit
the sale or other disposition of the Option and the Option Shares (it being
understood and agreed that in any such sale or disposition the Option Shares
shall be distributed so that upon consummation thereof, no purchaser or
transferee shall beneficially own more than 4 percent of the Common Stock then
outstanding), provided that HUBCO shall in no event have the right to have more
than one such registration statement become effective, and provided further that
LFB shall not be required to prepare and file any such registration statement in
connection with any proposed sale with respect to which counsel to LFB delivers
to LFB and to HUBCO (which is reasonably acceptable to HUBCO) its opinion to the
effect that no such filing is required under applicable laws and regulations
with respect to such sale or disposition; provided further, however, that LFB
may delay any registration of Option Shares above for a period not exceeding 90
days in the event that LFB shall in good faith determine that any such
registration would adversely effect an offering of securities by LFB for cash.
HUBCO shall provide all information reasonable requested by LFB for inclusion in
any registration statement to be filed hereunder.
In connection with such filing, LFB shall use its best efforts
to cause to be delivered to HUBCO such certificates, opinions, accountant's
letters and other documents as HUBCO shall reasonably request and as are
customarily provided in connection with registrations of securities under the
Securities Act of 1933, as amended. All expenses incurred by LFB in complying
with the provisions of this Section 4, including without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for LFB and blue sky fees and expenses shall be paid by LFB.
Underwriting discounts and commissions to brokers and dealers relating to the
Option Shares, fees and disbursements of counsel to HUBCO and any other expenses
incurred by HUBCO in connection with such registration shall be borne by HUBCO.
In connection with such filing, LFB shall indemnify and hold harmless HUBCO
against any losses, claims, damages or liabilities, joint or several, to which
HUBCO may become subject, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
preliminary or final registration statement or any amendment or supplement
thereto, or arise out of a material fact required to be stated therein or
necessary to make the statements therein not misleading; and LFB will reimburse
HUBCO for any legal or other expense reasonably incurred by HUBCO in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that LFB will not be liable in any case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such preliminary or final registration statement or such amendment or
supplement thereto in reliance upon and in conformity with written information
furnished by or on behalf of HUBCO specifically for use in the preparation
thereof. HUBCO will indemnify and hold harmless LFB to the same extent as set
forth in the immediately preceding sentence but only with reference to written
information specifically furnished by or on behalf of HUBCO for use in the
preparation of such preliminary or final registration statement or such
amendment or supplement thereto; and HUBCO will reimburse LFB for any legal or
other expense reasonably incurred by LFB in connection with investigating or
defending any such loss, claim, damage, liability or action. Notwithstanding
anything to the contrary herein, no indemnifying party shall be liable for any
settlement effected without its prior written consent.
5. Adjustment Upon Changes in Capitalization. In the event of
any change in the Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, conversions, exchanges of shares or the like,
then the number and kind of Option Shares and the Option Price shall be
appropriately adjusted.
In the event any capital reorganization or reclassification of
the Common Stock, or any consolidation, merger or similar transaction of LFB
with another entity, or any sale of all or substantially all of the assets of
LFB, shall be effected in such a way that the holders of Common Stock shall be
entitled to receive stock, securities or assets with respect to or in exchange
for Common Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provisions (in form
reasonably satisfactory to the holder hereof) shall be made whereby the holder
hereof shall thereafter have the right to purchase and receive upon the basis
and upon the terms and conditions specified herein and in lieu of the Common
Stock immediately theretofore purchasable and receivable upon exercise of the
rights represented by this Option, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for the number of shares
of Common Stock immediately theretofore purchasable and receivable upon exercise
of the rights represented by this Option had such reorganization,
reclassification, consolidation, merger or sale not taken place; provided,
however, that if such transaction results in the holders of Common Stock
receiving only cash, the holder hereof shall be paid the difference between the
Option Price and such cash consideration without the need to exercise the
Option.
6. Filings and Consents. Each of HUBCO and LFB will use its
reasonable efforts to make all filings with, and to obtain consents of, all
third parties and governmental authorities necessary to the consummation of the
transactions contemplated by this Agreement.
Exercise of the Option herein provided shall be subject to
compliance with all applicable laws including, in the event HUBCO is the holder
hereof, approval of the Securities and Exchange Commission, the Board of
Governors of the Federal Reserve System, the Office of Thrift Supervision, the
Federal Deposit Insurance Corporation or the New Jersey Department of Banking,
and LFB agrees to cooperate with and furnish to the holder hereof such
information and documents as may be reasonably required to secure such
approvals.
7. Representations and Warranties of LFB. LFB hereby
represents and warrants to HUBCO as follows:
a. Due Authorization. LFB has full corporate power
and authority to execute, deliver and perform this Agreement and all corporate
action necessary for execution, delivery and performance of this Agreement has
been duly taken by LFB.
b. Authorized Shares. LFB has taken and, as long as
the Option is outstanding, will take all necessary corporate action to authorize
and reserve for issuance all shares of Common Stock that may be issued pursuant
to any exercise of the Option.
c. No Conflicts. Neither the execution and delivery
of this Agreement nor consummation of the transactions contemplated hereby
(assuming all appropriate regulatory approvals) will violate or result in any
violation or default of or be in conflict with or constitute a default under any
term of the Certificate of Incorporation or Bylaws of LFB or any agreement,
instrument, judgment, decree or order applicable to LFB.
8. Specific Performance. The parties hereto acknowledge that
damages would be an inadequate remedy for a breach of this Agreement and that
the obligations of the parties hereto shall be specifically enforceable.
Notwithstanding the foregoing, HUBCO shall have the right to seek money damages
against LFB for a breach of this Agreement.
9. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
among the parties or any of them with respect to the subject matter hereof.
10. Assignment or Transfer. HUBCO may not sell, assign or
otherwise transfer its rights and obligations hereunder, in whole or in part, to
any person or group of persons other than to an affiliate of HUBCO. HUBCO
represents that it is acquiring the Option for HUBCO's own account and not with
a view to or for sale in connection with any distribution of the Option or the
Option Shares. HUBCO is aware that neither the Option nor the Option Shares is
the subject of a registration statement filed with, and declared effective by,
the Securities and Exchange Commission pursuant to Section 5 of the Securities
Act, but instead each is being offered in reliance upon the exemption from the
registration requirement provided by Section 4(2) thereof and the
representations and warranties made by HUBCO in connection therewith.
11. Amendment of Agreement. Upon mutual consent of the parties
hereto, this Agreement may be amended in writing at any time, for the purpose of
facilitating performance hereunder or to comply with any applicable regulation
of any governmental authority or any applicable order of any court or for any
other purpose.
12. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
13. Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered personally, by express service,
cable, telegram or telex, or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties as follows:
If to HUBCO:
HUBCO, Inc.
1000 MacArthur Boulevard
Mahwah, New Jersey 07430
Attention: Mr. Kenneth T. Neilson
Chairman, President and Chief Executive Officer
With a copy to:
Pitney, Hardin, Kipp & Szuch
200 Campus Drive
Florham Park, New Jersey 07932-0950
Attention: Ronald H. Janis, Esq.
Michael W. Zelenty, Esq.
If to LFB:
Little Falls Bancorp, Inc.
86 Main Street
Little Falls, New Jersey 07424
Attention: Leonard Romaine
President and Chief Executive Officer
With a copy to:
Malizia, Spidi, Sloane & Fisch, P.C.
One Franklin Square
1301 K Street, N.W., Suite 700E
Washington, D.C. 20005
Attention: Richard Fisch, Esq.
or to such other address as the person to whom notice is to be given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey.
15. Captions. The captions in the Agreement are inserted for
convenience and reference purposes, and shall not limit or otherwise affect any
of the terms or provisions hereof.
16. Waivers and Extensions. The parties hereto may, by mutual
consent, extend the time for performance of any of the obligations or acts of
either party hereto. Each party may waive (a) compliance with any of the
covenants of the other party contained in this Agreement and/or (b) the other
party's performance of any of its obligations set forth in this Agreement.
17. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
18. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
19. Termination. This Agreement shall terminate upon either
the termination of the Merger Agreement as provided therein or the consummation
of the transactions contemplated by the Merger Agreement; provided, however,
that if termination of the Merger Agreement occurs after the occurrence of a
Triggering Event (as defined in Section 2 hereof), this Agreement shall not
terminate until the later of 12 months following the date of the termination of
the Merger Agreement or the consummation of any proposed transactions which
constitute the Triggering Event.
IN WITNESS WHEREOF, each of the parties hereto, pursuant to
resolutions adopted by its Board of Directors, has caused this Stock Option
Agreement to be executed by its duly authorized officer, all as of the day and
year first above written.
LITTLE FALLS BANCORP, INC.
By: ALBERT J. WEITE
-----------------------
Albert J. Weite
Chairman
HUBCO, INC.
By: KENNETH T. NEILSON
----------------------
Kenneth T. Neilson,
Chairman, President and
Chief Executive Officer
<PAGE>
APPENDIX C
March __, 1999
Board of Directors
Little Fall Bancorp, Inc.
Little Falls Bank
86 Main Street
Little Falls, NJ 07424
Members of the Board:
Little Falls Bancorp has requested our opinion, as an independent financial
analyst to Little Falls Bancorp, Inc. ("Little Falls") and its wholly owned
subsidiary Little Falls Bank, Little Falls, New Jersey (the "Bank"), as to the
fairness, from a financial point of view to the common shareholders of Little
Falls, as to the cash consideration and the exchange ratio proposed in the
merger agreement pursuant to which Little Falls will be acquired HUBCO, Inc.
("HUBCO"). FinPro has already provided the Little Falls' Board with an oral
opinion, on January 26, 1999 that the cash consideration and exchange ratio
offered was fair, from a financial point of view, to the shareholders of Little
Falls as of that date.
Pursuant to the merger agreement and discussions with management, 49% of the
Little Falls common stock will be converted into cash and 51% will be converted
into shares of HUBCO common stock. Little Falls shareholders will elect whether
to receive cash or stock, or they may state no preference. In order to maintain
the 49/51 ratio, some Little Falls shareholders, chosen by lot, may not obtain
the form of consideration they elect. The merger will be tax-free to
shareholders receiving only HUBCO common stock and will be taxable to
shareholders receiving cash. The cash consideration will be $20.64 per share of
Little Falls common stock. The stock consideration will depend on the median
closing price of HUBCO common stock during the ten trading days that end with
the day that final bank regulatory approval for the merger is received.
<TABLE>
<CAPTION>
<S> <C>
If the median HUBCO stock price is: The
number of HUBCO shares per Little
Falls share will be:
- ------------------------------------------- --------------------------------------------------
Below $27.143 0.700
- ------------------------------------------- --------------------------------------------------
Between $27.143 and $29.00 $19.00 divided by the HUBCO median price
- ------------------------------------------- --------------------------------------------------
Between $29.01 and $34.50 0.650
- ------------------------------------------- --------------------------------------------------
Between $34.51 and $37.30 $22.3795 divided by the HUBCO median price
- ------------------------------------------- --------------------------------------------------
Above $37.30 0.600
- ------------------------------------------- --------------------------------------------------
</TABLE>
This transaction will be accounted for under the purchase method of accounting.
FinPro provides investment banking services to the bank and thrift industry,
including appraisals and valuations of bank and thrift institutions and their
securities in connection with mergers, acquisitions and other securities
transactions. FinPro has knowledge of and experience with the New Jersey bank
and thrift market and financial institutions operating in that market. The
Little Falls Board chose FinPro because of its expertise, experience and
familiarity with the bank and thrift industry.
In connection with its opinion, FinPro reviewed and considered, among other
things:
(i) the merger agreement;
(ii) the most recent annual report and 10-K report for both institutions;
(iii) quarterly 10-Q reports for both institutions;
(iv) interest rate risk tables for both institutions;
(v) a listing of securities for both institutions;
(vi) Little Falls' internal loan classification list;
(vii) listing of other real estate owned for both institutions;
(viii) the budget and long range operating plans of both institutions;
(ix) recent regulatory exam reports for both institutions;
(x) the Minutes of the Board of Directors meetings for Little Falls;
(xi) the directors' and officers' liability and blanket bond insurance
policies for Little Falls;
(xii) and other market data, studies and analyses that were considered
appropriate.
FinPro conducted due diligence on HUBCO as part of team that included
representatives of Malizia, Spidi, Sloane & Fisch, Little Falls' legal counsel.
FinPro conducted an on-site review of each organization's historical performance
and current financial condition.
In rendering its opinion, FinPro did not independently verify the financial data
provided by or on behalf of Little Falls and HUBCO, but instead relied upon the
accuracy and completeness of data provided.
We have also had discussions with the management of Little Falls and HUBCO
regarding their respective financial results and have analyzed the most current
financial data available on Little Falls and HUBCO. We also considered such
other information, financial studies, analyses and investigations, and economic
and market criteria which we deemed relevant. We have met with the management of
Little Falls and HUBCO to discuss the foregoing information with them.
We have considered certain financial data of Little Falls and have compared that
data with similar data for other thrift institutions and their holding companies
which have recently merged or been acquired. Furthermore, we have considered the
financial terms of these business combinations involving said thrift
institutions and their holding companies.
In reaching our opinion, we took into consideration the financial benefits of
the proposed transaction to Little Falls' shareholders. Based on all factors
that we deem relevant and assuming the accuracy and completeness of the
information and data provided to us by Little Falls and HUBCO, it is our opinion
as of this date, that the proposed cash consideration and exchange ratio are
fair and equitable to Little Falls' shareholders from a financial point of view.
Little Falls retained FinPro to act as independent financial advisor, to render
general advisory services and also to specifically advise Little Falls in
connection with its merger and acquisition activities. Pursuant to its
engagement, FinPro has been paid a fee for rendering its fairness opinion
relating to the merger at the January 26, 1998 meeting of the Little Falls
Board. In addition, Little Falls will pay FinPro a transaction fee equal to 1.0
% of the aggregate value of the consideration to be paid by HUBCO in the merger,
net of the fees already paid for rendering its fairness opinion.
Prior to being retained as Little Falls' financial advisor, FinPro has provided
consulting and professional services to Little Falls. These services included:
strategic planning assistance, an independent appraisal of Little Falls common
stock as part of its mutual to stock conversion, merger and acquisition
analysis, interest rate risk management consulting, loan review reports and
market feasibility studies along with other general consulting engagements. The
revenues derived from these services are insignificant when compared to the
firm's total gross revenues.
Respectfully submitted,
FinPro, Inc.
Liberty Corner, New Jersey
<PAGE>
APPENDIX D
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-K/A
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1998
----------------------------------------------
- or -
_
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________________ to ___________________
Commission Number: 0-27010
LITTLE FALLS BANCORP, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
New Jersey 22-3402073
_______________________________________ ______________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
86 Main Street 07424
- ---------------------------------------- ----------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (973) 256-6100
-----------------
Securities registered pursuant to Section 12(b) of the Act: None
---------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.10 par value per share
---------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, based on the closing price of the Registrant's Common Stock
as quoted on the Nasdaq Stock Market, on March 11, was $40.0 million (2,023,824)
shares at $19.75 per share).
As of March 11, 1999 there were issued 3,041,750 and outstanding
2,470,551 shares of the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year Ended
December 31, 1998. (Parts I, II and IV)
<PAGE>
INDEX
PART I Page
----
Item 1. Business...................................................... 1
Item 2. Properties................................................... 25
Item 3. Legal Proceedings............................................ 25
Item 4. Submission of Matters to a Vote of Security-Holders.......... 26
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................ 26
Item 6. Selected Financial Data...................................... 26
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 26
Item 8. Financial Statements and Supplementary Data.................. 26
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure..................... 26
PART III
Item 10. Directors and Executive Officers of the Registrant........... 27
Item 11. Executive Compensation....................................... 30
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................. 37
Item 13. Certain Relationships and Related Transactions............... 38
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................ 38
<PAGE>
PART I
Little Falls Bancorp, Inc. (the "Company") may from time to time make
written or oral "forward- looking statements", including statements contained in
the Company's filings with the Securities and Exchange Commission (including
this Annual Report on Form 10-K and the exhibits thereto), in its reports to
stockholders and in other communications by the Company, which are made in good
faith by the Company pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the board of governors of the
federal reserve system, inflation, interest rates, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes, acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing the risks
resulting from these factors.
The Company cautions that the listed factors are not exclusive. The
Company does not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time by or on behalf of the
Company.
Item 1. Business
- -----------------
General
Little Falls Bancorp, Inc. (the "Company") is a New Jersey corporation
organized in August 1995 at the direction of Little Falls Bank (the "Bank") for
the purpose of becoming a savings and loan holding company and to acquire all of
the capital stock issued by the Bank in its conversion from the mutual to stock
form of ownership (the "Conversion"). On January 5, 1996, the Registrant sold
3,041,750 shares of its common stock, par value $0.10 per share (the "Common
Stock") in a subscription offering as part of the Conversion. The Company is a
unitary savings and loan holding company which, under existing laws, generally
is not restricted in the types of business activities in which it may engage
provided that the Bank retains a specified amount of its assets in
housing-related investments. References to the "Bank" herein, unless the context
required otherwise, refer to the Company on a consolidated basis. The net
conversion proceeds totaled approximately $26.8 million of which $14.6 million
was invested in the Bank.
1
<PAGE>
On November 5, 1998, Little Falls and Skylands Community Bank
terminated the proposed merger between the two companies, which had been
announced on August 12, 1998. This merger was terminated by mutual agreement as
both companies recognized the possibility that certain conditions to the closing
of the merger might not be satisfied. Accordingly, the boards of directors of
both companies concluded that it was in the mutual interest of both companies to
terminate the merger, and avoid any additional expense.
The Bank is a federally chartered stock savings bank headquartered in
Little Falls, New Jersey. The Bank was originally chartered in 1887 as the
Little Falls Building and Loan Association. On December 2, 1993, the Bank
converted its mutual charter from a federally chartered savings association to a
New Jersey chartered savings bank, changing its name to Little Falls Savings
Bank. Effective October 1995, the Bank converted its New Jersey mutual charter
to a federal mutual charter and changed its name to "Little Falls Bank." The
Bank's deposits are federally insured and the Bank is a member of the Federal
Home Loan Bank ("FHLB") System.
The Company and the Bank are subject to regulation by the Office of
Thrift Supervision ("OTS"), the Federal Deposit Insurance Corporation ("FDIC")
and the Securities and Exchange Commission ("SEC").
The Bank is a community oriented savings institution offering a variety
of financial services to meet the needs of the communities it serves. The Bank
conducts its business from its main office in Little Falls, New Jersey and five
branch offices located in Passaic and Hunterdon Counties, New Jersey. The Bank
attracts deposits from the general public and has historically used such
deposits primarily to originate loans secured by first mortgages on
owner-occupied one- to four-family residences in its market area and to purchase
mortgage-backed securities. To a lesser extent, the Bank also originates a
limited number of commercial real estate, residential construction and consumer
loans, which mainly consist of home equity lines of credit. Further, the Bank
also invests in mortgage-backed securities and investment securities.
The principal sources of funds for the Bank's lending activities are
deposits, the amortization, repayment and maturity of loans, mortgage-backed
securities and investment securities. Principal sources of income are interest
and fees on loans, mortgage-backed securities and investment securities. The
Bank's principal expense is interest paid on deposits.
Market Area and Competition
The Bank focuses on serving its customers located in the New Jersey
community of Little Falls and surrounding communities in Passaic and Hunterdon
Counties, New Jersey. Economic growth in the Bank's market area remains
dependent upon the local economy. The economy of the greater New York -
New Jersey market has historically benefitted from having a large number of
corporate headquarters and concentration of financial services-related
industries. It also has a well-educated employment base and a large number of
industrial, service and high technology businesses. Over the past few years, New
Jersey's economy has slowly begun to recover from the effects of a prolonged
decline in the national and regional economy, layoffs in the financial services
industry and corporate relocations. Employment levels and real estate markets in
the Bank's market area have stabilized and in some instances begun to improve.
Whether such improvement will continue is dependent, in large part, upon the
general economic health of the United States and other factors beyond the Bank's
control and, therefore, cannot be estimated. In addition, the deposit and loan
activity of the Bank is significantly affected by economic conditions in its
2
<PAGE>
market area. The Bank's principal competitors are financial institutions and
mortgage banking companies, many of which are significantly larger and have
greater financial resources than the Bank. The Bank's competition for loans on a
retail and wholesale basis comes principally from commercial banks, mortgage
brokers, banking and insurance companies. The Bank's competition for deposits
has historically come from commercial banks, thrift institutions and credit
unions. In addition, the Bank faces increasing competition for deposits from
non-bank institutions, such as brokerage firms and insurance companies in such
areas as short-term money market funds, corporate and government securities
funds, mutual funds and annuities.
Lending Activities
Analysis of Loan Portfolio. The following table sets forth information
concerning the composition of the Bank's loan portfolio in dollar amounts and in
percentages of the loan portfolio as of the dates indicated.
<TABLE>
<CAPTION>
At December 31,
- -----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------ ------------------- ------------------- ----------------- ------------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
Type of Loans:
One- to four-family......... $117,417 78.77% $118,254 80.42% $108,367 92.53% $88,828 92.31% $87,851 92.71%
Multi-family and commercial
real estate............... 17,251 11.57 17,362 11.81 3,659 3.13 4,639 4.82 4,463 4.71
Residential construction.... -- 350 0.24 525 0.45 1,098 1.14 521 0.55
Consumer:
Savings account............. 752 0.50 807 0.55 889 0.76 824 0.86 866 .91
Second mortgages............ 14,811 9.94 11,630 7.91 5,028 4.29 2,540 2.64 2,694 2.84
Other....................... 14 0.01 12 0.01 25 0.02 42 0.04 52 .05
------- ------ ------- ------ ------- ------ ----- ---- ------- -----
Total loans receivable
(gross)................... 150,245 100.79 148,415 100.94 118,493 101.18 97,971 101.81 96,447 101.77
Less:
Loans in process.......... -- -- 233 0.16 150 (0.13) 450 (0.47) 186 (.18)
Deferred loan origination
fees and costs........... (146) 0.10 (19) (0.01) 138 (0.12) 333 (0.35) 338 (.36)
Allowance for loan losses. 1,329 (0.89) 1,168 0.79 1,090 (0.93) 958 (0.99) 1,169 (1.23)
------- ------ ------- ------ -------- ------ ------ ------ ------- ------
Total loans, net............ $149,062 100.00% $147,033 100.00% $117,115 100.00% $96,230 100.00% $94,754 100.00%
======= ====== ======= ====== ======= ====== ====== ====== ======= ======
</TABLE>
3
<PAGE>
Loan Maturity Tables
The following table sets forth the contractual maturity of the Bank's
loan portfolio at December 31, 1998. The table does not include prepayments or
scheduled principal repayments. Prepayments and scheduled principal repayments
on loans totaled $23.7 million for the year ended December 31, 1998.
Adjustable-rate mortgage loans are shown as maturing based on contractual
maturities rather than the period in which interest rates are next scheduled to
adjust.
<TABLE>
<CAPTION>
Multi-Family
and
One- to Four- Commercial Residential
Family Real Estate Construction Consumer Total
------------- ------------ ------------ -------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Amounts Due:
Within 1 year.................. $ 54 $ 250 $ -- $ 741 $ 1,045
1 to 5 years................. 2,432 495 -- 1,049 3,976
5 to 10 years................ 5,127 200 -- 2,849 8,176
Over 10 years................ 109,804 16,306 -- 10,938 137,048
------- ------ ------ -------
Total amount due............... $117,417 $17,251 $15,577 $150,245
Less:
Allowance for loan and
lease loss................... 956 274 -- 99 1,329
Loans in process............... -- -- -- -- --
Deferred loan fees (costs)..... (124) -- -- (22) (146)
------- ------- -------- ------ ------
Loans receivable, net......... $116,585 $ 16,977 $ -- $15,500 $149,062
======= ======= ====== =======
</TABLE>
The following table sets forth the dollar amount at December 31, 1998
of all loans due after December 31, 1999, which have pre-determined interest
rates and which have floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In Thousands)
One- to four-family................ $45,201 $72,162 $117,363
Multi-family and
commercial real estate........... 1,600 15,401 17,001
Consumer........................... 12,265 2,571 14,836
------ ------ -------
Total............................ $59,066 $17,972 $149,200
====== ====== =======
4
<PAGE>
One- to Four-Family Residential Loans. The Bank's primary lending
activity consists of the origination of single-family residential mortgage loans
secured by owner-occupied property. The Bank originates one- to four-family
residential mortgage loans in amounts up to 80% of the appraised value of the
mortgaged property and in amounts up to 70% of the appraised value on loans
which exceed $200,000. No private mortgage insurance is obtained since loan to
value ratios do not exceed 80%. All loans are held in the Bank's portfolio.
The Bank has an agreement with a mortgage solicitation firm pursuant to
which the Bank receives one- to four-family mortgage applications on a
state-wide basis. The Bank then submits bids on the mortgage applications on
which it is interested prior to making the final loan. The submission of a bid
to provide the mortgage loan is not a firm commitment on the Bank's part, as the
Bank applies its own underwriting standards before committing to the loan. All
loans must be documented, including an original appraisal. This agreement has
provided the majority of loan applications received by the Bank in the past
year.
Loan referrals are also obtained from local realtors or builders,
existing or past customers and members of the local community. Mortgage loans
generally include due-on sale clauses which provide the Bank with the
contractual right to deem the loan immediately due and payable in the event that
the borrower transfers ownership of the property without the Bank's consent.
The Bank primarily originates adjustable-rate mortgage loans with a
guaranteed renewal for a thirty-year term. These loans adjust after one, three,
five or ten years. The Bank's ARM loans are originated for its portfolio and do
not conform to FNMA or FHLMC standards. Although the Bank's ARM loans have a 6%
lifetime cap, at the adjustment period, interest rate changes are discretionary.
Generally, ARM loans pose credit risks somewhat greater than the risk inherent
in fixed-rate loans primarily because, as interest rates rise, the underlying
payments of the borrower rise, increasing the potential for default. The Bank
also offers fixed-rate loans with terms of 15 and 30 years. The Bank offers
various loan programs with varying interest rates and fees which are
competitively priced based on market conditions and the Bank's cost of funds.
Multi-Family and Commercial Real Estate Loans. The Bank also originates
and purchases multi-family and commercial real estate loans. These loans are
generally adjustable-rate loans with maturities up to 25 years and are made in
amounts up to 75% of the appraised value of the mortgaged property. In
purchasing such loans, the Bank evaluates the mortgage primarily on the net
operating income generated by the real estate to support the debt service. The
Bank also considers the financial resources and income level of the borrower,
the borrower's experience in owning or managing similar property, the
marketability of the property and the Bank's prior lending experience with the
borrower. The typical multi-family property in the Bank's multi-family lending
portfolio has between 11 and 110 dwelling units with an average loan balance of
approximately $550,000. Most loans originated or purchased are located in New
Jersey and New York.
To a lesser extent, the Bank's policy has been to originate commercial
real estate loans. The loans are generally made in amounts up to 65% of the
appraised value of the property. The Bank's commercial real estate loans
primarily have rates equal to the prime rate plus a margin. In making such
loans, the Bank primarily considers the net operating income generated by the
real estate to support the debt service, the financial resources and income
level and managerial resources of the borrower, the marketability of the
property and the Bank's lending experience with the borrower.
The Bank's commercial real estate loans typically are secured by
properties such as mixed-use properties, retail stores, office buildings and
strip shopping centers. The Bank's commercial real estate
5
<PAGE>
portfolio includes multi-family loans. For a discussion of the Bank's largest
commercial real estate loan, see "- Loans to One Borrower."
Loans secured by multi-family and commercial real estate generally
involve a greater degree of risk than one- to four-family residential mortgage
loans and carry larger loan balances. This increased credit risk is a result of
several factors, including the concentration of principal in a limited number of
loans and borrowers, the effects of general economic conditions on income
producing properties, and the increased difficulty of evaluating and monitoring
these types of loans. Furthermore, the repayment of loans secured by commercial
real estate is typically dependent upon the successful operation of the related
real estate. If the cash flow from the property is reduced, the borrower's
ability to repay the loan may be impaired.
Residential Construction Loans. The Bank's policy has been to originate
residential construction loans to a lesser extent than other types of mortgages.
Residential construction loans are made up to a maximum of 80% of the appraised
value of the home, based upon the builder's plans. The rate charged is generally
the prime rate plus 1% and one point. The loan proceeds are disbursed based upon
work completed.
Consumer Loans. The Bank's consumer loans primarily consist of home
equity loans, and, to a much lesser extent, student loans, personal loans and
loans secured by savings deposits. The home equity lines of credit are made with
loan to value ratios of up to 80% on either a fixed or adjustable rate basis.
The underwriting standards employed by the Bank for consumer loans
include a determination of the applicant's payment history on other debts and an
assessment of the borrower's ability to make payments on the proposed loan and
other indebtedness. In addition to the creditworthiness of the applicant, the
underwriting process also includes a comparison of the value of the security, if
any, in relation to the proposed loan amount. The Bank's consumer loans tend to
have higher interest rates and shorter maturities than one- to four-family
mortgage loans, but are considered to entail a greater risk of default than
mortgage loans.
Loan Approval Authority and Underwriting. The Board of Directors
generally approves all mortgage loans although the Bank's President has the
authority to approve loans up to $500,000. Any loans exceeding that amount must
be approved by the Board of Directors.
The Bank uses board approved independent fee appraisers on real estate
loans. It is the Bank's policy to obtain title insurance on all properties
securing real estate loans and to obtain fire, flood and casualty insurance on
all loans that require security.
Loan Commitments. The Bank issues written commitments to prospective
borrowers on all real estate approved loans. Generally, the commitment requires
the loan to be closed within sixty days of issuance. At December 31, 1998, the
Bank had $5.1 million of commitments to fund new mortgage loans and commitments
on unused lines of credit relating to home equity loans of $4.6 million.
Loan Purchases. The Bank has purchased and participated in loans,
primarily in its market area. At December 31, 1998, the Bank had $3.9 million of
purchased loans and $15.4 million in loan participations. The Bank purchases and
participates in loans after applying its own underwriting standards. The Bank
typically does not service the loans that it purchases or participates in with
other financial institutions.
6
<PAGE>
Loans to One Borrower. Savings associations are subject to the same
limits as those applicable to national banks, which under current regulations
limit loans-to-one borrower in an amount equal to 15% of unimpaired capital and
retained income on an unsecured basis and an additional amount equal to 10% of
unimpaired capital and retained income if the loan is secured by readily
marketable collateral (generally, financial instruments, not real estate) or
$500,000, whichever is higher. The Bank's maximum loan-to-one borrower limit was
approximately $4.5 million as of December 31, 1998.
At December 31, 1998, the Bank's three largest lending relationships
ranged from $1.0 million to $1.1 million. They are all performing loans on
apartment buildings in New Jersey and New York in which the Bank has a
participating interest. See also "-- Multi-Family and Commercial Real Estate."
Non-Performing Loans and Classified Assets
Loan Delinquencies. The Bank's collection procedures provide that when
a mortgage loan is 15 days past due, a notice of nonpayment is sent. If payment
is still delinquent after 30 days past due, the customer will receive a letter
from the Bank. If the delinquency continues, similar subsequent efforts are made
to eliminate the delinquency. If the loan continues in a delinquent status for
60 days or more and no repayment plan is in effect, the Bank's attorney will
send a letter to the customer. After 90 days past due, the Board of Directors
typically approves the initiation of foreclosure proceedings as soon as
possible. Loans are reviewed on a monthly basis and are placed on a non-accrual
and non-performing status when the loan becomes more than 90 days delinquent.
The following table sets forth information regarding non-performing
loans and real estate owned. During the periods indicated, the Bank had no
restructured loans within the meaning of SFAS No. 15.
<TABLE>
<CAPTION>
At December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-performing loans:
Nonaccrual loans:
One- to four-family residential........... $1,003 $ 1,036 $ 989 $1,059 $4,182
Multi-family and commercial real estate... -- 248 860 860 --
Consumer loans............................ -- -- 52 23 20
----- ------- ------- ------ ------
Total nonaccrual loans....................... 1,003 1,284 1,901 1,942 4,202
Accruing one- to four-family residential.. -- -- -- 505 --
----- ------- -------- ------ -------
Total non-performing loans................... 1,003 1,284 1,901 2,447 4,202
----- ------ ------- ------ ------
Real estate owned............................ 297 604 857 1,501 1,765
----- ------ ------- ----- -----
Total non-performing assets 1,888 $ 2,758 $3,948 $5,967
====== ===== =====
Total non-performing loans to net loans..... .67% .87% 1.62% 2.54% 4.43%
===== ===== ===== ===== =====
Total non-performing loans to total assets... .29% .39% .63% .79% 2.17%
===== ===== ===== ===== =====
Total non-performing assets to total assets.. .37% .57% .91% 1.27% 3.09%
===== ===== ===== ===== =====
</TABLE>
Interest income that would have been recorded on nonaccrual loans had
they been current under the original terms of such loans was approximately
$89,000 and $111,000 for the years ended December 31, 1998 and 1997,
respectively. Amounts included in the Bank's interest income attributable to
non-performing loans for the years ended December 31, 1998 and 1997 were
approximately $60,000 and $50,000, respectively.
7
<PAGE>
Classified and Criticized Assets. OTS regulations provide for a
classification system for problem assets of insured institutions which covers
all problem assets. Under this classification system, problem assets of insured
institutions are classified as "substandard," "doubtful," or "loss." An asset is
considered substandard if it is inadequately protected by the current net worth
and paying capacity of the obligor or of the collateral pledged, if any.
Substandard assets include those characterized by the "distinct possibility"
that the insured institution may sustain "some loss" if the deficiencies are not
corrected. Loans classified as substandard may or may not be considered impaired
under generally accepted accounting principals. Assets classified as doubtful
have all of the weaknesses inherent in those classified substandard, with the
added characteristic that the weaknesses present make "collection or liquidation
in full," on the basis of currently existing facts, conditions and values,
"highly questionable and improbable." Assets classified as loss are those
considered "uncollectible" and as such, are charged off by the Bank. Assets
which do not currently expose the Bank to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are designated "special mention" by management.
When the Bank classifies problem assets as either substandard or
doubtful, it may establish general allowances for loan and lease losses in an
amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities. When the Bank classifies problem assets as loss, it is
considered uncollectible and the Bank charges off such amount. The Bank's
determination as to the classification of its assets and the amount of its
valuation allowances is subject to review by the OTS, which may order the
establishment of additional general or specific loss allowances. A portion of
general loss allowances established to cover possible losses related to assets
classified as substandard or doubtful may be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital.
The following table provides further information about the Bank's
classified assets as of the dates indicated.
At December 31,
--------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ -------
(In Thousands)
Criticized:
Special Mention........ $1,573 $3,912 $2,931 $2,639 $2,094
Classified:
Substandard............ 1,645 1,637 3,665 3,925 5,901
Doubtful............... -- -- -- -- --
Loss................... -- -- -- -- 123
------ ------ ------ ------ ------
$3,218 $5,549 $6,596 $6,564 $8,118
===== ===== ===== ===== =====
Real Estate Owned. Real estate acquired by the Bank as a result of
foreclosure or by deed in lieu of foreclosure is classified as real estate owned
until it is sold. When property is acquired it is carried at the lower of the
cost or fair value less selling costs. It is the policy of the Bank to obtain an
appraisal on all real estate acquired through foreclosure as soon as practicable
after it takes possession of the property. The Bank generally reassesses the
value of real estate owned at least every eighteen months. These properties are
subsequently evaluated and carried at the lower of the "new" cost or fair value
minus selling costs of the underlying collateral. The Bank's real estate owned
totaled approximately $297,000 at December 31, 1998.
8
<PAGE>
Allowance for Loan Losses. A provision for loan losses is charged to
operations based on management's evaluation of the potential losses that may be
incurred in the Bank's loan portfolio. Such evaluation, which includes a review
of certain loans of which full collectibility of interest and principal may not
be reasonably assured, considers the Bank's past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, estimated value of any underlying collateral and
current economic conditions.
Management will continue to review its loan portfolio to determine the
extent, if any, to which further additional loss provisions may be deemed
necessary. There can be no assurance that the allowance for losses will be
adequate to cover losses which may in fact be realized in the future and that
additional provisions for losses will not be required.
As a result of the declines in regional real estate market values and
the significant losses experienced by many financial institutions, there has
been a greater level of scrutiny by regulatory authorities of the loan
portfolios of financial institutions undertaken as part of the examination of
the institution by the FDIC, OTS or other federal or state regulators. Results
of recent examinations indicate that these regulators may be applying more
conservative criteria in evaluating real estate market values, requiring
significantly increased provisions for potential loan losses. While the Bank
believes it has established an adequate allowance for loan losses, there can be
no assurance that regulators, in reviewing the Bank's loan portfolio, will not
request the Bank to significantly increase its allowance for loan losses,
thereby negatively affecting the Bank's financial condition and earnings or that
the Bank may not have to increase its level of loan loss allowance in the
future.
9
<PAGE>
Analysis of the Allowance for Loan Losses. The following table sets
forth information with respect to the Bank's allowance for loan losses at the
dates indicated.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding............... $150,245 $148,415 $118,493 $97,971 $96,447
======= ======= ======= ====== ======
Allowance balances (at beginning
of period)........................... $ 1,168 $ 1,090 $ 958 $ 1,169 $ 818
Provision:
One- to four-family................. 79 168 136 87 340
Multi-family and commercial
real estate(1).................... 39 35 38 35 13
Consumer............................ 43 37 9 9 3
------- ------- ------- ----- ------
Total provision for loan losses....... 161 240 183 131 356
------- ------- ------- ----- ------
Charge-offs net of recoveries:
One- to four-family................. -- 154 51 342 5
Multi-family and commercial
real estate....................... -- -- -- -- --
Consumer.............................. -- 8 -- -- --
------- ------- ------- ------ ------
Total charge-offs..................... -- 162 51 342 5
------- ------- ------- ------ ------
Allowance balance (at end of
period)............................. $ 1,329 $ 1,168 $ 1,090 $ 958 $ 1,169
======= ======= ======= ====== ======
Allowance for loan losses as
a percent of total loans
outstanding......................... 0.88% 0.79% 0.92% 0.98% 1.21%
======= ======= ======= ====== ======
</TABLE>
- ------------------------
(1) Includes residential construction loans.
10
<PAGE>
Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of the Bank's allowance for loan and lease losses by loan
category and the percentage of loans in each category to net loans receivable at
the dates indicated. The portion of the loan loss allowance allocated to each
loan category does not represent the total available for future losses which may
occur within the loan category since the total loan loss allowance is a
valuation reserve applicable to the entire loan portfolio.
<TABLE>
<CAPTION>
At December 31,
- -------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------- ----------------- ----------------- ----------------- ------------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
to Loan to Loan to Loan to Loan to Loan
Amount Portfolio Amount Portfolio Amount Portfolio Amount Portfolio Amount Portfolio
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
At end of period allocated to:
One-to four-family.......... $ 956 71.39% $ 877 79.68% $ 863 91.66% $778 92.31% $1,033 92.71%
Multi-family and
commercial real
estate(1)................ 274 20.62 235 11.93 200 3.27 162 4.82 127 4.71
Consumer ................... 99 7.45 56 8.39 27 5.07 18 3.54 9 3.80
------ ------ ----- ------ ------ ------ ---- ------ ------ ------
Total allowance............. $1,329 100.00% $1,168 100.00% $1,090 100.00% $958 100.00% $1,169 100.00%
===== ====== ===== ====== ===== ====== === ====== ===== ======
</TABLE>
(1) Includes residential construction loans.
11
<PAGE>
Investment Activities
General. The investment policy of the Bank, which is approved by the
Board of Directors and implemented by certain officers as authorized by the
Board, is designed primarily to provide and maintain liquidity and to manage the
interest rate sensitivity of its overall assets and liabilities, to generate a
favorable return without incurring undue interest rate and credit risk, to
provide a flow of earnings and a countercyclical balance to earnings and to
provide a balance of quality and diversification of the Bank's assets. In
establishing its investment strategies, the Bank considers its business and
growth plans, the economic environment, its interest rate sensitivity position,
the types of securities to be held, and other factors. Federally chartered
savings institutions have authority to invest in various types of assets,
including U.S. Treasury obligations, securities of various federal agencies,
mortgage-backed and mortgage-related securities, certain certificates of deposit
of insured banks and savings institutions, certain bankers acceptances,
repurchase agreements, loans of federal funds, and, subject to certain limits,
corporate securities, commercial paper and mutual funds.
Current regulatory and accounting guidelines regarding investment
portfolio policy require insured institutions to categorize securities as held
for "investment," "sale," or "trading." At December 31, 1998, the Bank had no
securities held available for sale or trading. The Bank's securities portfolio,
which the Bank has the ability and intent to hold to maturity, are accounted for
on an amortized cost basis. The Bank may purchase securities in the future to be
held available for sale or trading.
At December 31, 1998, the Bank's investment securities portfolio
primarily consisted primarily of short and medium term agency securities,
corporate bonds, trust preferred securities and preferred stock. In addition, at
December 31, 1998, the Bank had federal funds sold of $23.0 million, repurchase
agreements of $4.0 million and FHLB stock of $3.8 million.
To supplement lending activities and to utilize excess liquidity, the
Bank invests in residential mortgage-backed securities. Mortgage-backed
securities can serve as collateral for borrowings and, through repayments, as a
source of liquidity. The mortgage-backed securities portfolio at December 31,
1998 consisted of both fixed-rate and adjustable rate certificates issued by the
FHLMC, GNMA and FNMA. The fixed rate certificates provide the certificate holder
principal payments while the adjustable rate securities provide protection
against rising interest rates.
Mortgage-backed securities represent a participation interest in a pool
of single-family or multi-family mortgages, the principal and interest payments
on which are passed from the mortgage originators, through intermediaries
(generally quasi-governmental agencies) that pool and repackage the
participation interests in the form of securities, to investors such as the
Bank. Such quasi-governmental agencies, which guarantee the payment of principal
and interest to investors, primarily include FHLMC, FNMA, and GNMA.
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate mortgages or
adjustable-rate mortgage loans. Mortgage-backed securities are generally
referred to as mortgage participation certificates or pass-through certificates.
As a result, the interest rate risk characteristics of the underlying pool of
mortgages, fixed rate or adjustable rate, as well as prepayment risk, are passed
on to the certificate holder. The life of a mortgage-backed pass-through
security is equal to the life of the underlying mortgages.
12
<PAGE>
All of the securities have a cap rate of either 9.0%, or 10.0% and all
of the products meet the current FFIEC tests. The securities are tested on a
quarterly basis.
Investment and Mortgage-backed Securities Portfolio. The following
table sets forth the carrying value of the Bank's investment and mortgage-backed
securities portfolio.
At December 31,
---------------------------------------------
1998(1) 1997 1996
---------- ----------- -----------
(In Thousands)
Investment Securities:
U.S. Government
securities................. $ -- $ -- $ 6,006
U.S. Agency securities....... 53,419 57,988 45,022
Corporate bonds.............. 1,990 -- --
Trust preferred securities... 11,496 -- --
Preferred stock.............. 13,095 -- --
Other securities............. -- -- 342
------- ------ ------
Total investment
securities............... 80,000 57,988 51,370
------- ------ ------
Federal funds sold............ 23,000 3,500 5,000
Repurchase agreements......... 4,000 -- --
FHLB Stock.................... 3,768 2,518 2,076
------- ------ ------
Total investment
securities, federal
funds sold and FHLB
stock................... $110,768 $64,006 $58,446
======= ====== ======
- --------------------
(1) Includes held to maturity and available for sale (available for sale
issues are reflected net of an unrealized loss of approximately
$493,000).
At December 31,
---------------------------------------
1998(2) 1997(2) 1996
-------- -------- --------
(Dollars in Thousands)
Mortgage-backed securities:
GNMA........................... $17,293 $ 26,337 $ 33,675
FNMA........................... 36,953 42,393 49,434
FHLMC.......................... 20,158 34,932 28,297
------ ------- -------
Total...................... 74,404 103,662 111,406
Net premiums................... 941 1,224 1,067
------- -------- -------
Net mortgage-backed
securities..................... $75,345 $104,886 $112,473
====== ======= =======
- ---------------------
(2) Includes held to maturity and available for sale (available for sale
issues are reflected net of unrealized losses of $16,600 and $111,500
for 1998 and 1997, respectively).
13
<PAGE>
Investment and Mortgage-backed Securities' Portfolios Maturities. The
following table sets forth certain information regarding the carrying values,
weighted average yields and maturities of the Bank's investment and
mortgage-backed securities portfolios at December 31, 1998.
<TABLE>
<CAPTION>
Total Investment and
One Year or Less One to Five Years More Than Five Years Mortgage-backed Securities
------------------ ------------------- -------------------- ----------------------------
Weighted Weighted Weighted Weighted Estimated
Carrying Average Carrying Average Carrying Average Carrying Average Fair
Value Yield Value Yield Value Yield Value Yield Value
-------- -------- -------- -------- -------- -------- -------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Agency securities(1).......... $ -- --% $ 2,000 6.74% $51,419 6.20% $53,419 6.22% $53,200
Corporate Bonds(1)................. -- --% -- -- 1,990 7.00 1,990 7.00 1,990
Trust preferred securities(1)...... 11,496 6.60 11,496 6.60 11,496
Preferred stock(1)................. $ 8,910 5.00 4,185 6.26 8,910 5.00 13,095
----- ---- ------ ---- ------ ---- ------ ---- ------
Total investment securities(1).. $ -- --% $10,910 5.32% $69,090 6.29% $80,000 6.16% $79,781
===== ==== ====== ==== ====== ==== ====== ==== ======
GNMA............................... $ -- --% $ 155 8.25% $17,488 7.04% $17,643 7.05% $17,498
FNMA(1)............................ 119 7.00 1,248 7.00 36,052 6.55 37,419 6.57 37,427
FHLMC(1)........................... 1,523 5.92 3,412 6.79 15,347 6.70 20,282 6.65 20,353
----- ---- ------ ---- ------ ---- ------ ---- ------
Total mortgage-backed $1,642 6.00% $ 4,815 6.89% $68,887 6.71% $75,344 6.70% $75,278
securities...................... ===== ==== ====== ==== ====== ==== ====== ==== ======
</TABLE>
- ----------------------
(1) Includes securities held to maturity and available for sale.
14
<PAGE>
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending
and other investment purposes. The Bank derives funds from amortization and
prepayment of loans and maturities of investment securities, mortgage-backed
securities and operations. Scheduled loan principal repayments are a relatively
stable source of funds, while deposit inflows and outflows and loan prepayments
are significantly influenced by general interest rates and market conditions.
The Bank can obtain advances from the FHLB as an alternative to retail deposit
funds. FHLB advances may also be used to acquire certain other assets as may be
deemed appropriate for investment purposes. These advances are collateralized by
the capital stock of the FHLB held by the Bank and by certain of the Bank's
mortgage loans and mortgage-backed securities.
Deposits. The Bank currently offers NOW Accounts, Super NOW accounts,
regular passbook statement savings accounts and savings accounts, money market
deposit accounts and term certificate accounts, primarily to consumers within
its primary market area. Deposit account terms vary according to the minimum
balance required, the time period the funds must remain on deposit and the
interest rate, among other factors.
Although the Bank partially relies on customer service and
relationships with customers to attract and retain deposits, market interest
rates and rates offered by competing financial institutions significantly affect
the Bank's ability to attract and retain deposits.
The interest rates paid by the Bank on deposits are monitored regularly
and are set as needed at the direction of the Board of Directors. The interest
rates on deposit account products are determined by evaluating the interest
rates offered by other local institutions, and the degree of competition the
Bank wishes to maintain; the Bank's anticipated need for cash and the timing of
that desired cash flow; the cost of borrowing from other sources versus the cost
of acquiring funds through customer deposits; and the Bank's anticipation of
future economic conditions and related interest rates. The Bank's interest rates
typically are competitive with those offered by competitors in the Bank's
primary market area.
Regular savings accounts, money market accounts and NOW accounts
including non-interest bearing deposits constituted $41.4 million, $7.0 million
and $29.1 million, respectively, or 17.05%, 2.87%, and 11.98%, respectively.
Certificates of deposit constituted $165.5 million or 68.10% of the deposit
portfolio. As of December 31, 1998, the Bank had no brokered deposits.
Jumbo Certificate Accounts. The following table indicates the amount of
the Bank's certificates of deposit of greater than $100,000 by time remaining
until maturity as of December 31, 1998.
Certificates
Maturity Period of Deposits
- --------------- --------------
(In Thousands)
Within three months................................. $ 1,971
Three through six months............................ 2,684
Six through twelve months........................... 6,468
Over twelve months.................................. 3,419
------
$14,542
15
<PAGE>
Savings Deposit Activity. The following table sets forth the savings
activities of the Bank for the periods indicated.
Year Ended December 31,
------------------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
Net increase (decrease)
before interest credited, deposits
purchased and deposits sold............ $ 2,411 $(8,507) $ (21,401)
Deposits purchased....................... -- -- --
Deposits sold............................ -- -- (9,221)
Interest credited........................ 10,504 10,328 11,083
------ ------ --------
Net increase (decrease) in
savings deposits....................... $12,915 $ 1,821 $ (19,539)
====== ====== ========
Borrowings
At December 31, 1998, the Bank had $68.5 million of borrowings with the
Federal Home Loan Bank. These consist of the following:
(a) $9.0 million repurchase agreement with a rate of
5.82%, maturing December, 1999 and is callable
quarterly on interest payment dates. As of March 6,
the borrowing was still in place.
(b) $25.0 million advance maturing March 2008, and with a
rate of 5.35%. On March 12, 2001 and quarterly
thereafter, the borrowing can be called with four
days notice.
(c) $25.0 million advance maturing November 2003, and
with a rate of 4.93%. On November 19, 2001 and
quarterly thereafter, the borrowing can be called
with four days notice.
(d) $9.5 million, 30 day repurchase agreement with a rate
of 5.29%. This repurchase agreement was subsequently
rolled over in January 1999 at a rate of 4.95%. In
February, the repurchase agreement was paid down to
$9.0 million and the rate became 4.92%.
Subsidiary Activities
As of December 31, 1998, the Bank was the sole subsidiary of the
Company. The Bank has no active subsidiaries.
Personnel
As of December 31, 1998, the Bank had 37 full-time and 12 part-time
employees. None of the Bank's employees are represented by a collective
bargaining group. The Bank believes that its relationship with its employees is
good.
16
<PAGE>
Regulation
Set forth below is a brief description of all materials laws and
regulations which relate to the regulation of the Bank and the Company. The
description does not purport to be complete and is qualified in its entirety by
reference to applicable laws and regulations.
Company Regulation
General. The Company is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Company is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over the
Company and its non-savings association subsidiaries, should such subsidiaries
be formed, which also permits the OTS to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings association. This
regulation and oversight is intended primarily for the protection of the
depositors of the Bank and not for the benefit of stockholders of the Company.
The Company is also required to file certain reports with, and otherwise comply
with, the rules and regulations of the OTS and the SEC.
Qualified Thrift Lender Test. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions, provided
the Bank satisfies the Qualified Thrift Lender ("QTL") test. If the Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Company and any of its subsidiaries (other than the Bank or any other
Savings Association Insurance Fund ("SAIF") insured savings association) would
become subject to restrictions applicable to bank holding companies unless such
other associations each also qualify as a QTL and were acquired in a supervisory
acquisition. See "Regulation of the Bank -- Qualified Thrift Lender Test."
Restrictions on Acquisitions. The Company must obtain approval from the
OTS before acquiring control of any other SAIF-insured association. Such
acquisitions are generally prohibited if they result in a multiple savings and
loan holding company controlling savings associations in more than one state.
However, such interstate acquisitions are permitted based on specific state
authorization or in a supervisory acquisition of a failing savings association.
Federal law generally provides that no "person," acting directly or
indirectly or through or in concert with one or more other persons, may acquire
"control," as that term is defined in OTS regulations, of a federally insured
savings institution without giving at least 60 days' written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition. In
addition, no company may acquire control of such an institution without prior
OTS approval.
Federal Securities Law. The Company is subject to filing and reporting
requirements by virtue of having its common stock registered under the
Securities Exchange Act of 1934. Furthermore, Company 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.
17
<PAGE>
Regulation of the Bank
General. As a federally chartered, SAIF-insured savings association,
the Bank is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with various federal statutory and
regulatory requirements. The Bank is also subject to certain reserve
requirements promulgated by the Federal Reserve Board.
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that they find in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
law, especially in such matters as the ownership of savings accounts and the
form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulations, whether by the OTS, the FDIC or the
Congress could have a material adverse impact on the Company, the Bank and their
operations.
Deposit Insurance. The FDIC is an independent federal agency that
insures the deposits, up to prescribed statutory limits, of federally insured
banks and savings institutions and safeguards the safety and soundness of the
banking and savings industries. Two separate insurance funds, the Bank Insurance
Fund ("BIF") for commercial banks, state savings banks and some federal savings
banks, and the SAIF for savings associations, are maintained and administered by
the FDIC. The Bank is a member of the SAIF and its deposit accounts are insured
by the FDIC, up to the prescribed limits. The FDIC has examination authority
over all insured depository institutions, including the Bank, and has under
certain circumstances, authority to initiate enforcement actions against
federally insured savings institutions to safeguard safety and soundness and the
deposit insurance fund.
Assessments. The FDIC is authorized to establish separate annual
assessment rates for deposit insurance for members of the BIF and the SAIF. The
FDIC may increase assessment rates for either fund if necessary to restore the
fund's ratio of reserves to insured deposits to its target level within a
reasonable time and may decrease such assessment rates if such target level has
been met. The FDIC has established a risk-based assessment system for both SAIF
and BIF members. Under this system, assessments are set within a range, based on
the risk the institution poses to its deposit insurance fund. This risk level is
determined based on the institution's capital level and the FDIC's level of
supervisory concern about the institution.
FDIC assessments on SAIF institutions currently range from 0 to 27
basis points. In addition, legislation requires the cost of prior thrift
failures to be shared by both the SAIF and the Bank Insurance Fund ("BIF") (Fico
Bond payments). The Fico Bond assessment for savings institutions in 1998 was
approximately $0.61 per $100 in deposits.
Examination Fees. In addition to federal deposit insurance premiums,
savings institutions like the Bank are required by OTS regulations to pay
assessments to the OTS to fund the operations of the
18
<PAGE>
OTS. The general assessment is paid on a semi-annual basis and is computed based
on total assets of the institution, including subsidiaries.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) a leverage ratio (core capital) equal to
at least 4% of total adjusted assets, and (3) a risk-based capital requirement
equal to 8.0% of total risk-weighted assets.
Savings associations with a greater than "normal" level of interest
rate exposure will, in the future, be subject to a deduction for an interest
rate risk ("IRR") component which may be from capital for purposes of
calculating their risk-based capital requirement. See "-- Net Portfolio Value
Analysis."
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), plus purchased mortgage servicing rights
valued at the lower of the maximum percentage established by the OTS or the
amount includable in core capital. Core capital is defined as common
stockholders' equity (including retained earnings), noncumulative perpetual
preferred stock and minority interests in the equity accounts of consolidated
subsidiaries, and qualifying supervisory goodwill, less nonqualifying intangible
assets.
The OTS requires a core capital ratio of at least 3% for those savings
associations in the strongest financial and managerial condition. All other
savings associations are required to maintain minimum core capital of at least
4% of total adjusted assets, with a maximum core capital ratio requirement of
5%. In determining the required minimum core capital ratio, the OTS assesses the
quality of risk management and the level of risk in each savings association on
a case-by-case basis.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. The components of
supplementary capital include, among other items, cumulative perpetual preferred
stock, perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock and the portion of the allowance for loan
losses not designated for specific loan losses. The portion of the allowance for
loan and lease losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is
limited to 100% of core capital. A savings association must calculate its
risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the OTS, which range from 0% for cash to
100% for delinquent loans, property acquired through foreclosure, commercial
loans and other assets.
19
<PAGE>
As shown below, the Bank's regulatory capital exceeded all minimum
regulatory capital requirements applicable to it as of December 31, 1998:
Percent of
Adjusted
Amount Assets
------ ----------
(Dollars in Thousands)
Tangible Capital:
Actual capital................................ $28,740 8.33%
Regulatory requirement........................ 5,176 1.50
------- ----
Excess...................................... $23,564 6.83%
====== ====
Core Capital:
Actual capital................................ $28,740 8.33%
Regulatory requirement........................ 13,801 4.00
------ ----
Excess...................................... $14,939 4.33%
====== ====
Risk-Based Capital:
Actual capital................................ $29,988 20.45%
Regulatory requirement........................ 11,729 8.00
------ -----
Excess...................................... $18,259 12.45%
====== =====
The Bank is not under any agreement with regulatory authorities nor is
it aware of any current recommendations by the regulatory authorities which, if
they were to be implemented, would have a material effect on liquidity, capital
resources or operations of the Bank or the Company.
Prompt Corrective Action. The FDICIA also established a system of
prompt corrective action to resolve the problems of undercapitalized
institutions. Under this system, which became effective December 19, 1992, the
banking regulators are required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends upon the
institution's degree of capitalization. Under the OTS final rule implementing
the prompt corrective action provisions, an institution is deemed to be (i)
"well capitalized", (ii) "adequately capitalized", (iii) "undercapitalized",
(iv) "significantly undercapitalized", or (v) "critically undercapitalized". In
addition, under certain circumstances, a federal banking agency may reclassify a
well capitalized institution as adequately capitalized and may require an
adequately capitalized institution or an undercapitalized 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). Immediately upon becoming undercapitalized, an
institution shall become subject to various restrictions and could be subject to
additional supervisory actions.
As of December 31, 1998, the Bank was a "well capitalized institution"
as defined in the prompt corrective action regulations and as such is not
subject to any prompt corrective action measures.
Dividend and Other Capital Distribution Limitations. Federal law
requires the Bank to give the OTS 30 days' advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the Company. In
addition, the Bank may not declare or pay a cash dividend on its capital stock
if the effect thereof would
20
<PAGE>
be to reduce the regulatory capital of the Bank below the amount required for
the liquidation account to be established in connection with the Conversion.
Finally, a savings association is prohibited from making a capital
distribution if, after making the distribution, the savings association would be
"undercapitalized" (not meet any one of its minimum regulatory capital
requirements). OTS regulations also prohibit the Bank from declaring or paying
any dividends or from repurchasing any of its stock if, as a result, the
regulatory (or total) capital of the Bank would be reduced below the amount
required to be maintained for the liquidation account established by it for
certain depositors in connection with its conversion from mutual to stock form.
In addition, such regulations prohibit an institution from repurchasing any of
its stock for a period of at least one year from the date of its conversion
without a waiver of such prohibition by the OTS.
Qualified Thrift Lender Test. Savings institutions are to meet a QTL
test. If the Bank maintains an appropriate level of Qualified Thrift Investments
(primarily residential mortgages and related investments, including certain
mortgage-backed securities) ("QTIs") and otherwise qualifies as a QTL, it will
continue to enjoy full borrowing privileges from the FHLB of New York. The
required percentage of QTIs is 65% of portfolio assets (defined as all assets
minus intangible assets, property used by the institution in conducting its
business and liquid assets equal to 10% of total assets). Certain assets are
subject to a percentage limitation of 20% of portfolio assets. In addition,
savings associations may include shares of stock of the FHLBs, FNMA and FHLMC as
qualifying QTIs. The method for measuring compliance with the QTL test is on a
monthly basis in nine out of every 12 months. As of December 31, 1998, the Bank
was in compliance with its QTL requirement.
A savings association that does not meet a QTL test must either convert
to a bank charter or comply with the following restrictions on its operations:
(i) the savings association may not engage in any new activity or make any new
investment, directly or indirectly, unless such activity or investment is
permissible for a national bank; (ii) the branching powers of the savings
association shall be restricted to those of a national bank; (iii) the savings
association shall not be eligible to obtain any advances from its FHLB; and (iv)
payment of dividends by the savings association shall be subject to the rules
regarding payment of dividends by a national bank. Upon the expiration of three
years from the date the savings association ceases to be a QTL, it must cease
any activity and not retain any investment not permissible for a national bank
and immediately repay any outstanding FHLB advances (subject to safety and
soundness considerations).
Loans-to-One Borrower. See "Business -- Lending Activities --
Loans-to-One Borrower."
Community Reinvestment. Under the Community Reinvestment Act ("CRA"),
as implemented by OTS regulations, a savings association 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 OTS, 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. Current law requires public disclosure of an institution's
CRA rating and requires the OTS to provide a written evaluation of an
institution's CRA performance utilizing a four-tiered descriptive rating system
in lieu of the existing five-tiered numerical rating system. The Bank received a
satisfactory rating as a result of its last evaluation in March, 1998.
21
<PAGE>
Transactions With Affiliates. Generally, restrictions on transactions
with affiliates require that transactions between a savings association or its
subsidiaries and its affiliates be on terms as favorable to the Bank as
comparable transactions with non-affiliates. In addition, certain of these
transactions are restricted to an aggregate percentage of the Bank's capital;
collateral in specified amounts must usually be provided by affiliates to
receive loans from the Bank. Affiliates of the Bank include the Company and any
company which would be under common control with the Bank. In addition, a
savings association may not lend to any affiliate engaged in activities not
permissible for a bank holding company or acquire the securities of any
affiliate which is not a subsidiary. The OTS has the discretion to treat
subsidiaries of savings associations as affiliates on a case-by-case basis.
The Bank's authority to extend credit to its officers, directors and
10% shareholders, as well as to entities that such persons control is currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O
promulgated by the Federal Reserve Board. Among other things, these regulations
require such loans to be made on terms substantially similar to those offered to
unaffiliated individuals, place limits on the amount of loans the Bank may make
to such persons based, in part, on the Bank's capital position, and require
certain approval procedures to be followed. Recent legislation permits savings
institutions to make loans to executive officers, trustees and principal
shareholders ("insiders") on preferential terms, provided the extension of
credit is made pursuant to a benefit or compensation program of the Bank that is
widely available to employees of the Bank or its affiliates and does not give
preference to any insider over other employees of the Bank or affiliate.
Liquidity Requirements. All savings associations are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations. At the present time, the required liquid
asset ratio is 4%. At December 31, 1998 the Bank's liquidity ratio was 36.11%.
Federal Home Loan Bank System. The Bank is a member of the FHLB of New
York, which is one of 12 regional FHLBs that administer the home financing
credit function of savings associations. 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.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of New York in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts, or similar obligations at
the beginning of each year. As of December 31, 1998, the Bank had $2.5 million
in FHLB stock, which was in compliance with this requirement. For the fiscal
year ended December 31, 1998, dividends paid by the FHLB of New York to the Bank
totaled $256,000.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve Board may be used
to satisfy the liquidity requirements that are imposed by the OTS.
22
<PAGE>
Item 2. Properties
- --------------------
The Bank operates from its main office located at 86 Main Street,
Little Falls, New Jersey and five branch offices, one of which is leased. This
includes three branches purchased from an unaffiliated commercial bank in
December 1996. The Bank's total investment in office property and equipment is
$4.2 million with a net book value of $2.6 million at December 31, 1998.
Item 3. Legal Proceedings
- --------------------------
Neither the Company nor its subsidiaries are involved in any pending
legal proceedings, other than routine legal matters occurring in the ordinary
course of business, which in the aggregate involve amounts which are believed by
management to be immaterial to the consolidated financial condition or results
of operations of the Company.
Item 4. Submission of Matters to a Vote of Security-Holders
- ------------------------------------------------------------
Not applicable.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- -----------------------------------------------------------------
Information relating to the market for Registrant's common equity and
related stockholder matters appears under "Stock Market Information" in the
Registrant's 1998 Annual Report to Stockholders ("Annual Report") on page 2, and
is incorporated herein by reference.
Item 6. Selected Financial Data
- --------------------------------
The above-captioned information appears in the Annual Report on pages 3
and 4, and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
- --------------------------------------------------------------------------------
The above-captioned information appears under Management's Discussion
and Analysis of Financial Condition and Results of Operations in the Annual
Report on pages 5 through 10 and is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
- -------------------------------------------------------------------
The information contained in the Section captioned "Risk Management" in
the Annual Report on page 10 is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The Financial Statements of the Bank, together with the report thereon
by Radics & Co., LLC, appear in the Annual Report on pages 18 through 58 and
are incorporated herein by reference.
23
<PAGE>
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The Certificate of Incorporation requires that the Board of Directors
be divided into three classes, each of which contains approximately one-third of
the members of the Board. The directors are elected by the stockholders of the
Company for staggered three-year terms, or until their successors are elected
and qualified. The Board of Directors currently consists of seven members.
The following table sets forth the directors continuing in office,
their name, age, the year they first became a director of the Company or the
Bank, the expiration date of their current term as a director, and the number
and percentage of shares of the Common Stock beneficially owned as of the March
22, 1999. Each director of the Company is also a member of the Board of
Directors of the Bank.
<TABLE>
<CAPTION>
Shares of
Year First Current Common Stock
Elected or Term to Beneficially Percent
Name Age(1) Appointed Expire Owned(2)(3) of Class
- ---- ------ ---------- ------- --------------------- --------
<S> <C> <C> <C> <C> <C>
John P. Pullara 67 1995 1999 52,417(9)(10) 2.06%
George Kuiken 78 1954 1999 25,166(4)(5)(11) 0.99%
Raoul G. Barton 74 1970 2001 39,222(4)(5)(6)(7) 1.54%
Albert J. Weite 64 1976 2001 38,666(4)(5)(8) 1.52%
Norman A. Parker 85 1953 2000 34,366(4)(5)(6)(12) 1.35%
Edward J. Seugling 62 1970 2000 26,666(4)(5)(6)(13) 1.05%
All Directors and
Executive Officers as a
Group (9 persons) 268,296(14)(15)(16) 10.56%
</TABLE>
24
<PAGE>
- ------------------------
* Less than 1.0%.
(1) As of December 31, 1998.
(2) As of the March 22, 1999.
(3) Pursuant to rules promulgated under the 1934 Act, an individual is
considered to beneficially own shares of Common Stock if he or she
directly or indirectly has or shares (1) voting power, which includes
the power to vote or to direct the voting of the shares; or (2)
investment power, which includes the power to dispose or direct the
disposition of the shares. Unless otherwise indicated, a director has
sole voting power and sole investment power with respect to the
indicated shares.
(4) Includes 6,083 shares of Common Stock that have been awarded under the
Management Stock Bonus Plan ("MSBP"), 3,500 shares of Common Stock
under the 1997 Directors Stock Compensation Plan ("1997 DSCP") and
3,500 shares of Common Stock under the 1998 Directors Stock
Compensation Plan ("1998 DSCP") which are subject to forfeiture under
certain circumstances. Shares awarded under the MSBP, 1997 DSCP and the
1998 DSCP vest equally over five year periods beginning July 9, 1997,
April 17, 1998 and April 21, 1999, respectively.
(5) Includes options to purchase 6,083 shares of Common Stock pursuant to
the Little Falls Bancorp, Inc. 1996 Stock Option Plan Options ("1996
Stock Option Plan") which are immediately exercisable within 60 days of
the Voting Record Date. See "Item 12. Director and Executive Officer
Compensation - Director Compensation - Stock awards."
(6) Excludes 241,979 unallocated shares of Common Stock held under the ESOP
for which such individual serves as one of three ESOP trustees.
Beneficial ownership is disclaimed with respect to such ESOP shares
held in a fiduciary capacity.
(7) Includes 4,190 shares held by Mr. Barton's IRA, 4,894 shares held by
the IRA of Mr. Barton's wife and 118 shares held by Mr. Barton's wife,
which Mr. Barton may be deemed to beneficially own.
(8) Includes 14,000 shares held jointly with Mr. Weite's wife, with whom
voting and dispositive power is shared, and 3,000 shares held by Mr.
Weite's IRA and 2,500 shares held by the IRA of Mr. Weite's wife, which
Mr. Weite may be deemed to beneficially own. Does not include 6,000
shares owned by DOB&K, LLC, a partnership between Mr. Weite's children,
of which Mr. Weite disclaims beneficial ownership.
(9) Includes options to purchase 12,167 shares of Common Stock pursuant to
the Little Falls Bancorp, Inc. 1996 Stock Option Plan Options ("1996
Stock Option Plan") which are immediately exercisable within 60 days of
the Voting Record Date. See "Item 12. Director and Executive Officer
Compensation - Director Compensation - Stock Awards."
(10) Includes 15,000 shares held jointly with Mr. Pullara's wife, with whom
voting and dispositive power is shared. Includes options to purchase
12,167 shares of Common Stock pursuant to the 1996 Stock Option Plan
which are immediately exercisable within 60 days of the Voting Record
Date. Also includes 18,250 and 3,500 shares of restricted stock awarded
pursuant to the MSBP, 1997 DSCP and 1998 DSCP, and awards vest equally
over five year periods beginning July 9, 1997, April 17, 1998 and April
21, 1999, respectively.
(11) Includes 1,000 shares owned by Mr. Kuiken's wife, which Mr. Kuiken may
be deemed to beneficially own.
(12) Includes 15,000 shares held in trust, which Mr. Parker may be deemed to
beneficially own, and 200 shares held jointly with Mr. Parker's wife,
with whom voting and dispositive power is shared.
(13) Includes 7,390 shares held by Mr. Seugling's IRA and 110 shares held by
Custom Graphics & Design, Inc., which Mr. Seugling may be deemed to
beneficially own.
(14) Includes 4,265 allocated shares of Common Stock held for individual
employee participants under the ESOP. Excludes unallocated shares of
Common stock held under the ESOP. See note (6).
(15) Includes options to purchase 63,548 shares of Common Stock which are
immediately exercisable within 60 days of the Voting Record Date.
(16) Excludes 241,979 unallocated shares of Common Stock held under the ESOP
for which such individual serves as two of three members of the ESOP
Committee. Beneficial ownership is disclaimed with respect to such ESOP
shares held in a fiduciary capacity.
The following table sets forth the non-director executive officers of
the Company, their name, age, the year they first became an officer of the
Company or the Bank, and their current position with
25
<PAGE>
the Company. Executive officers serve for a one-year term at the determination
of the Board of Directors.
Year First
Appointed as Position with
Name of Individual Age(1) Officer(2) the Company or Bank
- ------------------ ------ ------------ ----------------------
Leonard G. Romaine 52 1967 President and Chief
Executive Officer
Richard A. Capone 49 1995 Vice President, Chief
Financial Officer
Anne Bracchitta 59 1997 Corporate Secretary
- ------------------------
(1) As of December 31, 1998.
(2) Refers to the year the individual first became an officer of the
Company or the Bank.
Biographical Information
The business experience of each director and executive officer of the
Company is set forth below. All persons have held their present positions for
five years unless otherwise stated.
Directors
---------
Raoul G. Barton was elected Director of the Bank in 1970 and served as
Chairman from 1982 to 1994. Mr. Barton is a member of the Little Falls Masonic
Lodge. In 1990, Mr. Barton retired as owner of Barton Jewelers which he founded
in 1949.
George Kuiken has served as Director of the Bank since 1954. Mr. Kuiken
retired as President of New Jersey Rental Equipment, Inc.
Norman A. Parker has served as a Director since 1953. Mr. Parker was
Chairman of the Board of the Bank from 1973 to 1981 and President of the Bank
from 1965 to 1977. Mr. Parker is a retired funeral director. Mr. Parker is also
past President of the Passaic County Funeral Directors Association, past
President and charter member of the Passaic Valley Rotary Club, past member of
the Passaic Valley School Board, Elder of the First Reformed Church, charter
member of the Little Falls Parking Authority, charter member of the Mayor's
Committee for Senior Citizens and member of the Little Falls Masonic Lodge.
John P. Pullara was with the Bank from March 1955, serving as its
President from 1977 until his retirement on October 5, 1997. Mr. Pullara was
elected Director of the Bank in June of 1995. Mr. Pullara is also Director and
Treasurer of the Passaic County Historical Society, Director of the Garden State
Concert Band, Treasurer of the Little Falls Historical Society, Chairman of the
Little Falls Parking Authority and a member of the Little Falls Business
Association.
Edward J. Seugling has served as a Director of the Bank since 1970 and
became the Vice Chairman of the Board of Directors in 1994. Mr. Seugling is a
retired teacher at Passaic Valley High School and the sole owner of the Little
Falls Journal. He is a member of the Little Falls Business Association, the
Little Falls Masonic Lodge, the Little Falls Historical Society, and the New
Jersey Education Association. He is a member of the First Reformed Church of
Little Falls, and he has served as an elder and deacon of the First Reformed
Church. He was formerly Chairman of the Little Falls Rent Leveling Board and was
an associate member of the Little Falls Main Street Development Corp.
26
<PAGE>
Albert J. Weite has served as Chairman of the Board of Directors of the
Bank since 1994 and as a Director since 1976. Mr. Weite is a real estate
investor.
Executive Officers who are not Directors
----------------------------------------
Leonard G. Romaine has been employed by the Bank since 1967. He served
as Treasurer and Secretary of the Company and as Senior Vice President,
Secretary and Treasurer of the Bank until he was appointed President of the Bank
and Company on October 6, 1997. Mr. Romaine is a member of the Passaic County
Attorney Ethics Committee.
Richard A. Capone became employed by the Bank and Company in November
1995 as Chief Financial Officer. Prior to that, Mr. Capone was controller or
Treasurer at four different local financial institutions over the past 20 years.
Anne Bracchitta has been employed by the Bank since 1980. She was
appointed Corporate Secretary in 1997.
Item 11. Executive Compensation
- --------------------------------
Director Compensation
Directors Fees. For fiscal year 1998, each member of the Board of
Directors received an attendance fee of $1,450 per regular meeting. Committee
members received an additional $725 per Asset-Liability Committee meeting
attended. No Committee fees are paid to Board members who are employees. For the
year ended December 31, 1998, total fees paid by the Company and the Bank to
directors were $141,000. Directors are also provided with broad medical
insurance coverage.
Directors Retirement and Consultation Plan. The Bank's Board adopted a
Directors' Consultation and Retirement Plan (the "Consultation Plan") on May 9,
1995. Such Consultation Plan provides retirement benefits to directors.
Management believes the Consultation Plan will help to insure that the Bank has
the continued services of these persons as directors to assist in the conduct of
the Bank's business affairs in the future. A director who has served as a
director for at least twenty years shall be a participant in the Consultation
Plan. A consulting director shall be paid a monthly retirement benefit under the
Consultation Plan equal to half of the director fee in effect at the time of
such retirement until the month following the date of death of the consulting
director. At the expiration of the period for which the participant is entitled
to benefits, his status as a consulting director shall cease. All benefits
payable under the plan will be paid by the Bank from current assets. There are
no tax consequences to either the director or the Bank prior to payment of
benefits. Upon receipt of payment of benefits, the director will recognize
taxable ordinary income in the amount of such payment received and the Bank will
be entitled to recognize a tax-deductible compensation expense. In addition, the
Bank has a policy of continuing medical benefits for its retired directors. For
the year ended December 31, 1998, no benefits were paid under the Consultation
Plan and approximately $45,000 was accrued as an expense for the Consultation
Plan and the continuation of such medical benefits.
Stock Awards. On July 9, 1996, the stockholders of the Company approved
the Little Falls Bancorp 1996 Stock Option ("1996 Stock Option Plan") and the
Little Falls Bank Management Stock Bonus Plan ("MSBP"). Pursuant to the terms of
the 1996 Stock Option Plan, each non-employee director received, on the date of
stockholder approval options to purchase 15,208 shares of Common Stock. Under
the MSBP, the same non-employee directors received 6,083 shares of restricted
stock on the date
27
<PAGE>
of stockholder approval. The options granted to these non-employee directors
become first exercisable at a rate of 20% one year from the date of grant and
20% annually thereafter. Restricted stock granted to these non-employee
directors will vest 20% one year from the date awarded and an additional 20%
annually, thereafter. In April 1997, the Company adopted the 1997 Directors
Stock Compensation Plan authorizing the granting of up to 24,500 shares of
Common Stock in the aggregate (representing less than 1% of total shares
outstanding at such time). Each non-employee director (seven persons) was
awarded 3,500 shares of Common Stock which shall vest over a five year period
beginning April 17, 1997. In April 1998, the Company adopted the 1998 Directors
Stock Compensation Plan authorizing the granting of up to 24,500 shares of
Common Stock in the aggregate (representing less than 1% of total shares
outstanding at such time). During 1998, all 24,500 shares were granted under the
plan (3,500 shares to each non-employee director).
Executive Compensation
Summary Compensation Table. The following table sets forth the compensation
paid to the chief executive officer during the fiscal year ended December 31,
1998. All compensation paid to directors, officers and employees is paid by the
Bank. Except as listed below, no other executive officer received cash
compensation in excess of $100,000 during the fiscal year ended December 31,
1998.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation(1) Awards
------------------------------------------------- --------------------------------
Securities
Restricted Underlying All
Name and Other Annual Stock Options/ Other
Principal Position Year Salary Bonus Compensation(2) Awards SARs(#) Compensation(6)
- ------------------ ---- ------ ----- ------------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Leonard G. Romaine, 1998 $125,400 $ 9,000 $17,400
President(3) 1997 $115,000 $15,000 $20,200 -- 3,000(3) 42,660
1996 $ 89,420 $ 7,750 $15,000 $129,274(4) 30,417(5) 30,176
</TABLE>
- ------------------------
(1) All compensation set forth above was paid by the Bank.
(2) Consists of Board of Director's fees. For fiscal year 1998, there were
no (a) perquisites over the lesser of $50,000 or 10% of the named
executive officer's total salary and bonuses for the year; (b) payments
of above-market preferential earnings on deferred compensation; (c)
payments of earnings with respect to long term incentive plans prior to
settlement or maturity: (d) tax payment reimbursements; or (e)
preferential discounts on stock.
(3) Options vest equally over a five year period beginning December 9,
1998.
(4) Based upon 12,167 shares of restricted stock granted pursuant to the
MSBP (fair market value on date of grant of $10.625). Restricted stock
vest equally over a five year period beginning July 9, 1997. Dividends
are paid on the restricted stock and are accrued and held in arrears
until the restricted stock for which dividends were paid become vested.
(5) Options vest equally over a five year period beginning July 9, 1997.
(6) Includes 1,472 and 2,133 shares of stock held by the ESOP and allocated
to Mr. Romaine's account for 1996 and 1997, respectively. Based on the
closing price of the Common Stock ($20.00 per share) at December 31,
1998. As of the date of this proxy statement, shares had not yet been
allocated for fiscal 1998.
Employment Agreement. The Bank is a party to an employment agreement
with President and Chief Executive Officer Leonard G. Romaine. The employment
agreement is for a term of three years. Under the agreement, Mr. Romaine's
employment is terminable by the Bank for "just cause" as defined in the
agreement. If the Bank terminates Mr. Romaine without just cause, he will be
entitled to a continuation of his salary from the date of termination through
the remaining term of the agreement. The agreement contains a provision stating
that in the event of termination of employment or diminution of employment in
connection with, or within one year after, any change in control of the Bank,
Mr. Romaine will be paid in a lump sum an amount equal to 2.99 times his five
year average cash compensation. Had a change in control been deemed to have
occurred at completion of the last fiscal
28
<PAGE>
year, Mr. Romaine would have been entitled to a lump sum payment of
approximately $388,000. The payment that would be made would be an expense to
the Bank, thereby reducing net income and the Bank's capital by that amount. The
agreement is reviewed annually by the Board of Directors and may be extended for
additional one-year periods upon a determination of the Board and satisfactory
job performance within the Board's sole discretion.
The Bank also entered into similar employment agreements with eight
officers of the Bank, with terms of three, two and one years and severance
protection upon a termination of employment or diminution of employment
following a change in control with such payment equalling between one and three
times the current annual compensation of such individuals. Upon a change in
control, payment to all executive officers as a group (seven persons), excluding
Mr. Romaine, as of December 31, 1998, would have equalled approximately $1.0
million.
Other Compensation
Employee Stock Ownership Plan. The Bank maintains an ESOP for the
exclusive benefit of participating employees. Participating employees are
employees who have completed one year of service with the Bank or its subsidiary
and have attained the age 21.
The ESOP be funded by contributions made by the Bank in cash or the
Common Stock. Benefits may be paid either in shares of the Common Stock or in
cash. The ESOP borrowed funds with which to acquire 243,340 shares of the Common
Stock issued in the Conversion, representing 8.0% of the Common Stock then
outstanding. The loan is secured by the shares purchased and earnings of ESOP
assets. Shares purchased with such loan proceeds will be held in a suspense
account for allocation among participants as the loan is repaid. This loan is
expected to be fully repaid in approximately 15 years. For the 1998 fiscal year,
the Bank recognized an expense of $299,000 regarding the ESOP.
1996 Stock Option Plan. The Company's Board of Directors adopted a 1996
Stock Option Plan, which was approved by the Company's stockholders on July 9,
1996. Pursuant to the 1996 Stock Option Plan, a number of shares equal to 10% of
the Common Stock issued in the Company's initial public offering (304,175 shares
of Common Stock) were reserved for issuance by the Company upon exercise of
stock options to be granted to officers, directors, and key employees of the
Company (or any present of future parent or subsidiary of the Company), from
time to time under the 1996 Stock Option Plan. The purpose of the 1996 Stock
Option Plan is to provide additional incentive to certain officers, directors,
and key employees by facilitating their purchase of a stock interest in the
Company. The 1996 Stock Option Plan became effective on July 9, 1996 and
provides for a term of ten years, after which no awards may be made, unless
earlier terminated by the Board of Directors pursuant to the terms of the 1996
Stock Option Plan.
An initial grant of stock options under the 1996 Stock Option Plan was
made to officers, directors, and key employees upon the Company's receipt of
stockholder approval on July 9, 1996, and the option exercise price is the
closing price of the Common Stock on the date of stockholder approval. The
initial grant of stock options were the only options granted to officers,
directors, and key employees during the fiscal year ended December 31, 1996. In
December 1997, certain officers and key employees were granted an aggregate of
16,000 additional options under the 1996 Stock Option Plan. The option exercise
price is the closing price of the Company's Common Stock on the date of the
grant. No options were granted to officers, directors and key employees during
the fiscal year ended December 31, 1998. As of the Record Date, 15,208 stock
options have been exercised pursuant to the 1996 Stock Option Plan.
29
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options/SARs in-the-Money Options/SARs
Acquired on Value at Fiscal Year-End at Fiscal Year-End
Exercise Realized (#) ($) Name
(#) ($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Leonard G. Romaine 0 $0 12,767/20,650 114,066/171,094
</TABLE>
(1) Based on an exercise price of $10.625 for options granted in the fiscal
year ended December 31, 1996, and $20.00 for options granted in the
fiscal year ended December 31, 1996 and the closing price of the Common
Stock on December 31, 1998 of $20.00.
Management Stock Bonus Plan. The board of directors of the Bank has
adopted the MSBP as a method of providing directors, executive officers and key
employees of the Bank with a proprietary interest in the Company in a manner
designed to encourage such persons to remain in the employment or service with
the Bank. Awards under the MSBP were made in recognition of prior and expected
future services to the Bank to those directors, executive officers and key
employees of the Bank responsible for implementation of the policies adopted by
the board of directors of the Bank, the profitable operation of the Bank, and as
a means of providing a further retention incentive and direct link between
compensation and the profitability of the Bank. Awards under the MSBP vest at a
rate of 20% per year beginning on the anniversary date of the date of grant. An
initial grant of 82,732 shares of restricted stock was made on July 9, 1997, the
date of stockholder approval of the MSBP. No awards were granted under the MSBP
in 1998.
Defined Benefit Plan. The Bank has a defined benefit pension plan
covering substantially all of its employees. The benefits are based on years of
service and employees' compensation. The Bank's funding policy is to fund
pension costs accrued. Contributions are intended to provide not only for
benefits attributed to service to date but also for those expected to be earned
in the future.
All full-time employees of the Bank are eligible to participate after
one year of service and attainment of age 21. A qualifying employee becomes
fully vested in the Pension Plan upon completion of five years service or when
the normal retirement age of 65 is attained. The Pension Plan is intended to
comply with the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
The Pension Plan provides for monthly payments to each participating
employee at normal retirement age. The annual allowance payable under the
Pension Plan is equal to 25% of an employee's average monthly salary, up to
$650, plus 40% of average monthly salary in excess of $650, reduced for less
than 25 years of service, plus 1/4 of 1% of average monthly salary times years
of service. If benefits are paid prior to age 65, the benefit specified will be
reduced by 1/15 for each of the first five years and 1/30 for each of the next
five years and reduced actuarially for each additional year by which the
starting date of such benefit precedes age 65. There is a minimum monthly
benefit equal to 2% of monthly salary, times years of service up to 10 years.
The Pension Plan also provides for payments in the event of disability or death.
At December 31, 1998, Mr. Romaine had 29 years of credited service under the
Pension Plan. The Bank had a pension expense of $244,000 for the fiscal year
1998. At December 31, 1998, the Pension Plan had projected benefit obligations
greater than plan assets of approximately $1.2 million.
30
<PAGE>
The following table shows the estimated annual benefits payable under
the Pension Plan in calendar year 1998 based on the respective employee's years
of benefit service and applicable average annual salary, as calculated under the
Pension Plan. Benefits under the Pension Plan are not subject to offset for
Social Security benefits.
Years of Benefit Service
------------------------
15 20 25 30 35
-- -- -- -- --
$ 20,000.................. $ 4,848 $ 6,464 $ 8,080 $ 8,330 $ 8,680
40,000.................. 10,398 13,864 17,330 17,830 18,330
60,000.................. 15,948 21,264 26,580 27,330 28,080
80,000.................. 21,498 28,664 35,830 36,830 37,830
100,000.................. 27,048 36,064 45,080 46,330 47,580
120,000.................. 32,598 43,464 54,330 55,830 57,330
150,000.................. 40,823 54,564 68,205 70,080 71,955
Report of the Compensation Committee on Executive Compensation
The Bank Compensation Committee meets annually to review compensation
paid to the chief executive officer. The Committee reviews various published
surveys of compensation paid to employees performing similar duties for
depository institutions and their holding companies, with a particular focus on
the level of compensation paid by comparable stockholder institutions in and
around the Bank's market area, including institutions with total assets of
between $100 million and $300 million. Although the Committee does not
specifically set compensation levels for executive officers based on whether
particular financial goals have been achieved by the Bank, the Committee does
consider the overall profitability of the Bank when making these decisions.
During the year ended December 31, 1998, Leonard G. Romaine, President
received an increase in his base salary from $115,000 to $125,400. The Committee
will consider the annual compensation paid to the presidents and chief executive
officers of publicly owned financial institutions nationally, in the State of
New Jersey and surrounding Northeastern states with assets of between $100
million and $500 million and the individual job performance of such individual
in consideration of its specific salary increase decision with respect to
compensation to be paid to the president and chief executive officers in the
future.
Compensation Committee:
Albert J. Weite
Edward J. Seugling
Raoul G. Barton
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Bank during the year ended December
31, 1998 consisted of Directors Weite, Barton and Seugling, all members of the
Board of Directors of the Company. Romaine was a member of the Compensation
Committee during fiscal 1998 but did not participate in matters involving his
personal compensation.
31
<PAGE>
Performance Graph
Set forth below is a stock performance graph comparing the cumulative
total shareholder return on the Common Stock with (a) the cumulative total
stockholder return on stocks included in the Nasdaq Stock Market index and (b)
the cumulative total stockholder return on stocks included in the Nasdaq Bank
index, as prepared for Nasdaq by the Center for Research in Securities Prices
("CRSP") at the University of Chicago. All three investment comparisons assume
the investment of $100 as of the close of January 5, 1996 (the closing date of
initial issuance of the Common Stock). All of these cumulative total returns are
computed assuming the reinvestment of dividends. In the graph below, the periods
compared were January 5, 1996 and the Company's fiscal years ending of December
31, 1996, 1997 and 1998.
There can be no assurance that the Company's future stock performance
will be the same or similar to the historical stock performance shown in the
graph below. The Company neither makes nor endorses any predictions as to stock
performance.
[GRAPHIC OMITTED]
==========================================================================
1/5/96 12/31/96 12/31/97 12/31/98
- --------------------------------------------------------------------------
CRSP Nasdaq U.S. Index $100 $126 $161 $227
- --------------------------------------------------------------------------
CRSP Nasdaq Bank Index $100 $134 $224 $222
- --------------------------------------------------------------------------
Little Falls Bancorp, Inc. $100 $113 $184 $181
==========================================================================
32
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners.
Persons and groups owning in excess of 5% of the Common Stock are
required to file certain reports regarding such ownership pursuant to the
Securities Exchange Act of 1934, as amended (the "1934 Act"). The following
table sets forth, as of the March 22, 1999, persons or groups who own more than
5% of the Common Stock and the ownership of all executive officers and directors
of the Company as a group. The information provided is based upon documents
supplied to the Company by the persons providing such information pursuant to
the 1934 Act. The Company does not verify this information. Other than as noted
below, management knows of no person or group that owns more than 5% of the
outstanding shares of Common Stock at the Voting Record Date.
Percent of Shares of
Name and Address Amount and Nature of Common Stock
of Beneficial Owner Beneficial Ownership Outstanding
- ------------------- -------------------- -----------
First Manhattan Co.
437 Madison Avenue
New York, NY 10022 198,000(1) 7.99%
Wellington Management Co. LLP
75 State Street
Boston, MA 02109 126,100(2) 5.09%
Little Falls Bank
Employee Stock Ownership Plan
86 Main Street
Little Falls, NJ 07424 241,979(3) 9.77%
John Hancock Advisors, Inc.
Post Office Box 111
Boston, MA 02117 225,000(4) 9.49%
- -------------------------------
(1) Information provided is based on a Schedule 13G/A dated February 11,
1999.
(2) Information provided is based on a Schedule 13G/A dated February 8,
1999 filed by Wellington Management Co. LLP.
(3) The ESOP purchased such shares for the exclusive benefit of plan
participants with funds borrowed from the Company. These shares are
held in a suspense account and will be allocated among ESOP
participants annually on the basis of compensation as the ESOP debt is
repaid. The Board of Directors has appointed a committee consisting of
John P. Pullara, Leonard G. Romaine and Della Talerico to serve as the
ESOP administrative committee ("ESOP Committee") and Directors Barton,
Parker and Seugling to serve as the ESOP trustees ("ESOP Trustees").
The ESOP Committee or the Board instructs the ESOP Trustees regarding
investment of ESOP plan assets. The ESOP Trustees must vote all shares
allocated to participant accounts under the ESOP as directed by
participants. Unallocated shares and shares for which no timely voting
direction is received will be voted by the ESOP Trustees as directed by
the ESOP Committee. As of March 11, 1999, 33,927 shares had been
allocated under the ESOP to participant accounts.
(4) Information provided is based on a Schedule 13G/A dated January 13,
1999. JHA has direct beneficial ownership of 225,000 shares of common
stock. Through separate Advisory Agreements, JHA has sole power to vote
120,000 shares for the John Hancock Regional Fund and 105,000 shares
for the John Hancock and Thrift Opportunity Fund.
33
<PAGE>
(b) Security Ownership of Management.
Included under Item 10 of this report.
(c) Changes in Control.
On January 26, 1999, the Registrant entered into a definitive merger
agreement that will result in the acquisition of the Registrant by HUBCO, Inc.
This acquisition is expected to occur during the third fiscal quarters of the
Registrant's 1999 fiscal year. The Registrant has executed a stock option
agreement with HUBCO, Inc. that provides HUBCO, Inc. with options that may be
exercised for approximately 19.9% of the common stock of the Registrant at an
exercise price of $19.25 per share in the event the planned acquisition does not
occur. The planned acquisition is subject to numerous conditions.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
No directors, executive officers, or immediate family members of such
individuals were engaged in transactions with the Bank or any subsidiary
involving more than $60,000 during the year ended December 31, 1998.
Furthermore, the Bank had no "interlocking" relationships existing during the
year ended December 31, 1998 in which (i) any executive officer is a member of
the Board of Directors/Trustees of another entity, one of whose executive
officers is a member of the Bank's Board of Directors, or where (ii) any
executive officer is a member of the compensation committee of another entity,
one of whose executive officers is a member of the Bank's Board of Directors.
The Bank, like many financial institutions, has followed a policy of
granting various types of loans to officers, directors, and employees. All loans
to executive officers and directors of the Bank have been made in the ordinary
course of business and on substantially the same terms and conditions, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with the Bank's other customers, and do not involve more than the
normal risk of collectibility nor present other unfavorable features. Recent
legislation permits savings institutions to make loans to executive officers,
trustees and principal shareholders ("insiders") on preferential terms, provided
the extension of credit is made pursuant to a benefit or compensation program of
the Bank that is widely available to employees of the Bank or its affiliates and
does not give preference to any insider over other employees of the Bank or
affiliate. All loans by the Bank to its directors and executive officers are
subject to OTS regulations restricting loans and other transactions with
affiliated persons of the Bank. Loans to executive officers and directors of the
Bank, the Company and their affiliates amounted to approximately $684,000 or
2.19% of the Bank's retained earnings at December 31, 1998.
34
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) The following documents are filed as a part of this report:
(1) Financial Statements of the Company are incorporated by reference
to the following indicated pages of the Annual Report.
PAGE
----
Independent Auditors' Report......................................... 18
Consolidated Statements of Financial Condition as of
December 31, 1998 and 1997......................................... 19
Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996................................... 20
Consolidated Statements of Comprehensive Income
for the Years Ended December 31, 1998, 1997 and 1996............... 21
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1998, 1997 and 1996............... 22-23
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996................................... 24-25
Notes to Consolidated Financial Statements........................... 26-58
The remaining information appearing in the Annual Report is not deemed
to be filed as part of this report, except as expressly provided herein.
(2) All schedules are omitted because they are not required or
applicable, or the required information is shown in the consolidated financial
statements or the notes thereto.
(3) Exhibits
(a) The following exhibits are filed as part of this report.
2.0 Branch Sale Agreement**
3.1 Articles of Incorporation of Little Falls Bancorp, Inc.*
3.2 Bylaws of Little Falls Bancorp, Inc.*
4.0 Form of Stock Certificate of Little Falls Bancorp, Inc.*
10.1 Employment Agreement between the Bank and John P. Pullara**
10.2 Employment Agreement between the Bank and Leonard G. Romaine**
10.4 Form of Employment Agreement with Eight Employees of the Bank***
10.6 1996 Management Stock Bonus Plan***
10.7 1996 Stock Option Plan***
10.8 1997 Directors Stock Compensation Plan
10.9 1998 Directors Stock Compensation Plan
10.10 Directors Retirement and Consultation Plan
13.0 1998 Annual Report to Stockholders
21.0 Subsidiary of the Registrant (See Item 1 - Business-Subsidiary
Activities)
23.0 Consent of Accountants
27.0 Financial Data Schedule****
35
<PAGE>
(b) Reports on Form 8-K.
On November 12, 1998 the Registrant filed a Current Report on
Form 8-K (Items 5 and 7), announcing the termination of the
Agreement of Merger between the Registrant and Skylands
Community Bank.
- ------------------------
* Incorporated herein by reference into this document from the Exhibits
to Form S-1, Registration Statement, initially filed with the
Securities and Exchange Commission on September 25, 1995 (Registration
No. 33-97316).
** Incorporated by reference into this document from the Exhibits to
Registrant's Annual Report on Form 10-K for the Year Ended December 31,
1995 (File No. 0-27010).
*** Incorporated by reference into this document from the Exhibits to
Registrant's Annual Report on Form 10-K for the year ended December 31,
1996 (File No. 0-27010).
**** In electronic filing only.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LITTLE FALLS BANCORP, INC.
Dated: March 19, 1999 By: /s/ Leonard G. Romaine
------------------------------------
Leonard G. Romaine
President and Director
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ Albert J. Weite By: /s/ Richard A. Capone
--------------------------------- ----------------------------------
Albert J. Weite Richard A. Capone
Chairman of the Board Chief Financial Officer
and Director (Principal Financial and
Accounting Officer)
Date: March 19, 1999 Date: March 19, 1999
By: /s/ Edward J. Seugling By:
--------------------------------- ----------------------------------
Edward J. Seugling John P. Pullara
Vice Chairman of the Board Director
and Director
Date: March 19, 1999 Date: __________ ___, 1999
By: /s/ George Kuiken By: /s/ Norman A. Parker
--------------------------------- ---------------------------------
George Kuiken Norman A. Parker
Director Director
Date: March 19, 1999 Date: March 19, 1999
By: ---------------------------------
Raoul G. Barton
Director
Date: __________ ___, 1999
<PAGE>
APPENDIX E
Little Falls Bancorp, Inc.
Annual Report - 1998
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Letter to Stockholders ........................................ 1
Corporate Profile and Stock Market Information................. 2
Selected Financial and Other Data.............................. 3
Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 4
Management Responsibility Statement............................ 17
Independent Auditors' Report................................... 18
Consolidated Statements of Financial Condition................. 19
Consolidated Statements of Income.............................. 20
Consolidated Statements of Comprehensive Income................ 21
Consolidated Statements of Changes in Stockholders' Equity..... 22
Consolidated Statements of Cash Flows.......................... 23
Notes to Consolidated Financial Statements..................... 26
Other Corporate Information.................................... 59
<PAGE>
Little Falls Bancorp, Inc.
86 Main Street
Little Falls, New Jersey 07424
To Our Stockholders:
On behalf of our directors, officers and employees, we are pleased to present to
you our fourth annual stockholders' report. Last year was quite eventful. As you
know, we had initially hoped to combine with Skylands Community Bank to form a
more diversified institution with a wider customer base. However, the agreement
was mutually terminated in November 1998.
As previously reported, on January 26, 1999, we signed an agreement with HUBCO,
Inc., Mahwah, New Jersey, whereby HUBCO would acquire Little Falls. If the
required shareholder and regulatory approvals are obtained, we expect to close
the transaction in the second quarter of 1999.
We look forward to the proposed transaction and the opportunities that it
presents.
Your Board of Directors and management team are committed to protecting and
enhancing the value of your investment in the Company. We appreciate the
confidence, support and loyalty of our customers, employees, and stockholders.
Sincerely,
/s/Leonard G. Romaine
- ------------------------
Leonard G. Romaine
President
1
<PAGE>
Little Falls Bancorp, Inc.
Corporate Profile
Little Falls Bancorp, Inc. (the "Company") is a New Jersey corporation
organized in August 1995 at the direction of the Board of Directors of the
Little Falls Bank (the "Bank") to acquire all of the capital stock of the Bank
issued upon its conversion from the mutual to stock form of ownership on January
5, 1996 (the "Conversion"). The Company is a unitary savings and loan holding
company which, under existing laws, generally is not restricted in the types of
business activities in which it may engage provided that the Bank retains a
specified amount of its assets in housing-related investments. At the present
time, because the Company does not conduct any active business, the Company does
not intend to employ any persons other than officers of the Bank but utilizes
the support staff of the Bank from time to time.
The Bank is a federally chartered stock savings bank headquartered in
Little Falls, New Jersey. The Bank was founded in 1887 and its deposits are
federally insured by the Savings Association Insurance Fund ("SAIF") and the
Bank is a member of the Federal Home Loan Bank ("FHLB") System. The Bank is a
community oriented, full service retail savings institution offering traditional
mortgage loan products.
The Bank attracts deposits from the general public and uses such
deposits primarily to originate loans secured by first mortgages on
owner-occupied one- to four-family residences in its market area, purchase loans
to diversify its loan portfolio, and to purchase mortgage-backed and investment
securities. The Bank also originates a limited number of commercial real estate,
residential construction, and consumer loans, which consists mainly of second
mortgages and home equity lines of credit.
Stock Market Information
Since its issuance on January 5, 1996, the Company's common stock has
traded on the Nasdaq National Market. The following table reflects the stock
price as published by the Nasdaq National Market. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down, or commission, and may
not represent actual transactions.
HIGH LOW
------- -------
October 1, 1998 - December 31, 1998 $21 1/2 $11 1/2
July 1, 1998 - September 30, 1998 22 14
April 1, 1998 - June 30, 1998 22 1/4 18 1/4
January 1, 1998 - March 31, 1998 20 1/2 17 1/2
October 1, 1997 - December 31, 1997 20 1/2 16 1/4
July 1, 1997 - September 30, 1997 18 1/2 15 1/4
April 1, 1997 - June 30, 1997 15 7/8 12 5/8
January 5, 1997 - March 31, 1997 14 1/8 12 1/4
The number of stockholders of record of common stock as of the record
date of March 19, 1999 ("Record Date"), was 376. This does not reflect the
number of persons or entities who held stock in nominee or "street" name through
various brokerage firms. As of the Record Date, there were 2,470,551 shares
outstanding.
2
<PAGE>
The Company's ability to pay dividends to stockholders is subject to
the requirements of New Jersey law. No dividend may be paid by the Company
unless its board of directors determines that the Company will be able to pay
its debts in the ordinary course of business after payment of the dividend. In
addition, the Company's ability to pay dividends is dependent, in part, upon the
dividends it receives from the Bank. The Bank may not declare or pay a cash
dividend on any of its stock if the effect thereof would cause the Bank's
regulatory capital to be reduced below (1) the amount required for the
liquidation account established in connection with the Bank's conversion from
mutual to stock form, or (2) the regulatory capital requirements imposed by the
Office of Thrift Supervision ("OTS").
Selected Financial Condition Data
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 1997 1996 1995
1994
- ------------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Total Assets......................... $350,617 $328,522 $303,518 $310,355 $193,385
Loans receivable (net)............... 149,062 147,033 117,116 96,230 94,754
Mortgage-backed securities held
to maturity......................... 61,373 90,957 112,473 118,020 51,664
Mortgage-backed securities
available for sale.................. 13,971 13,929 -- -- --
Investment securities - held to
maturity............................ 40,577 57,988 51,370 29,999 36,146
Investment securities - available
for sale........................... 39,423 -- -- -- --
Cash and cash equivalents............ 33,393 6,788 10,374 53,419 4,065
Deposits............................. 243,048 230,133 228,312 247,851 176,173
Stockholders' equity................. 37,445 38,295 40,448 16,223 15,715
</TABLE>
Selected Operating Data
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Total interest income.................. $22,746 $ 21,064 $ 18,776 $13,813 $13,075
Total interest expense................. 14,695 12,920 11,258 9,314 7,170
------- ------- ------- ------ ------
Net interest income.................. 8,051 8,144 7,518 4,499 5,905
Provision for loan losses.............. 161 240 183
131 356
------- ------- ------- ------ ------
Net interest income after
provision for loan losses........... 7,890 7,904 7,335 4,368 5,549
------- ------- ------- ------ ------
Total non-interest income............ 404 427 409 178 143
------- -------
Total non-interest expense........... 5,702 5,403 6,747(1) 3,840(2) 2,912
------- ------- ------- ------
Income before provision for
income taxes ......................... 2,592 2,928 996 705 2,781
Income tax expense..................... 844 1,072 385 241 1,066
------- ------- ------- ------ ------
Net income........................... $ 1,748 $ 1,856 $ 611 $ 464 $1,715
======= ======= ======= ====== ======
</TABLE>
(footnotes on following page)
3
<PAGE>
Other Selected Data
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on average assets...................... 0.51% 0.60% 0.21%(1) 0.22%(2) 0.86%
Return on average equity...................... 4.65% 4.74% 1.44%(1) 2.89%(2) 11.62%
Average equity to average assets.............. 10.92% 12.57% 14.78% 7.64% 7.62%
Net interest rate spread...................... 2.03% 2.27% 2.22% 1.97% 2.86%
Per Share Information:
Diluted earnings per share (1) (2) (3)...... $ 0.76 $ 0.75 $0.22 N/A N/A
Dividends per share (3)..................... $ 0.22 $ 0.155 $0.05 N/A N/A
Tangible book value per
share (3)................................... $14.11 $13.59 $13.56 N/A N/A
Dividend payout ratio (1) (2) (3)............. 28.94% 20.62% 22.28% N/A N/A
Non-performing assets to total assets......... 0.37% 0.57% 0.91% 1.27% 3.09%
Non-performing loans to total assets.......... 0.29% 0.39% 0.63% 0.79% 2.18%
Allowance for loan losses to total loans...... 0.88% 0.79% 0.92% 0.98% 1.21%
</TABLE>
- ------------------------
(1) Includes one-time special assessment of $1,167,000 to recapitalize the
SAIF.
(2) Includes a non-recurring expense of $195,000 due to the implementation
of a directors' medical plan. (3) No shares of common stock were
outstanding until January 5, 1996.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The largest components of the Bank's net income are net interest
income, which is the difference between interest income and interest expense,
and noninterest income derived primarily from fees. Consequently, the Bank's
earnings are dependent on its ability to originate loans, net interest income,
and the relative amounts of interest-earning assets and interest-bearing
liabilities. The Bank's net income is also affected by its provision for loan
losses and foreclosed real estate as well as the amount of non-interest
expenses, such as compensation and benefit expense, occupancy and equipment
expense and deposit insurance premium expenses. Earnings of the Bank also are
affected significantly by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
Financial Condition
The Bank's total assets increased by $22.1 million to $350.6 million at
December 31, 1998 from $328.5 million at December 31, 1997. Total loans
receivable increased by $2.0 million due to loan originations of $25.5 million,
offset somewhat by loan repayments. Investment securities held to maturity
decreased by $17.4 million due to maturing or called securities of $52.0 million
and the sale of $3.0 million of securities which were within three months of
their maturity, offset somewhat by purchases of $37.6 million. Investment
securities available for sale increased by $39.4 million due to purchases of
$45.9 million, offset somewhat by maturing or called securities of $5.3 million
and the sale of $1.0 million of securities. Mortgage-backed securities held to
maturity decreased by $29.6 million due to repayments of principal. Total cash
and cash equivalents increased by $26.6 million due in part to the increase in
deposits of $12.9 million.
Total deposits increased by $12.9 million. Borrowed funds increased by
$9.8 million as the Bank took advantage of lower interest rates to fund
investing and lending activities.
Total stockholders' equity decreased by $849,000 primarily due to the
repurchase of shares of Company stock pursuant to the Company's stock repurchase
program (130,396 shares at a total price of approximately $2.6 million), a
$247,000 unrealized loss on securities available for sale net of deferred taxes
and dividends paid, offset somewhat by earnings for the year.
5
<PAGE>
Average Balance, Net Interest Income, Yields Earned and Rates Paid
The following table sets forth certain information relating to the
Bank's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods presented. Average balances are derived from month-end balances.
Management does not believe that the use of month-end balances instead of daily
average balances has caused any material difference in the information
presented.
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------- ------------------------------- -----------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1)............... $150,345 $11,381 7.57% $131,625 $10,081 7.66% $105,794 $8,255 7.80%
Mortgage-backed securities(5)..... 90,582 5,481 6.05 107,304 7,118 6.63 119,684 7,972 6.64
Investment securities(2)(5)....... 79,604 5,236 6.64 55,615 3,624 6.52 40,316 2,164 5.37
Other interest-earning assets..... 11,390 598 5.25 4,596 241 5.24 7,431 385 5.18
------- ------ ------- ------ ------- ------
Total interest-earning
assets......................... 331,921 22,746 6.85 299,140 21,064 7.04 273,225 18,776 6.87
------ ------ ------
Non-interest-earning assets........ 12,284 12,566 14,223
------- ------- -------
Total assets..................... $344,205 $311,706 $287,448
======= ======= =======
Interest-bearing liabilities:
Savings accounts.................. $ 42,848 1,277 2.98 $ 45,724 1,440 3.15 $ 51,633 1,860 3.60
Now and money market.............. 33,639 607 1.80 32,788 642 1.96 39,270 1,155 2.94
Certificates of deposit........... 156,216 8,620 5.52 148,122 8,246 5.57 147,707 8,068 5.46
Borrowed funds.................... 72,357 4,191 5.79 43,975 2,592 5.89 3,173 175 5.52
------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities.................... 305,060 14,695 4.82 270,609 12,920 4.77 241,783 11,258 4.66
------ ------ ------
Non-interest bearing
liabilities...................... 1,546 1,928 3,171
------- ------- -------
Total liabilities................. 306,606 272,537 244,954
Stockholders' equity............... 37,599 39,169 42,494
------- ------- -------
Total liabilities and
stockholders' equity............. $344,205 $311,706 $287,448
======= ======= =======
Net interest income................ $ 8,051 $ 8,144 $ 7,518
====== ====== ======
Interest rate spread(3)............ 2.03% 2.27% 2.21%
==== ==== ====
Net yield on interest-
earning assets(4)................ 2.42% 2.72% 2.75%
==== ==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities..... 108.81% 110.54% 111.00%
======= ====== ======
</TABLE>
- ---------------------------------
(1) Average balances include non-performing loans.
(2) Includes interest-bearing deposits in other financial institutions and
FHLB stock.
(3) Interest-rate spread represents the difference between the average
yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(4) Net yield on interest-earning assets represents net interest income as
a percentage of average interest-earning assets.
(5) Includes both held to maturity and available for sale.
6
<PAGE>
The table below sets forth certain information regarding changes in
interest income and interest expense of the Bank for the periods indicated. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in average volume multiplied by prior rate); (ii) changes in rates
(changes in rate multiplied by prior average volume); (iii) changes in
rate-volume (changes in rate multiplied by the change in average volume).
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------
1998 vs. 1997 1997 vs. 1996
----------------------------------------- -------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
----------------------------------------- ------------------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------ ------ ------ ----- ------ ------ ------ -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable................ $ 1,434 $ (117) $ (17) $ 1,300 $2,016 $(152) $ (38) $1,826
Mortgage-backed securities...... (1,109) (625) 97 (1,637) (825) (33) 4 (854)
Investment securities........... 1,453 149 60 1,662 821 463 176 1,460
Other interest-earning assets... 569 (63) (149) 357 (147) 5 (2) (144)
------ ----- ----- ------ ----- ---- ---- -----
Total interest-earning assets.. 2,347 (656) ( 9) 1,682 1,865 283 140 2,288
------ ----- ----- ------ ----- ---- ---- -----
Interest expense:
Savings accounts................ (91) (77) 5 (163) (213) (234) 27 (420)
Now and money market............ 17 (51) (1) (35) (191) (386) 64 (513)
Certificates of deposit......... 450 (72) (4) 374 23 155 - 178
Borrowed funds.................. 1,774 (104) (71) 1,599 2,250 12 155 2,417
------ ----- ----- ------ ----- ---- ---- -----
Total interest-bearing
liabilities.................. 2,150 (304) (71) 1,775 1,869 (453) 246 1,662
------ ----- ----- ------ ----- ---- ---- -----
Net change in net interest
income......................... $ 197 $ (352) $ 62 $ (93) $ (4) $ 736 $(106) $ 626
====== ===== ===== ====== ===== ==== ==== =====
</TABLE>
Comparison of Operating Results for the Years Ended December 31, 1998 and 1997
General. Net income decreased by $108,000, or 5.84% to $1.7 million for
the year ended December 31, 1998 from $1.9 million for the year ended December
31, 1997.
The decrease in earnings for the year was due in part to the costs
associated with terminating a merger agreement with Skylands Community Bank, the
expense incurred due to the immediate vesting of stock awards to a deceased
director during the fourth quarter of fiscal 1998, and an increase in losses on
foreclosed real estate, offset somewhat by a decrease in taxes.
Interest Income. Interest income increased $1.7 million, or 7.99% to
$22.7 million for the year ended December 31, 1998 from $21.1 million for the
year ended December 31, 1997. The increase was primarily due to increases of
$18.7 million, $24.0 million and $6.8 million in the average balance of loans,
investment securities, both held to maturity and available for sale and other
interest earning assets, respectively, offset somewhat by a decrease of $16.7
million in mortgage-backed securities, both held to maturity and available for
sale. Also, the average yield on all interest earning assets decreased by 19
basis points (100 basis points equals 1%) to 6.85%.
7
<PAGE>
Interest Expense. Interest expense increased $1.8 million to $14.7
million for the year ended December 31, 1998 from $12.9 million for the year
ended December 31, 1997. This was due to an increase in the average balance of
borrowed funds of $28.4 million and an increase of $6.1 million in the average
balance of deposits coupled with an increase in the average rate paid on
interest-bearing liabilities of 5 basis points to 4.82%.
Net Interest Income. Net interest income decreased by $93,000 or 1.14%
for the year ended December 31, 1998 as compared to the year ended December 31,
1997. The increase was due to the reasons noted above.
Provision for Losses on Loans. The Bank maintains an allowance for loan
losses based upon management's periodic evaluation of known and inherent risks
in the loan portfolio, the Bank's past loss experience, adverse situations that
may affect the borrowers' ability to repay loans, estimated value of the
underlying collateral and current and expected market conditions. The provision
for loan losses decreased $79,000 or 32.86% to $161,000 for the year ended
December 31, 1998 from $240,000 for the year ended December 31, 1997, primarily
due to a decrease in the Bank's non-performing loans. While the Bank maintains
its allowance for losses at a level which it considers to be adequate, there can
be no assurance that further additions will not be made to the loss allowances
and that such losses will not exceed the estimated amounts.
Non-Interest Income. Non-interest income decreased by $24,000 or 5.66%
to $403,000 at December 31, 1998 from $428,000 at December 31, 1997. A gain of
$125,000 was recorded on the sale of the Bank's Frenchtown office building in
1997. The Frenchtown branch was closed in 1996, and the related deposits were
transferred to the Bank's other Hunterdon County offices. This was offset by
$47,000 of gains recorded in 1998 on the sales of investment and mortgage-backed
securities and an $81,000 increase in service fee income.
Non-Interest Expense. Non-interest expense increased $299,000, or 5.53%
to $5.7 million at December 31, 1998 from $5.4 million for the year ended
December 31, 1997. This increase was due to the recording of $106,000 of
expenses connected with the terminated merger agreement with Skylands Community
Bank and $140,000 of expense for the immediate vesting of stock awards for a
director who died during the fourth quarter of 1998. Exclusive of the
aforementioned items, non-interest expense increased $53,000, or 0.98%.
Income Tax Expense. Income tax expense decreased $229,000 or 21.31% to
$844,000 for the year ended December 31, 1998 from $1.1 million for the year
ended December 31, 1997. This increase was due to a decrease in pre-tax income
of $337,000 and an increase in investments in assets that are taxed at a reduced
federal income tax rate.
Comparison of Operating Results for Years Ended December 31, 1997 and 1996
General. Net income increased by $1.2 million, or 203.8% to $1.9
million for the year ended December 31, 1997 from $611,000 for the year ended
December 31, 1996.
The increase in earnings for the year was due in part to the $1.2
million charge in the third quarter of 1996 connected with a one time special
assessment from the Savings Association Insurance Fund ("SAIF"). This one time
assessment was the result of legislation that was effective on September 30,
1996 for the purpose of recapitalizing the SAIF. Other factors for the increase
in earnings
8
<PAGE>
were an increase of $569,000 in net interest income after the provision for loan
losses, a decrease of $62,000 in the loss on foreclosed real estate and an
additional decrease of $270,000 in deposit insurance premiums offset somewhat by
increases in the provision for income taxes of $687,000, and miscellaneous
expense of $184,000.
Interest Income. Interest income increased $2.3 million, or 12.2% to
$21.1 million for the year ended December 31, 1997 from $18.6 million for the
year ended December 31, 1996. The increase was primarily due to increases of
$25.8 million and $15.3 million in the average balances of loans and investment
securities, respectively, offset somewhat by decreases of $12.4 million and $2.8
million in the average balances of mortgage-backed securities and other interest
earnings assets, respectively. Also, the average yield on all interest earning
assets increased by 17 basis points to 7.04%. In addition, the payoff of two
problem loans resulted in the recording of approximately of $170,000 of income
previously reserved for.
Interest Expense. Interest expense increased $1.7 million to $12.9
million for the year ended December 31, 1997 from $11.3 million for the year
ended December 31, 1996. This was due to an increase in the average balance of
borrowed funds of $40.8 million coupled with an increase in the average rate
paid on interest-bearing liabilities of 11 basis points to 4.77% partially,
offset by a decrease in the average balance of interest-bearing deposits of
$12.0 million.
Net Interest Income. Net interest income increased by $626,000, or 8.3%
for the year ended December 31, 1997 as compared to the year ended December 31,
1996. The increase was due to the reasons noted above.
Provision for Losses on Loans. The Bank maintains an allowance for loan
losses based upon management's periodic evaluation of known and inherent risks
in the loan portfolio, the Bank's past loss experience, adverse situations that
may affect the borrowers' ability to repay loans, estimated value of the
underlying collateral and current and expected market conditions. The provision
for loan losses increased $57,000 or 31.2% to $240,000 for the year ended
December 31, 1997 from $183,000 for the year ended December 31, 1996, primarily
due to the increase in the loan portfolio. The allowance for loan losses was
$1.2 million at December 31, 1997. While the Bank maintains its allowance for
losses at a level which it considers to be adequate, there can be no assurance
that further additions will not be made to the loss allowances and that such
losses will not exceed the estimated amounts.
Non-Interest Income. Non-interest income increased by $19,000, or 4.7%
to $428,000 at December 31, 1997 from $409,000 at December 31, 1996. A gain of
$125,000 was recorded on the sale of the Bank's Frenchtown office building in
1997. The Frenchtown branch was closed in 1996, and the related deposits were
transferred to the Bank's other Hunterdon County offices. This offset a gain of
$138,000 recorded in 1996 on the sale of the deposits of the Bank's Mount Holly
office to an unaffiliated financial institution.
Non-Interest Expense. Non-interest expense decreased $1.3 million, or
19.9% to $5.4 million at December 31, 1997 from $6.7 million for the year ended
December 31, 1996. This decrease was primarily due to the $1.2 million charge in
the third quarter of 1996 connected with a one time special assessment from the
Savings Association Insurance Fund ("SAIF"). This one time assessment was the
result of legislation that was effective on September 30, 1996 for the purpose
of recapitalizing the SAIF. Other factors for the decrease in non-interest
expense were the additional decrease in deposit insurance
9
<PAGE>
premiums of $270,000, a decrease of $62,000 in the loss on foreclosed real
estate offset somewhat by an increase of $184,000 in miscellaneous expense.
The decrease on the loss on foreclosed real estate was primarily due to
a gain of $11,000 being recorded on the sales of a foreclosed properties for the
year ended December 31, 1997, compared to a loss of $28,000 on the sale of
foreclosed properties for the year ended December 31, 1996. Miscellaneous
expense increased by $184,000 due in most part to the expense connected with the
director's management stock bonus plan, which increased to $139,000 in 1997 from
$39,000 for 1996 due to a full year of vesting, an increase in legal expense of
$50,000 and a loss of $19,000 on the sale of the Bank's Mount Holly office. The
deposits of this branch were sold in 1996.
Income Tax Expense. Income tax expense increased $687,000, or $178.2%
to $1.1 million for the year ended December 31, 1997 from $385,000 for the year
ended December 31, 1996. This increase was due to an increase in pre-tax income
of $1.9 million.
Risk Management
In an effort to reduce interest rate risk and protect it from the
negative effect of rapid increases and decreases in interest rates, the Bank has
instituted certain asset and liability management measures including emphasizing
the origination of three, five and ten year adjustable-rate mortgage loans and
investing excess funds in short- and medium-term mortgage-backed and investment
securities. The Bank retains an asset/liability consultant, FinPro, Inc., to
assist it in analyzing its asset liability position. With the consultant's
assistance, the Bank undertakes a quarterly extensive study of various trends,
conducts separate deposit and asset analyses and prepares various
asset/liability tables including contractual interest rate gap, interest rate
gap with prepayment assumptions, margin/spread and duration tables. Interest
rate gap analysis measures the difference between amounts of interest-earning
assets and interest-bearing liabilities which either reprice or mature within a
given period of times and their sensitivity to changing interest rates.
The Bank, like many other thrift institutions, is exposed to interest
rate risk as a result of the difference in the maturity of interest-bearing
liabilities and interest-earning assets and the volatility of interest rates.
Most deposit accounts react more quickly to market interest rate movements than
do the existing mortgage loans because of the deposit accounts' shorter terms to
maturity; sharp decreases in interest rates would typically increase the Bank's
earnings. Conversely, this same mismatch will generally adversely affect the
Bank's earnings during periods of increasing interest rates. The extent of
movement of interest rates is an uncertainty that could have a negative impact
on the earnings of the Bank.
Volatility in interest rates can also result in disintermediation,
which is the flow of funds away from savings institutions (such as the Bank) and
into other investments, such as U.S. Government and corporate securities and
other investment vehicles. Because of the absence of federal insurance premiums
and reserve requirements, such investments may pay higher rates of return than
investment vehicles offered by savings institutions.
In order to encourage monitor its interest rate risk, the Company
utilizes the services of an outside consultant to calculate the sensitivity of
its net portfolio value ("NPV") to changes in interest rates. NPV is the
difference between incoming and outgoing discounted cash flows from assets,
10
<PAGE>
liabilities, and off-balance sheet contracts. The Company's interest rate risk
("IRR") is measured as the change to its NPV as a result of hypothetical 100
basis point ("bp") changes in market interest rates.
<TABLE>
<CAPTION>
Net Portfolio Equity Value NPV as % of PV of Assets
----------------------------------------------------- ---------------------------------
Change in
Interest Rates $ Change
in Basis Points in Market % Change
(Rate Shock) Amount Value(1) From Base NPV Ratio(2) Changes(3)
--------------- -------- ---------- ----------- ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
300 29,875 (12,238) (29) 9.04% (287)bp
200 34,118 (7,995) (19) 10.08% (183)bp
100 38,197 (3,916) (9) 11.04% (87)bp
0 42,113 -- -- 11.91% --
(100) 45,866 3,753 9 12.71% 80 bp
(200) 49,454 7,341 17 13.44% 153 bp
(300) 52,879 10,766 26 14.11% 220 bp
</TABLE>
- -------------------------------------------------------
(1) Represents the increase (decrease) of the estimated NPV at the
indicated change in interest rates compared to the NPV assuming no
change in interest rates.
(2) Calculated as the estimated NPV divided by the present value of total
assets. The Company's PV is the estimated present value of total
assets.
(3) Calculated as the increase (decrease) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio
assuming no change in interest rates.
Certain assumptions utilized by the Company in assessing its interest
rate risk were employed in preparing the previous table. These assumptions
related to interest rates, loan prepayment rates, core deposit duration, and the
market values of certain assets under the various interest rate scenarios. It
was also assumed that delinquency rates will not change as a result of changes
in interest rates although there can be no assurance that this will be the case.
The calculation methodology used by the Company has certain shortcomings which
include, among others, that the repricing of both loans and deposits is often
discretionary and under the control of the Bank's customers. Even if interest
rates change in the designated amounts, there can be no assurance that the
Company's assets and liabilities would perform as projected.
Generally, net interest income should decrease with an instantaneous
100 basis point increase in interest rates while net interest income should
increase with instantaneous declines in interest rates. Generally, during
periods of increasing interest rates, the Company's liabilities are expected to
reprice faster than its assets, causing a decline in the Company's interest rate
spread. This would result from an increase in the Company's cost of funds that
would not be immediately offset by an increase in its
11
<PAGE>
yield on earning assets. An increase in the cost of funds without an equivalent
increase in the yield on interest-earning assets would tend to reduce net
interest income.
Liquidity and Capital Resources
The Bank is required under applicable federal regulations to maintain
specified levels of "liquid" investments in qualifying types of U.S. Government,
federal agency and other investments. OTS regulations require that a savings
association maintain liquid assets of not less than 4% of its average daily
balance of net withdrawable deposit accounts and borrowings payable in one year
or less. At December 31, 1998, the Bank's liquidity was in excess of the minimum
requirement. The Bank adjusts liquidity as appropriate to meet its
asset/liability objectives.
The Bank's primary sources of funds are deposits, amortization and
prepayment of loans and mortgage-backed securities, maturities of investment
securities and funds provided from operations. While scheduled loan repayments
are a relatively predictable source of funds, deposit flows and loan and
mortgage-backed security prepayments are significantly influenced by general
interest-rates, economic conditions and competition. In addition, the Bank
invests excess funds in overnight deposits which provide liquidity to meet
lending requirements.
The Bank's most liquid asset is cash, which includes investments in
highly liquid short-term investments. The level of these assets are dependent on
the Bank's operating, financing and investing activities during any given
period. At December 31, 1998, cash and cash equivalents totaled $33.4 million.
The Bank has other sources of liquidity if a need for additional funds arises.
Another source of liquidity is the repayment and prepayment of mortgage-backed
and investment securities. Additional sources of funds include the ability to
utilize FHLB of New York advances and the ability to borrow against
mortgage-backed and investment securities. At December 31, 1998 the Bank had a
$9.0 million repurchase agreement with a rate of 5.82%. The repurchase agreement
matures in December 1999 and is callable quarterly on interest payment dates. As
of March 6, 1999, the borrowing was still in place. The repurchase agreement was
used to fund the sale of the Mount Holly branch deposits which were sold in
December 1996. In an effort to increase earnings, reduce the Company's interest
rate sensitivity, and to better match its interest rate position, in November
1998, the Company entered into a financial transaction whereby it purchased two
fixed rate agency securities at an average rate of 6.17%, with terms of 15
years, and each is callable after one year. The funds for the purchase of these
securities came from a Federal Home Loan Bank of New York convertible advance.
The borrowing has a rate of 4.93% and matures November 19, 2003, but is callable
quarterly on interest payment dates starting November 19, 2001. At December 31,
1998, the Bank had a 30-day $9.5 million repurchase agreement with a rate of
5.29% and maturing on January 14, 1999. (This repurchase agreement subsequently
rolled over in January 1999, at a rate of 4.95%. In February, the repurchase
agreement was paid down to $9.0 million and the rate became 4.92%.) On March 10,
1998, the Bank took advantage of low interest rates to increase its borrowings
to fund investing and lending activities, and to allow for the maturing and
withdrawal of high yielding savings deposits, to borrow $25.0 million from the
Federal Home Loan Bank of New York. This convertible advance has a rate of
5.35%, with a maturity date of March 11, 2008. On March 12, 2001, and quarterly
thereafter, the Federal Home Loan Bank of New York has the right to call this
advance.
The Bank's cash flows are comprised of three primary classifications:
cash flows from operating activities, investing activities and financing
activities. Cash flows from operating activities, consisting primarily of net
income adjusted for depreciation, amortization and provisions for loan and real
estate
12
<PAGE>
owned losses, were $3.0, $3.4 million and $1.6 million for the years ended
December 31, 1998, 1997 and 1996, respectively. Net cash provided by (used in)
investing activities, which consisted primarily of disbursement of loan
originations, loan purchases, mortgage-backed security purchases and investment
security purchases, offset by principal collections on loans and mortgage-backed
securities and proceeds from the maturities of investment securities, were $3.9
million, $(29.5) million and $(37.2) million for fiscal 1998, 1997 and 1996,
respectively. Net cash provided by (used in) financing activities consisting
primarily of proceeds from stock subscriptions, net activity in deposit and
escrow accounts, and activity in borrowed funds were $19.7 million, $22.5
million and $(7.5) million for the years ended December 31, 1998, 1997 and 1996,
respectively.
Operating activities in 1998 provided $3.0 million in cash due in most
part to income of $1.7 million adjusted for $180,000 in the provision for loan
and real estate owned losses, $361,000 of goodwill amortization and $352,000 in
the amortization of deferred fees, premiums and discounts. Investing activities
in 1998 provided funds of $3.9 million due to maturities of $52.0 million and
$5.0 million of investment securities held to maturity and investment securities
available for sale, respectively, repayments of $29.4 million of mortgage backed
securities held to maturity, $6.6 million of repayments of mortgage-backed
securities available for sale and $8.4 million in proceeds from the sale of
mortgage-backed securities available for sale, offset somewhat by purchases of
$45.9 million, $37.6 million and $15.0 million in investment securities
available for sale, investment securities held to maturity and mortgage-backed
securities available for sale, respectively. Financing activities in 1998
provided $19.7 million primarily due to an increase of $50.0 million in long
term borrowed funds and a net change of $13.0 million in deposits offset
somewhat by a decrease of $40.2 million in short term borrowings.
Operating activities in 1997 provided $3.4 million in cash primarily
due to income of $1.9 million adjusted for $149,000 in depreciation, $367,000 in
the provision for loan and real estate owned losses and $361,000 of goodwill
amortization. Investing activities in 1997 used $29.5 million due to $16.0
million, $14.0 million and $15.1 million in purchases of investment securities
held to maturity, mortgage-backed securities available for sale, and loans,
respectively, and the $15.0 million increase in loans receivable, offset
somewhat by $21.4 million from principal collections on mortgage-backed
securities held to maturity and $9.3 million from the maturity of investment
securities held to maturity. Financing activities in 1997 provided $22.5 million
due to a $1.8 million change in deposits and $25.1 million increase in borrowed
funds offset somewhat by $1.7 million and $2.4 million for the repurchase of
stock for the MSBP program and stock repurchase program, respectively.
Operating activities in 1996 provided $1.6 million in cash primarily
due to net income of $611,000 adjusted for $153,000 in depreciation, a $183,000
provision for loan and real estate owned losses, $361,000 of goodwill
amortization. Investing activities in 1996 used $37.2 million due to $16.1
million and $32.3 million in purchases of mortgage-backed and investment
securities, respectively, and a $21.3 million increase in loans receivable,
$11.0 million from the maturity of investment securities held to maturity, and
$21.5 million from principle collections on mortgage-backed securities held to
maturity. Financing activities used $7.8 million due to a $7.5 million decrease
in deposits, a $19.7 million refunding of oversubscribed deposits related to the
initial public offering completed in January 1996, $9.1 million used to fund the
sale of the deposits of the Mount Holly branch, and $3.3 million for the
repurchase of common stock, offset somewhat by an increase in borrowed funds of
$33.6 million.
The Bank anticipates that it will have sufficient funds available to
meet its current commitments. As of December 31, 1998, the Bank had mortgage
commitments to fund loans of $5.1 million. Also, at December 31, 1998, there
were commitments on unused lines of credit relating to home equity loans of $4.6
million. Certificates of deposit scheduled to mature in one year or less at
December 31, 1998
13
<PAGE>
totaled $125.7 million. Based on historical deposit withdrawals and outflows,
and on internal monthly deposit reports monitored by management, management
believes that a majority of such deposits will remain with the Bank. As a
result, no adverse liquidity effects are expected.
At December 31, 1998, the Bank exceeded each of the three regulatory
capital requirements on a fully phased-in basis. See Note 11 to the Consolidated
Financial Statements.
Year 2000 Readiness
The following discussion of the implications of the Year 2000 problem
for the Company, contains numerous forward looking statements based on
inherently uncertain information. The cost of the project and the date on which
the Company plans to complete the internal Year 2000 modifications are based on
management's assumptions of future events including the continued availability
of internal and external resources, third party modifications and other factors.
However, there can be no guarantee that these statements will be achieved and
actual results could differ. Moreover, although management believes it will be
able to make the necessary modifications in advance, there can be no guarantee
that failure to modify the systems would not have a material adverse effect on
the Company.
During fiscal 1998, the Bank adopted a Year 2000 Compliance Plan (the
"Plan") and established a Year 2000 Compliance Committee (the "Committee"). The
objectives of the Plan and the Committee are to prepare the Bank for the
millennium. As recommended by the Federal Financial Institutions Examination
Council, the Plan encompasses the following phases: Awareness, Assessment,
Renovation, Validation and Implementation. These phases will enable the Bank to
identify risks, develop an action plan, perform adequate testing and complete
certification that its processing systems will be Year 2000 ready. The Bank is
currently in Phase 3, Renovation, (which includes code enhancements, program
changes, hardware and software upgrades, system replacements and third party
vendor monitoring) and Phase 4, Validation, (which includes testing of
incremental changes to hardware and software, testing connections with
third-party vendors and establishing controls to ensure timely completion of all
hardware and software prior to final implementation). Prioritization of the most
critical applications has been addressed, along with contract and service
agreements. The primary operating software for the Bank is obtained and
maintained by an external provider of software (the "External Provider"). The
Bank has maintained ongoing contact with this vendor so that modification of the
software is a top priority and is expected to be accomplished, though there is
no assurance, by March 31, 1999. The Bank has contacted all other material
vendors and suppliers regarding their Year 2000 readiness. Each of these third
parties has delivered written assurance to the Bank that they expect to be Year
2000 compliant prior to the Year 2000. Due to the announcement of the Company's
potential acquisition by HUBCO, the Renovation and Valuation phases targeted
completion dates have been changed to April 30, 1999 and May 31, 1999,
respectively. The Implementation phase is to certify that systems are Year 2000
ready, along with assurances that any new systems are compliant on a going
forward basis. The implementation phase is targeted for completion by September
30, 1999.
The Bank expects to incur consulting and other expenses related to
testing and enhancements to prepare the systems for the Year 2000. The Bank does
not anticipate that the related costs will be material in any single year. In
total, the Bank estimates that it's cost for compliance will amount to
approximately $100,000 over the two year period from 1998 - 1999. As of December
31, 1998 approximately $65,000 of these costs have been incurred. No assurance
can be given that the Year 2000 Compliance Plan will be completed successfully
by the Year 2000, in which event the Bank could incur significant costs. If the
External Provider is unable to resolve the potential problem in time, the Bank
would likely experience significant data processing delays, mistakes or
failures. These delays, mistakes or failures could have a significant adverse
impact on the financial statements of the Company.
14
<PAGE>
The Company does not separately track the internal costs incurred for
the Year 2000 project because such costs are principally the related payroll
costs.
Successful and timely completion of the Year 2000 project is based on
management's best estimates derived from various assumptions of future events,
which are inherently uncertain, including the progress and results of the Bank's
External Provider, testing plans, and all vendors, suppliers and customer
readiness.
Despite the best efforts of management to address this issue, the vast
number of external entities that have direct and indirect business relationships
with the Company, such as public utilities, customers, vendors, payment systems
providers and other financial institutions, makes it impossible to assure that a
failure to achieve compliance by one or more of these entities would not have
material adverse impact on the operations of the Company.
Impact of Inflation and Changing Prices
The financial statements of the Bank and notes thereto, presented
elsewhere herein, have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the change
in the relative purchasing power of money over time and due to inflation. The
impact of inflation is reflected in the increased cost of the Bank's operations.
Unlike most industrial companies, nearly all the assets and liabilities
of the Bank are monetary. As a result, interest rates have a greater impact on
the Bank's performance than do the effects of general levels of inflation.
Interest rates do not necessary move in the same direction or to the same extent
as the price of goods and services.
15
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
(With Independent Auditor's Report Thereon)
December 31, 1998
--------------------------------------------------------
INDEX
-----
Page
---------
Management Responsibility Statement 17
Independent Auditors' Report 18
Consolidated Statements of Financial Condition
as of December 31, 1998 and 1997 19
Consolidated Statements of Income
for Each of the Years in the Three Year
Period Ended December 31, 1998 20
Consolidated Statements of Comprehensive Income
for Each of the Years in the Three Year
Period Ended December 31, 1998 21
Consolidated Statements of Changes in Stockholders' Equity
for Each of the Years in the Three Year Period Ended
December 31, 1998 22
Consolidated Statements of Cash Flows
for Each of the Years in the Three Year Period Ended
December 31, 1998 23 - 24
Notes to Consolidated Financial Statements 25 - 58
All schedules are omitted because the required information is either not
applicable or not required or the required information is included in the
consolidated financial statements or notes thereto.
16
<PAGE>
[LOGO] LITTLE FALLS
BANCORP, INC.
Little Falls Bancorp, Inc.
86 Main Street
Little Falls, NJ 07424-1493
973-256-6100
January 22, 1999
MANAGEMENT RESPONSIBILITY STATEMENT
-----------------------------------
Management of Little Falls Bancorp, Inc. is responsible for the preparation of
the consolidated financial statements and all other financial information in
this report. The consolidated financial statements were prepared in accordance
with generally accepted accounting principles applied on a consistent basis. All
financial information included in the report agrees with the consolidated
financial statements. In preparing the consolidated financial statements,
management makes informed estimates and judgments, with consideration given to
materiality, about the expected results of various events and transactions.
Management maintains a system of internal accounting control that includes
personnel selection, appropriate division of responsibilities, and formal
procedures and policies consistent with high standards of accounting and
administrative practice. Consideration has been given to the necessary balance
between the costs of systems of accounting and internal control and the benefits
derived.
Management reviews and modifies its systems of accounting and internal control
in light of changes in conditions and operations as well as in response to
recommendations from the independent certified public accountants. Management
believes the accounting and internal control systems provide reasonable
assurance that assets are safeguarded and financial information is reliable.
The Board of Directors is responsible for determining that management fulfills
its responsibilities in the preparation of the consolidated financial statements
and the control of operations. The Board appoints the certified public
accountants. The Board meets with management and the independent certified
public accountants, approves the overall scope of audit work and related fee
arrangements and reviews audit reports and findings.
/s/Leonard G. Romaine /s/Richard A. Capone
- ---------------------------------- -------------------------------------
Leonard G. Romaine Richard A. Capone
President Chief Financial Officer and Treasurer
17
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Board of Directors and Stockholders
Little Falls Bancorp, Inc.
Little Falls, New Jersey
We have audited the consolidated statements of financial condition of Little
Falls Bancorp, Inc. (the "Company") and subsidiary as of December 31, 1998 and
1997 and the related consolidated statements of income, comprehensive income,
changes in stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in the second
preceding paragraph present fairly, in all material respects, the consolidated
financial position of Little Falls Bancorp, Inc. and subsidiary as of December
31, 1998 and 1997 and the results of their operations and cash flows for each of
the years in the three-year period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/Radics & Co., LLC
Pine Brook, New Jersey
January 22, 1999, except for the last two paragraphs of Note 2, as to which the
date is January 26, 1999.
18
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
December 31,
--------------------------------------
Assets Notes 1998 1997
- ------ ------------------ ------------------ ------------------
<S> <C> <C> <C>
Cash and due from banks $ 5,780,361 $ 2,737,709
Interest-bearing deposits in other banks 612,931 550,522
Federal funds sold and securities purchased under
agreements to resell 27,000,000 3,500,000
-------------- --------------
Total cash and cash equivalents 1 and 17 33,393,292 6,788,231
Investment securities available for sale 1,4, 10 and 17 39,422,602 -
Investment securities held to maturity 1,4, 10 and 17 40,577,457 57,987,644
Mortgage-backed securities available for sale 1,5, 10 and 17 13,971,394 13,929,048
Mortgage-backed securities held to maturity 1,5, 10 and 17 61,373,296 90,957,446
Loans receivable 1,6, 10 and 17 149,061,512 147,033,259
Premises and equipment 1 and 7 2,601,679 2,617,175
Investment in real estate 1 and 8 81,281 427,317
Foreclosed real estate 1 297,000 604,219
Interest receivable 1 and 17 1,961,170 2,079,091
Federal Home Loan Bank of New York stock 10 3,767,600 2,517,600
Excess of cost over assets acquired 1 2,495,443 2,856,230
Other assets 13 1,613,221 725,234
-------------- --------------
Total assets $ 350,616,947 $328,522,494
============= =============
Liabilities and stockholders' equity
- ------------------------------------
Liabilities
- -----------
Deposits 9 and 17 $ 243,048,053 $230,132,675
Borrowed money 10 and 17 68,500,000 58,719,500
Accounts payable and other liabilities 12 and 13 1,623,438 1,375,658
-------------- --------------
Total liabilities 313,171,491 290,227,833
-------------- --------------
Commitments 16 and 17 - -
Stockholders' equity 1,2,3,11,12 and 13
- --------------------
Preferred stock $.10 par value, 5,000,000 shares
authorized; none issued and outstanding - -
Common stock $.10 par value, 10,000,000 shares
authorized; 3,041,750 shares issued; shares outstanding
2,477,525 (1998) and 2,607,921 (1997) 304,175 304,175
Additional paid in capital 29,204,431 29,067,633
Retained earnings - substantially restricted 19,517,521 18,275,517
Common stock acquired by employee
stock ownership plan ("ESOP") (1,936,741) (2,106,432)
Unearned restricted Management Stock
Bonus Plan ("MSBP") stock, at cost (855,791) (1,329,167)
Treasury stock, at cost; 564,225 shares (1998)
and 433,829 shares (1997) (8,191,308) (5,632,286)
Accumulated other comprehensive income (596,831 (284,779)
-------------- --------------
Total stockholders' equity 37,445,456 38,294,661
-------------- --------------
Total liabilities and stockholders' equity $ 350,616,947 $328,522,494
============== ==============
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
Notes 1998 1997 1996
-------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable 5 $11,380,802 $10,081,393 $ 8,255,040
Mortgage-backed securities 5,481,359 7,117,907 7,972,069
Investment securities and other
interest-earning assets 5,884,145 3,864,885 2,549,230
----------- ----------- -----------
Total interest income 22,746,306 21,064,185 18,776,339
----------- ----------- -----------
Interest expense:
Deposits 8 10,504,020 10,327,779 11,082,926
Borrowings 4,190,912 2,592,479 175,324
----------- ----------- -----------
Total interest expense 14,694,932 12,920,258 11,258,250
----------- ----------- -----------
Net interest income 8,051,374 8,143,927 7,518,089
Provision for loan losses 5 161,132 240,000 182,900
----------- ----------- -----------
Net interest income after provision for
loan losses 7,890,242 7,903,927 7,335,189
----------- ----------- -----------
Non-interest income:
Service fees 228,722 147,818 169,678
Other 4 and 5 174,774 279,877 238,893
----------- ----------- -----------
Total non-interest income 403,496 427,695 408,571
----------- ----------- -----------
Non-interest expenses:
Compensation and employee benefits 12 2,679,782 2,622,159 2,608,587
Occupancy, net 6 290,877 295,305 334,406
Equipment 6 432,893 430,366 401,510
Deposit insurance premiums 15 117,613 126,987 1,596,307
Loss on foreclosed real estate 44,017 26,900 88,981
Amortization of deposit premium 1 360,787 360,787 360,783
Other 12 1,776,203 1,540,603 1,356,853
----------- ----------- -----------
Total non-interest expenses 5,702,172 5,403,107 6,747,427
----------- ----------- -----------
Income before provision for income taxes 2,591,566 2,928,515 996,333
Provision for income taxes 13 843,850 1,072,400 385,444
----------- ----------- -----------
Net income $ 1,747,716 $ 1,856,115 $ 610,889
=========== =========== ===========
Net income per common share: 1 and 14
Basic $ 0.79 $ 0.78 $ 0.22
=========== =========== ===========
Diluted $ 0.76 $ 0.75 $ 0.22
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1998 1997 1996
------------ ------------ ----------
<S> <C> <C> <C>
Net income $ 1,747,716 $ 1,856,115 $610,889
----------- ----------- ---------
Other comprehensive income, net of income taxes:
Unrealized holding gains on securities available for sale,
net of income taxes of $134,235 and $39,938 in 1998 and 1997, respectively (217,386) (71,062) -
Reclassification adjustment for realized gains on securities
available for sale, net of income taxes of $16,754 in 1998 (29,810) - -
----------- ----------- ---------
(247,196) (71,062) -
Minimum pension liability adjustment, net of income taxes
of $36,450, $72,590 and $(10,964), respectively (64,856) 129,162) 19,508
----------- ----------- ---------
Other comprehensive income (312,052) (200,224) 19,508
----------- ----------- ---------
Comprehensive income $ 1,435,664 $ 1,655,891 $ 630,397
=========== =========== =========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
<TABLE>
<CAPTION>
Retained
Common
Additional Earnings -
Stock
Common Paid in Substantially
Acquired
Stock Capital Restricted By
ESOP
---------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Balance - December 31, 1995 $ - $ - $ 16,327,286 $ -
Net income - - 610,889 -
Net proceeds from
issuance of common stock 304,175 28,959,347 - -
Acquisition of common stock by ESOP - - - (2,433,400)
ESOP shares committed to be released - 15,452 - 162,227
Purchase of 296,570 shares of treasury stock - - - -
Decrease in minimum pension
liability, net of deferred income taxes - - - -
Dividends paid - - (136,119) -
--------- ----------- ------------ -------------
Balance - December 31, 1996 304,175 28,974,799 16,802,056 (2,271,173)
Net income - - 1,856,115 -
Acquisition of common stock by MSBP - - - -
ESOP shares committed to be released - 92,834 - 164,741
Amortization of MSBP stock - - - -
Purchase of 137,259 shares of treasury stock - - - -
Unrealized (loss) on securities available for sale, net - - - -
(Increase) in minimum pension
liability, net of deferred income taxes - - - -
Dividends paid - - (382,654) -
--------- ----------- ------------ -------------
Balance - December 31, 1997 304,175 29,067,633 18,275,517 (2,106,432)
Net income - - 1,747,716 -
ended December 31, 1998
ESOP shares committed to be released - 136,798 - 169,691
Amortization of MSBP stock - - - -
Purchase of 130,396 shares of treasury stock - - - -
Unrealized (loss) on securities available for sale, net - - - -
(Increase) in minimum pension
liability, net of deferred income taxes - - - -
Dividends paid - - (505,712) -
--------- ----------- ------------ -------------
Balance - December 31, 1998 $ 304,175 $29,204,431 $ 19,517,521 $(1,936,741)
========= =========== ============ =============
</TABLE>
22
- -----------------2nd half of table follows--------------------------------------
<PAGE>
- -----------------2nd half of table below----------------------------------------
<TABLE>
<CAPTION>
Unearned Accumulated
Restricted Other
MSBP Treasury Comprehensive
Stock Stock Income Total
---------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Balance - December 31, 1995 $ - $ - $ (104,063) $ 16,223,223
Net income - - - 610,889
Net proceeds from issuance of common stock
issuance of common stock - - - 29,263,522
Acquisition of common stock by ESOP - - - (2,433,400)
ESOP shares committed to be released - - - 177,679
Purchase of 296,570 shares of treasury stock - (3,277,004) -
(3,277,004)
Decrease in minimum pension
liability, net of deferred income taxes - - 19,508 19,508
Dividends paid - - - (136,119)
--------- ----------- ------------ -------------
Balance - December 31, 1996 - (3,277,004) (84,555) 40,448,298
Net income - - - 1,856,115
Acquisition of common stock by MSBP (1,600,268) - - (1,600,268)
ESOP shares committed to be released - - - 257,575
Amortization of MSBP stock 271,101 - - 271,101
Purchase of 137,259 shares of treasury stock - (2,355,282) - (2,355,282)
Unrealized (loss) on securities available for sale, net - - (71,062) (71,062)
(Increase) in minimum pension
liability, net of deferred income taxes - - (129,162) (129,162)
Dividends paid - - - (382,654)
--------- ----------- ------------ -------------
Balance - December 31, 1997 (1,329,167) (5,632,286) (284,779) 38,294,661
Net income ended December 31, 1998 - - - 1,747,716
ESOP shares committed to be released - - - 306,489
Amortization of MSBP stock 473,376 - - 473,376
Purchase of 130,396 shares of treasury stock - (2,559,022) - (2,559,022)
Unrealized (loss) on securities available for sale, net - - (247,196) (247,196)
(Increase) in minimum pension
liability, net of deferred income taxes - - (64,856) (64,856)
Dividends paid - - - (505,712)
--------- ----------- ------------ -------------
Balance - December 31, 1998 $(855,791) $(8,191,308) $ (596,831) $ 37,445,456
========= =========== ============ =============
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1998 1997 1996
------------ ------------- -----------
<S> <C> <C> <C>
<C>
Cash flows from operating activities:
Net income $ 1,747,716 $ 1,856,115 $610,889
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 131,395 149,187 153,207
Provision for loan and real estate owned losses 180,000 367,356 182,900
Amortization of intangibles 360,787 360,787 360,783
Amortization of deferred fees, premiums and discounts, net 352,432 117,732 40,903
Gain on sales of investment securities available for sale (16,654) - -
Gain on sales of mortgage-backed seucrities available for sale (29,910) - -
Gain on sale of branch - - (138,320)
Gain on sale of investment in real estate (37,911) (106,318) -
Loss (gain) on sale of foreclosed real estate 19,875 (11,086) 28,418
Deferred income taxes (148,250) (35,527) (243,005)
Decrease (increase) in interest receivable 117,921 (343,800) (17,942)
(Increase) decrease in other assets (566,063) 366,147 (2,447)
(Decrease) increase in interest payable (54,160) 92,789 180,501
Increase in accounts payable and other liabilities 127,036 55,364 256,012
ESOP shares committed to be released 306,489 257,575 177,679
Amortization of MSBP cost 501,237 271,101 -
----------- ----------- ---------
Net cash provided by operating activities 2,991,940 3,397,422 1,589,578
----------- ----------- ---------
Cash flows from investing activities:
Purchases of:
Investment securities available for sale (45,929,794) - -
Investment securiites held to maturity (37,583,247) (15,977,500) (32,347,937)
Mortgage-backed seucriites available for sale (15,035,553) (14,048,125) -
Mortgage-backed securities held to maturity - - (16,073,205)
Loans - (15,096,510) -
Premises and equipment (112,479) (102,193) (159,246)
Federal Home Loan Bank of New York stock (1,250,000) (441,900) (680,500)
Proceeds from maturities of and repayments on:
Investment securities available for sale 5,000,000 - -
Investment securities held to maturity 52,000,000 9,342,000 11,000,000
Mortgage-backed securities available for sale 6,615,242 - -
Mortgage-backed securities held to maturity 29,375,738 21,444,380 21,500,221
Proceeds from sales of:
Investment securities available for sale 1,028,100 - -
Investment securities held to maturity 3,000,000 - -
Mortgage-backed securities available for sale 8,352,991 - -
Investment in real estate 380,527 42,125 -
Foreclosed real estate 268,476 394,486 849,629
Net (increase) in loans receivable (2,187,526) (15,023,967) (21,265,657)
----------- ----------- ---------
Net cash provided by (used in) investing activities 3,922,475 (29,467,204) (37,176,695)
----------- ----------- ---------
</TABLE>
See notes to consolidated financial statements.
23
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits $12,974,880 $ 1,814,156 $(7,464,225)
Decrease in advances from borrowers for taxes - - (701,773)
(Refunds of) proceeds from stock subscriptions - - 19,706,653)
Net change in short-term borrowings (40,219,500) 10,096,000 24,623,500
Proceeds of long-term borrowings 50,000,000 15,000,000 9,000,000
Costs of issuance of common stock - - (731,348)
Dividends paid (505,712) (382,654) (136,119)
Cash paid in connection with branch sales - - (9,064,385)
Cost of MSBP shares - (1,688,171) -
Treasury stock acquired (2,559,022) (2,355,282) (3,277,004)
----------- ----------- -----------
Net cash provided by (used in) financing activities 19,690,646 22,484,049 (7,458,007)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents 26,605,061 (3,585,733) (43,045,124)
Cash and cash equivalents - beginning 6,788,231 10,373,964 53,419,088
----------- ----------- -----------
Cash and cash equivalents - ending $33,393,292 $ 6,788,231 $10,373,964
=========== =========== ===========
Supplemental disclosures:
Cash paid during the period for:
Interest $14,749,082 $12,827,469 $11,077,749
=========== =========== ===========
Income taxes, net of refunds $ 1,305,745 $ 957,808 $ 410,701
=========== =========== ===========
Unrealized loss on securities available
for sale, net of deferred income taxes $ 247,196 $ 71,062 $ -
=========== =========== ===========
Loans to facilitate sales of investment in real estate $ - $ 215,000 $ -
=========== =========== ===========
Loans receivable transferred to foreclosed real estate $ - $ 157,818 $ 406,379
=========== =========== ===========
Loans to facilitate sales of foreclosed real estate $ - $ - $ 172,000
=========== =========== ===========
Increase (decrease) in minimum
pension liability, net of deferred income taxes $ 64,856 $ 129,162 $ (19,508)
=========== =========== ===========
Property transferred to investment in real estate $ - $ 9,629 $ 145,478
=========== =========== ===========
Issuance of common stock:
Deposits used for stock purchases $ - $ - $ 2,859,458
Stock subscriptions used for stock purchases - - 25,124,642
Deferred costs - - (422,630)
----------- ----------- -----------
$ - $ - $27,561,470
Reduction in MSBP liability in connection with purchase
of MSBP shares $ - $ (87,903) $ -
=========== =========== ===========
Liabilities assigned in connection with branch sales:
Deposits $ - $ - $ 9,221,324
=========== =========== ===========
Assets sold in connection with branch sales:
Loans $ - $ - $ 18,619
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------------
Basis of financial statement presentation
-----------------------------------------
The consolidated financial statements, which have been prepared in
conformity with generally accepted accounting principles, include the
accounts of Little Falls Bancorp, Inc. (the "Company") and its wholly
owned subsidiary, Little Falls Bank (the "Bank"). All significant
intercompany accounts and transactions have been eliminated in
consolidation. In preparing the consolidated financial statements,
management is required to make estimates and assumptions that affect
the reported amount of assets and liabilities as of the dates of the
consolidated statements of financial condition and revenues and
expenses for the periods then ended. Actual results could differ
significantly from those estimates. Material estimates that are
particularly susceptible to significant changes relate to the
determination of the allowance for loan losses, the valuation of
foreclosed real estate, the assessment of prepayment risks associated
with mortgage-backed securities and the determination of the amount of
deferred tax assets that are more likely than not to be realized.
Management believes that the allowance for loan losses is adequate,
foreclosed real estate is appropriately valued, prepayment risks
associated with mortgage-backed securities are properly recognized and
all deferred tax assets are more likely than not to be recognized.
While management uses available information to recognize losses on
loans and foreclosed real estate, future additions to allowance for
loan losses or further writedowns of foreclosed real estate may be
necessary based on changes in economic conditions in the market area.
Additionally, assessments of prepayment risks related to
mortgage-backed securities are based upon current market conditions,
which are subject to frequent change. Finally, the assessment of the
amount of deferred tax assets more likely than not to be realized is
based on projected future taxable income, which is subject to continual
revisions for updated information.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan
losses and foreclosed real estate. Such agencies may require the Bank
to recognize additions to the allowance or additional writedowns on
real estate based on their judgments about information available to
them at the time of their examination.
Comprehensive income
--------------------
Effective January 1, 1998, the Company and the Bank adopted Statement
of Financial Accounting Standards ("Statement") No. 130, " Reporting
Comprehensive Income". Statement No. 130 requires the reporting of
comprehensive income in addition to net income from operations.
Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of certain financial information
that historically has not been recognized in the calculation of net
income. As required, the provisions of Statement No. 130 have been
retroactively applied to previously reported periods. The application
of Statement No. 130 had no material effect on the Company's
consolidated financial condition or operations.
At December 31, 1998 and 1997, accumulated other comprehensive income
includes unrealized losses on securities available for sale, net of
deferred income taxes, of $(318,258) and $(71,062), respectively, and
additional minimum pension liability, net of deferred income taxes, of
$(213,717) and $(278,573), respectively.
25
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
- -----------------------------------------------
Cash and cash equivalents
-------------------------
Cash and cash equivalents include cash and amounts due from banks,
federal funds sold and interest-bearing deposits in other banks having
original maturities of three months or less. Generally, federal funds
sold are sold for one day periods.
Investment and mortgage-backed securities
-----------------------------------------
Debt securities for which there is the positive intent and ability to
hold to maturity are classified as held-to-maturity securities and
reported at amortized cost. Debt and equity securities that are bought
and held principally for the purpose of selling them in the near term
are classified as trading securities and reported at fair value, with
unrealized holding gains and losses included in earnings. Debt and
equity securities not classified as trading securities nor as held-to
maturity securities are classified as available for sale securities and
reported at fair value, with unrealized holding gains or losses, net of
deferred income taxes, included in accumulated other comprehensive
income.
Premiums are amortized and discounts are accreted to interest income
using the interest method. Gains or losses on the sale of securities
are based on specifically identifiable cost and are accounted for on a
trade date basis.
Loans receivable
----------------
Loans receivable are stated at unpaid principal balances, less the
allowance for loan losses and net deferred loan origination fees and
costs and discounts.
Loan fees and certain direct loan origination costs are deferred, and
the net fee or cost accreted or amortized as an adjustment of yield
using the interest method over the contractual lives of the related
loans. Unearned interest on consumer loans is recognized over the
contractual lives of the loans using a method which approximates the
interest method.
Uncollectible interest on loans that are contractually past due is
charged off, or an allowance is established based on management's
periodic evaluation. The allowance is established by a charge to
interest income equal to all interest previously accrued, and income is
subsequently recognized only to the extent that cash payments are
received until, in management's judgment, the borrower's ability to
make periodic interest and principal payments is reestablished, in
which case the loan is returned to accrual status.
Allowance for loans losses
--------------------------
An allowance for loan losses is maintained at a level considered
adequate to absorb future loan losses. Management of the Bank, in
determining the allowance for loan losses, considers the risks inherent
in its loan portfolio and changes in the nature and volume of its loan
activities, along with the general economic and real estate market
conditions.
26
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
- -----------------------------------------------
Allowance for loan losses (Cont'd.)
-------------------------
The Bank utilizes a two tier approach: (1) identification of impaired
loans and the establishment of specific loss allowances on such loans;
and (2) establishment of general valuation allowances on the remainder
of its loan portfolio. The Bank maintains a loan review system which
allows for a periodic review of its loan portfolio and the early
identification of potential impaired loans. Such system takes into
consideration, among other things, delinquency status, size of loans,
types of collateral and financial condition of the borrowers. Specific
loan loss allowances are established for identified loans based on a
review of such information and/or appraisals of the underlying
collateral. General loan loss allowances are based upon a combination
of factors including , but not limited to, actual loan loss experience,
composition of the loan portfolio, current economic conditions and
management's judgment. Although management believes that adequate
specific and general loan loss allowances are established, actual
losses are dependent upon future events and, as such, further additions
to the level of the loan loss allowance may be necessary.
Impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. A
loan evaluated for impairment is deemed to be impaired when, based on
current information and events, it is probable that the Bank will be
unable to collect all amounts due according to the contractual terms of
the loan agreement. An insignificant payment delay, which is defined by
the Bank as up to ninety days, will not cause a loan to be classified
as impaired. A loan is not impaired during a period of delay in payment
if the Bank expects to collect all amounts due, including interest
accrued at the contractual interest rate for the period of delay. Thus,
a demand loan or other loan with no stated maturity is not impaired if
the Bank expects to collect all amounts due, including interest accrued
at the contractual interest rate, during the period the loan is
outstanding. All loans identified as impaired are evaluated
independently. The Bank does not aggregate such loans for evaluation
purposes. Payments received on impaired loans are applied first to
interest receivable and then to principal.
Premises and equipment
----------------------
Land is carried at cost. Buildings and improvements, leasehold
improvements and furniture, fixtures and equipment are carried at cost
less accumulated depreciation and amortization. Depreciation and
amortization are computed on a straight-line basis over the lesser of
the estimated useful lives of the assets or, if applicable, the term of
lease. Significant renovations and additions are capitalized. When
assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in operations for the period.
Maintenance and repairs are charged to expense as incurred. Rental
income is netted against occupancy expense.
Investment in real estate
-------------------------
Investments in real estate are carried at the lower of cost less
accumulated depreciation or fair value less estimated disposal costs.
27
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
- ------------------------------------------------
Foreclosed real estate
----------------------
Real estate properties acquired through, or in lieu of, loan
foreclosure are initially recorded at the lower of cost or fair value
at the date of foreclosure. Subsequent valuations are periodically
performed and an allowance for losses established by a charge to
operations if the carrying value of a property exceeds its fair value
less estimated selling costs. Costs relating to development and
improvement of properties are capitalized, whereas income and expenses
relating to the operating and holding of properties are recorded in
operations as earned or incurred. Gains and losses from sales of these
properties are recognized as they occur.
Excess of cost over assets acquired
-----------------------------------
The cost in excess of the fair value of net assets acquired through the
acquisition of certain assets and assumption of certain liabilities of
branch offices is being amortized to expense over a ten year period by
use of the straight-line method.
Income taxes
------------
The Company and its subsidiary file a consolidated federal income tax
return and separate state income tax returns. Income taxes are
allocated to the Company and its subsidiary based upon the contribution
of their respective income or loss to the consolidated return. Federal
and State income taxes have been provided on the basis of reported
income. The amounts reflected on the tax returns differ from these
provisions due principally to temporary differences in the reporting of
certain items for financial reporting and tax reporting purposes.
Deferred income tax expense or benefit is determined by recognizing
deferred tax assets and liabilities for the estimated future tax
consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary difference are expected to be recovered or settled. The
realization of deferred tax assets is assessed and a valuation
allowance provided, when necessary, for that portion of the asset which
more likely than not will not be realized. Management believes, based
upon current facts, that it is more likely than not that there will be
sufficient taxable income in future years to realize all deferred tax
assets. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in earnings in the period that includes the
enactment date.
Accounting for stock-based compensation
---------------------------------------
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement No. 123 "Accounting for Stock-Based Compensation".
Statement No. 123 establishes financial accounting and reporting
standards for stock-based employees compensation plans. While all
entities are encouraged to adopt the "fair value based method" of
accounting for employee stock compensation plans, Statement No. 123
also allows an entity to continue to measure compensation cost under
such plans using the "intrinsic value based method" specified in
Accounting Principles Board Opinion No. 25.
28
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
- -----------------------------------------------
Accounting for stock-based compensation (Cont'd.)
---------------------------------------
Under the fair value based method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the
service period, usually the vesting period. Fair value is determined
using an option pricing model that takes into account the stock price
at the grant date, the exercise price, the expected life of the option,
the volatility of the underlying stock and the expected dividends on
it, and the risk free interest rate over the expected life of the
option. Under the intrinsic value based method, compensation cost is
the excess, if any, of the quoted market price of the stock at the
grant date or other measurement date over the amount an employee must
pay to acquire the stock.
The accounting requirements of Statement No. 123 are effective for
transactions entered into in fiscal years that begin after December 15,
1995. The Company has elected to account for compensation cost under
the intrinsic value based method. Included in Note 12 to consolidated
financial statements are the pro forma disclosures required by
Statement No. 123.
Net income per common share
---------------------------
Basic net income per common share is calculated by dividing net income
by the weighted average number of shares of common stock outstanding,
adjusted for the unallocated portion of shares held by the ESOP in
accordance with the American Institute of Certified Public Accountants'
("AICPA") Statement of Position ("SOP") 93-6. Diluted net income per
share is calculated by adjusting the weighted average number of shares
of common stock outstanding to include the effect of stock options,
stock-based compensation grants and other securities, if dilutive,
using the treasury stock method. See Note 14 to consolidated financial
statements for a reconciliation of such amounts.
Per share amounts for the year ended December 31, 1996 have been
calculated based on the net income for the entire year. The calculation
of the weighted average number of common shares outstanding from the
date of conversion to stock form (January 5, 1996) through December 31,
1996, assumes such shares were outstanding for the entire year (as if
the conversion had taken place on January 1, 1996).
Nature of operations and interest rate risk
-------------------------------------------
The Company is a holding company whose principal activity is the
ownership and management of the Bank. The Bank is principally engaged
in the business of attracting deposits from the customers located
primarily in northern New Jersey and using these deposits, along with
borrowings and other funds, to make loans secured by real estate
located primarily in northern New Jersey and to purchase
mortgage-backed and investment securities. The potential for
interest-rate risk exists as a result of the generally shorter duration
of the Bank's interest-sensitive liabilities compared to the generally
longer duration of its interest-sensitive assets. In a rising interest
rate environment, liabilities will reprice faster than assets, thereby
reducing the market value of long-term assets and net interest income.
For this reason, management regularly monitors the maturity structure
of the Bank's interest-earning assets and interest-bearing liabilities
in order to measure its level of interest-rate risk and to plan for
future volatility.
29
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
- -----------------------------------------------
Concentration of risk
---------------------
The Bank's lending and real estate activity is concentrated in real
estate and loans secured by real estate located in the State of New
Jersey. In general, the Bank's loan portfolio performance is dependent
upon local economic conditions.
Reclassification
----------------
Certain amounts for the year ended December 31, 1997 and 1996 have been
reclassified to conform to the current year's presentation.
2. REORGANIZATION AND STOCKHOLDERS' EQUITY
- --------------------------------------------
On January 5, 1996, the Bank converted from a federally chartered mutual savings
bank to a federally chartered stock savings bank, with the concurrent formation
of a holding company. The holding company, Little Falls Bancorp, Inc., a New
Jersey corporation organized in August 1995, acquired all of the capital stock
of the Bank upon the completion of the conversion. On January 5, 1996, the
conversion and initial public stock offering were completed with the issuance of
3,041,750 shares of the Company's common stock, par value $.10 per share, for
net proceeds, after conversion costs and the effect of the shares acquired by
the ESOP, of $26,830,022. Concurrently with the issuance of the Company's common
stock, the Company utilized $14,671,962 of the net proceeds to purchase all of
the outstanding capital stock of the Bank.
At the time of the conversion, the Bank, in order to grant priority to eligible
depositors in the event of future liquidation, established a liquidation account
of $15,488,000, an amount equal to its total net worth as of September 30, 1995,
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.
Subsequent increases in the deposit account will not restore an eligible account
holder's interest in the liquidation account. In the unlikely 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 their
current adjusted qualifying balances. The balance of the liquidation account on
December 31, 1998 has not been determined.
The ability of the Company to pay dividends to stockholders is dependent upon
the receipt of income from the subsidiary Bank. The Bank may not declare or pay
any dividend on or repurchase any of its capital stock if the effect thereof
would cause its net worth to be reduced below: (1) the amount required for the
liquidation account, or (2) the net worth requirements contained in section
563.13 (b) of the rules and regulation of the Office of Thrift Supervision (the
"OTS").
During the years ended December 31, 1998, 1997 and 1996, the Company approved
plans to repurchase 130,396, 137,259 and 296,570 shares, respectively, of its
common stock outstanding, up to five percent (5%) of the shares outstanding at
any single instance. In accordance therewith, during the years ended December
31, 1998, 1997 and 1996, 130,396, 137,259 and 296,570 shares, respectively, at
an aggregate cost of $2,599,022, $2,355,282, and $3,277,004, respectively, were
purchased in the open market.
30
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
3. PENDING MERGER
- --------------------
On January 26, 1999, the Company signed a definitive merger agreement under
which HUBCO, Inc. ("HUBCO") will acquire the Company in a combination stock and
cash transaction. Under the terms of the agreement, Company shareholders will
receive either 0.65 shares of HUBCO common stock or $20.64 in cash or a
combination of shares of HUBCO common stock and cash. The shares of HUBCO common
stock offered in this transaction will be in an amount equal to approximately
51% of the outstanding shares of the Company multiplied by the exchange ratio.
The remaining 49% of the outstanding shares will be purchased for cash at the
fixed per share price of $20.64. The exchange ratio of 0.65 shares of HUBCO
common stock is based upon HUBCO's median common stock price being between
$34.43 and $29.23 during a pre-determined pricing period. If the median
pre-closing price of HUBCO common stock is $29.00 or less, the exchange ratio
shall be increased in increments to a maximum exchange ratio of 0.70 effective
if the HUBCO median common stock price is $27.14 or lower. If the median
pre-closing price of HUBCO common stock is $34.50 or more, the exchange ratio
will be decreased in increments to a minimum exchange ratio of 0.60 at $37.50.
In connection with the execution of the merger agreement, the Company has issued
an option to HUBCO, which would enable HUBCO to purchase up to 493,000 shares of
Company common stock under certain circumstances. As part of the transaction,
the Company will be merged into Hudson United Bank. The merger is subject to
approval, by Federal and New Jersey bank regulatory authorities and Company
shareholders, as well as other customary conditions. The transaction is expected
to close in the second quarter of 1999.
4. INVESTMENT SECURITIES
- --------------------------
Available for sale:
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------
Gross Unrealized
Amortized -------------------------- Carrying
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Government (including agencies):
Due after five years through ten years $ 7,002,442 $ 10,370 $ 4,600 $ 7,008,212
Due after ten years 5,751,429 81,696 -- 5,833,125
----------- ----------- ----------- -----------
12,753,871 92,066 4,600 12,841,337
Corporate bonds due after ten years 2,001,080 -- 11,080 1,990,000
Trust preferred securities 11,960,918 36,876 501,529 11,496,265
Preferred stock 13,199,307 10,000 114,307 13,095,000
----------- ----------- ----------- -----------
$39,915,176 $ 138,942 $ 631,516 $39,422,602
=========== =========== =========== ===========
</TABLE>
Held to maturity:
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------
Gross Unrealized
Amortized -------------------------- Estimated
Cost Gains Losses Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Government (including agencies):
Due after one year through five years $ 5,685,303 $ 47,187 $ -- $ 5,732,490
Due after five years through ten years 5,002,894 14,606 -- 5,017,500
Due after ten years 29,889,260 -- 281,447 29,607,813
----------- ----------- ----------- -----------
$40,577,457 $ 61,793 $ 281,447 $40,357,803
=========== =========== =========== ===========
</TABLE>
31
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
4. INVESTMENT SECURITIES (Cont'd.)
- ---------------------------
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------
Gross Unrealized
Amortized -------------------------- Estimated
Cost Gains Losses Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Government (including agencies):
Due in one year or less $10,005,774 $ -- $ 69,571 $ 9,936,203
Due after one year through five years 11,000,000 26,270 46,875 10,979,395
Due after five years through ten years 30,981,870 239,337 -- 31,221,207
Due after ten years 6,000,000 2,500 10,000 5,992,500
----------- ----------- ----------- -----------
$57,987,644 $ 268,107 $ 126,446 $58,129,305
=========== =========== =========== ===========
</TABLE>
During the year ended December 31, 1998, proceeds from sales of investment
securities available for sale totaled $1,028,100 and resulted in gross gains of
$16,654. During the year ended December 31, 1998, proceeds from the sale of an
investment security held to maturity, which was within three months of final
maturity, totaled $3,000,000 and did not result in any gain or loss. There were
no sales of investment securities available for sale or held to maturity during
the years ended December 31, 1997 and 1996.
Investment securities held to maturity with a carrying value of approximately
$2,000,000 at both December 31, 1998 and 1997, were pledged to secure public
funds.
5. MORTGAGE-BACKED SECURITIES
- -------------------------------
Available for sale:
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------
Gross Unrealized
Amortized -------------------------- Carrying
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation $ 5,324,055 $ -- $ 4,761 $ 5,319,294
Federal National Mortgage Association 8,663,950 51 11,901 8,652,100
----------- ----------- ----------- -----------
$13,988,005 $ 51 $ 16,662 $13,971,394
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------
Gross Unrealized
Amortized -------------------------- Carrying
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation $12,512,965 $ -- $ 104,516 $12,408,449
Federal National Mortgage Association 1,527,083 -- 6,484 1,520,599
----------- ----------- ----------- -----------
$14,040,048 $ -- 111,000 13,929,048
=========== =========== =========== ===========
</TABLE>
32
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
5. MORTGAGE-BACKED SECURITIES (Cont'd.)
- -------------------------------
Held to maturity:
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------
Gross Unrealized
Amortized -------------------------- Estimated
Cost Gains Losses Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Government National Mortgage Association $17,643,283 $ 37,940 $ 183,033 $17,498,190
Federal Home Loan Mortgage Corporation 14,963,351 119,208 48,363 15,034,196
Federal National Mortgage Association 28,766,662 126,559 118,173 28,775,048
----------- ----------- ----------- -----------
$61,373,296 $ 283,707 $ 349,569 $61,307,434
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------
Gross Unrealized
Amortized -------------------------- Estimated
Cost Gains Losses Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Government National Mortgage Association $26,771,595 $ 215,909 $ 35,973 $26,951,531
Federal Home Loan Mortgage Corporation 22,853,912 219,635 143,405 22,930,142
Federal National Mortgage Association 41,331,939 200,891 168,976 41,363,854
----------- ----------- ----------- -----------
$90,957,446 $ 636,435 $ 348,354 $91,245,527
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------
Principal Unamortized Unearned Carrying
Balance Premium Discounts Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Government National Mortgage Association $17,293,334 $ 355,946 $ 5,997 $17,643,283
Federal Home Loan Mortgage Corporation 14,856,408 119,872 12,929 14,963,351
Federal National Mortgage Association 28,436,352 349,880 19,570 28,766,662
----------- ----------- ----------- -----------
$60,586,094 $ 825,698 $ 38,496 $61,373,296
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------
Principal Unamortized Unearned Carrying
Balance Premium Discounts Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Government National Mortgage Association $26,336,892 $ 442,503 $ 7,800 $26,771,595
Federal Home Loan Mortgage Corporation 22,725,681 185,390 57,159 22,853,912
Federal National Mortgage Association 40,898,959 460,159 27,179 41,331,939
----------- ----------- ----------- -----------
$89,961,532 $ 1,088,052 $ 92,138 $90,957,446
=========== =========== =========== ===========
</TABLE>
During the year ended December 31, 1998, proceeds from sales of mortgage-backed
securities available for sale totaled $8,352,991 and resulted in gross gains of
$29,910. There were no sales of mortgage-backed securities available for sale
during the years ended December 31, 1997 and 1996 and there were no sales of
mortgage-backed securities held to maturity during the years ended December 31,
1998, 1997 and 1996.
33
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
6. LOANS RECEIVABLE
- ---------------------
December 31,
------------------------------
1998 1997
------------- --------------
Real estate mortgage:
One-to-our family $ 117,232,070 $ 118,254,242
Commercial and multi-family 17,435,462 17,361,751
------------ ------------
134,667,532 135,615,993
------------ ------------
Construction - 350,000
------------ ------------
Consumer:
Second mortgage 14,811,424 11,629,689
Passbook or certificate 752,217 807,062
Other 14,615 12,451
------------ ------------
15,578,256 12,449,202
------------ ------------
Total loans 150,245,788 148,415,195
------------ ------------
Less: Loans in process - 233,125
Allowance for loan losses 1,329,292 1,168,160
Deferred loan fees, costs and discounts, net (145,016) (19,349)
------------ ------------
1,184,276 1,381,936
------------ ------------
$149,061,512 $147,033,259
============ ============
An analysis of the allowance for loan losses follows:
Year Ended December 31,
--------------------------------------
1998 1997 1996
---------- ---------- -----------
Balance - beginning $1,168,160 $1,089,828 $ 958,149
Provisions charged to operations 161,132 240,000 182,900
Loans charged off, net of recoveries - (161,668) (51,221)
---------- ---------- ----------
Balance - ending $1,329,292 $1,168,160 $1,089,828
========== ========== ==========
34
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
6. LOANS RECEIVABLE (Cont'd.)
- ---------------------
Impaired loans and related amounts recorded in the allowance for loan losses are
summarized as follows (in thousands):
December 31,
--------------------------------
1998 1997 1996
--------- --------- ----------
Recorded investment in impaired loans:
With recorded allowances $ 367 $ 744 $1,777
Without recorded allowance - - -
Total impaired loans 367 744 1,777
------ ------ ------
Related allowance for loan losses 55 111 404
------ ------ ------
Net impaired loans $ 312 $ 633 $1,373
====== ====== ======
Average recorded investment in impaired loans $ 596 $1,509 $1,717
====== ====== ======
Interest income recognized on impaired loans during the period each loan was
impaired:
Total $ 43 $ 214 $ 57
====== ====== ======
Cash basis $ 43 $ 197 $ 57
====== ====== ======
At December 31, 1998, 1997 and 1996, nonaccrual loans for which the accrual of
interest had been discontinued totaled approximately $1,003,000, $1,284,000 and
$1,901,000, respectively. Interest income that would have been recorded under
the original terms of such loans and the interest income actually recognized is
summarized as follows (in thousands):
Year Ended December 31,
-------------------------
1998 1997 1996
------- ------- -------
Interest income that would have been recorded $ 89 $111 $198
Interest income recognized 60 50 84
The activity with respect to loans to directors, executive officers and
associates of such persons is as follows:
Year Ended December 31,
---------------------------
1998 1997
------------ ------------
Balance - beginning $ 1,448,625 $ 1,168,277
Loans originated 57,252 242,128
Collection of principal (46,580) (14,879)
Other additions -- 53,099
----------- -----------
Balance - ending $ 1,459,297 $ 1,448,625
=========== ===========
35
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------
7. PREMISES AND EQUIPMENT
- ---------------------------
December 31,
-----------------------------
1998 1997
------------- ------------
Land $ 614,714 $ 614,714
Buildings and improvements 2,294,053 2,301,063
Furniture, fixture and equipment 1,184,423 1,071,944
Leasehold improvements 61,132 54,122
---------- ----------
4,154,322 4,041,843
Less accumulated depreciation and amortization 1,552,643 1,424,668
---------- ----------
$2,601,679 $2,617,175
========== ==========
Depreciation and amortization expense totaled $127,975, $134,628 and $143,997
for the years ended December 31, 1998, 1997 and 1996, respectively.
8. INVESTMENT IN REAL ESTATE
- ------------------------------
The Bank owns real estate originally acquired for a future office site which is
no longer to be used for that purpose. During the year ended December 31, 1997,
a $100,000 impairment loss was recorded on a parcel of land to reduce its
carrying value from $243,667 to $143,667. A portion of that land was sold in
1998 for $62,386, with no gain or loss resulting. Property adjoining the Bank's
main office, which had been rented, was sold in 1998 for proceeds of $318,141,
resulting in a gain of $37,911. During the years ended December 31, 1997 and
1996, as a result of the relocation of a branch office and the sale of deposits
in another branch office, properties with a carrying value of $9,629 and
$145,478, respectively, were transferred from premises and equipment to
investment in real estate. These properties were sold during the year ended
December 31, 1997 at a gain of $106,318. The income received from the
properties, net of expenses, is included in other income. The properties are
summarized as follows:
December 31,
-------------------------
1998 1997
---------- -----------
Land $ 81,281 $143,667
Buildings and improvements - 363,452
-------- --------
81,281 507,119
Less accumulated depreciation and amortization - 79,802
-------- --------
$ 81,281 $427,317
======== ========
36
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
9. DEPOSITS
- -------------
December 31, 1998
--------------------------------
Weighted
Average
Rate Amount Percent
------ ------------ -------
NOW accounts and non-interest-bearing deposits 1.55 % $ 29,110,521 11.98
Money Market accounts 2.73 6,995,025 2.87
Passbook and club accounts 2.97 41,427,787 17.05
Certificates of deposit 5.44 165,514,720 68.10
------------ ------
4.48 $243,048,053 100.00
============ ======
December 31, 1997
--------------------------------
Weighted
Average
Rate Amount Percent
------ ------------ -------
NOW accounts and non-interest-bearing deposits 1.33 % $ 21,338,938 9.27
Money Market accounts 2.94 9,952,885 4.33
Passbook and club accounts 3.08 44,468,893 19.32
Certificates of deposit 5.63 154,371,959 67.08
------------ ------
4.62 $230,132,675 100.00
============ ======
The aggregate amount of certificates of deposit with a minimum denomination of
greater than $100,000 was approximately $14,542,000 and $10,020,000 at December
31, 1998 and 1997, respectively. These certificates of deposit do not receive a
preferential interest rate. Deposits in excess of $100,000 are not federally
insured.
The scheduled maturities of certificates of deposit are as follows:
December 31,
--------------------------
1998 1997
---------- -----------
(In Thousands)
Three months or less $ 31,395 $ 40,847
Over three months to one year 94,352 89,942
Over one year to three years 34,287 21,296
Over three years 5,481 2,287
-------- --------
$165,515 $154,372
======== ========
37
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
9. DEPOSITS (Cont'd.)
- -------------
A summary of interest on deposits follows:
Year Ended December 31,
------------------------------------------
1998 1997 1996
------------- ------------- --------------
NOW accounts $ 263,010 $ 260,813 $ 366,984
Money Market 344,020 380,732 788,001
Passbook and club 1,276,998 1,440,145 1,859,939
Certificates of deposit 8,619,992 8,246,089 8,068,002
----------- ----------- -----------
$10,504,020 $10,327,779 $11,082,926
=========== =========== ===========
10. BORROWED MONEY
- -------------------
The Bank has an available line of credit with the Federal Home Loan Bank of New
York ("FHLB"), subject to the terms and conditions of the lenders' overnight
advances program, in the amount of $34,807,900 at December 31, 1998. Borrowings
under this line of credit, which expires on November 23, 1999, are made for one
day periods and are secured by the Bank's investment in FHLB stock and an
assignment of the Bank's unpledged, qualifying one-to-four family mortgage
loans. During the year ended December 31, 1998, the Bank did not borrow funds
under this program. The following table presents borrowed money at the dates
indicated:
<TABLE>
<CAPTION>
Interest December 31,
-----------------------------------
Lender Maturity Rate 1998 1997
- ------ ----------------------- ------------ ----------------- -----
Securities sold under agreement to repurchase:
<S> <C> <C> <C> <C>
January 30, 1998 6.05% $ - $10,000,000
FHLB February 17, 1998 5.74% -
8,175,000
Security broker dealer February 18, 1998 5.77% -
8,368,500
FHLB February 19, 1998 5.76% -
8,176,000
FHLB January 14, 1999 5.29%
9,500,000 -
Advance:
FHLB August 3, 1998 5.80%
15,000,000
FHLB (a) December 20, 1999 5.82% 9,000,000
9,000,000
FHLB (b) November 19, 2003 4.93%
25,000,000 -
FHLB (b) March 11, 2008 5.35%
25,000,000 -
------------ ------------
$ 68,500,000 $58,719,500
============ ============
</TABLE>
(a) Lender has option to terminate the advance on March 20, 1999, and quarterly
thereafter, upon four days advance notice.
(b) Convertible at lender option to replacement funding at then current rates
on November 19, 2001 and March 12, 2001.
38
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
10. BORROWED MONEY (Cont'd.)
- -------------------
Certain information concerning borrowed money is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1998 1997 1996
-------------- ------------- ---------------
<S> <C> <C> <C>
Average balance during the year $ 72,357,000 $ 43,974,600 $ 3,173,000
Average interest rate during the year 5.79% 5.89% 5.53%
Maximum month-end balance during the year $ 83,877,000 $ 58,719,500 $ 33,625,000
Average interest rate at year end 5.25% 5.83% 6.02%
</TABLE>
At December 31, 1998 and 1997, borrowed money is collateralized by the Bank's
investment in FHLB stock, a blanket assignment of the Bank's unpledged,
qualifying one-to-four family mortgage loans and securities as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Investment securities held to maturity $ 5,002,894 $ 18,700,000
Mortgage-backed securities available for sale 593,718 9,749,213
Mortgage-backed securities held to maturity 41,425,704 21,500,903
------------- ------------
$ 47,022,316 $ 49,950,116
============= ============
</TABLE>
11. REGULATORY CAPITAL
- -----------------------
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to met minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material adverse effect on
the Bank. 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 classification 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 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1998, that the Bank
meets all capital adequacy requirements to which it is subject.
39
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
11. REGULATORY CAPITAL (Cont'd.)
- -----------------------
The following table sets forth the capital position of the Bank:
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
Minimum Capital Corrective
Actual Requirements Actions
Provisions
----------------------- ------------------------ -----------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ---------- ------------ ---------- ------------ ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998
-----------------
Total Capital
(to risk-weighted assets) $ 29,988 20.45% $ 11,729 8.00% $ 14,661 10.00%
Tier I Capital
(to risk-weighted assets) 28,740 19.60% - - 8,797 6.00%
Core (Tier I) Capital
(to adjusted total assets) 28,740 8.33% 13,801 4.00% 17,252 5.00%
Tangible Capital
(to adjusted total assets) 28,740 8.33% 5,176 1.50% - -
December 31, 1997
-----------------
Total Capital
(to risk-weighted assets) 27,138 23.83% 9,112 8.00% 11,390 10.00%
Tier I Capital
(to risk-weighted assets) 26,416 23.20% - - 6,834 6.00%
Core (Tier I) Capital
(to adjusted total assets) 26,416 8.10% 13,040 4.00% 16,300 5.00%
Tangible Capital
(to adjusted total assets) 26,416 8.10% 4,890 1.50% - -
</TABLE>
As of June 23, 1997, the most recent notification from the OTS, the Bank was
categorized as well capitalized under the regulatory framework for prompt
corrective action. There are no conditions existing or events which have
occurred since notification, that management believes have changed the
institution's category.
40
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
12. BENEFIT PLANS
- ----------------------
Employee pension plan
---------------------
The Bank has a defined benefit pension plan covering all eligible
employees. The benefits are based on years of service and employees'
compensation. The Bank's funding policy is to contribute the maximum
amount deductible for federal income tax purposes. Contributions are
intended to provide not only for benefits attributed to service to date
but also for those expected to be earned in the future.
Plan assets are composed primarily of certificates of deposit, savings
accounts and insurance contracts. The following tables present the
plan's funded status and the components of net periodic pension cost:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested $ 2,126,247 $ 1,873,615
Non-vested 37,156 16,195
----------- -----------
Total benefit obligation $ 2,163,403 $ 1,889,810
=========== ===========
Projected benefit obligation - beginning $ 2,410,463 $ 1,919,617
Service cost 88,844 94,253
Interest cost 167,472 168,152
Actuarial loss 101,359 280,229
Benefits paid (19,344) -
Settlements (59,936) (51,788)
----------- -----------
Projected benefit obligation - ending 2,688,858 2,410,463
----------- -----------
Plan assets at fair value - beginning 1,245,710 1,222,245
Actual return on assets 37,126 26,654
Employer's contributions 291,033 73,432
Benefits paid (19,344) -
Settlements (59,936) (51,788)
----------- -----------
Plan assets at fair value - ending 1,494,589 1,270,543
----------- -----------
Plan benefit obligation in excess of plan assets 1,194,269 1,139,920
Unrecognized net transition
obligation being amortized over fifteen years (68,820) (82,585)
Unrecognized net loss (960,589) (842,511)
Additional minimum liability 503,954 416,413
----------- -----------
Accrued pension cost included
in accounts payable and other liabilities $ 668,814 $ 631,237
=========== ===========
</TABLE>
41
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
12. BENEFIT PLANS (Cont'd.)
- ----------------------
Employee pension plan (Cont'd.)
---------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1998 1997 1996
----------- ------------ -----------
<S> <C> <C> <C>
Net periodic pension cost included
the following components:
Service cost $ 88,844 $ 94,253 $ 87,161
Interest cost 167,472 168,152 127,080
Expected return on plan assets (107,863) (103,159) (82,697)
Amortization of transition obligation 13,765 13,765 13,765
Amortization of unrecognized loss 54,018 67,904 55,419
--------- --------- ---------
Net periodic pension cost included
in compensation and employee benefits $ 216,236 $ 240,915 $ 200,728
========= ========= =========
</TABLE>
Significant actuarial assumptions used in determining plan benefits are:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1998 1997 1996
---------------- ---------------- ---------------
<S> <C> <C> <C>
Annual salary increase 5.50% 5.50% 5.00%
Long-term return on assets 8.00% 8.00% 8.00%
Discount rate 7.25% 7.50% 7.00%
</TABLE>
Directors retirement plan
-------------------------
The Bank has a directors retirement plan, which provides that any
director with twenty or more years of service may retire and continue
to be paid at the rate of 50% of regular directors fees. These payments
will continue for the directors' lifetime. This plan is unfunded. The
following tables present the status of the plan and the components of
net periodic plan cost:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997
------------- -----------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested $ 339,498 $ 253,159
Non-vested - 57,394
$ 339,498 $ 310,553
========= =========
Projected benefit obligation - begining $ 366,691 $ 357,661
Service cost 843 784
Interest cost 26,585 26,825
Actuarial gain (16,753) (18,579)
--------- ---------
Projected benefit obligation - ending 377,366 366,691
Unrecognized past service cost (201,322) (218,618)
Unrecognized net (loss) (6,805) (23,558)
Accrued plan cost included
in accounts payable and other liabilities $ 169,239 $ 124,515
========= =========
</TABLE>
42
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
12. BENEFIT PLANS (Cont'd.)
- ----------------------
Directors retirement plan (Cont'd.)
-------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1998 1997 1996
--------------- ---------------- ---------------
<S> <C> <C> <C>
Net periodic plan cost included the following components:
Service cost $ 843 $ 784 $ 6,380
Interest cost 26,585 26,825 20,972
Amortization of past service cost 17,296 17,296 17,296
Amortization of unrecognized net loss - 4,682 21
--------- -------- --------
Net periodic plan cost included in other expense $ 44,724 $ 49,587 $44,669
========= ======== ========
</TABLE>
Significant actuarial assumptions used in determining plan benefits are:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1998 1997 1996
--------------- ---------------- -------------
<S> <C> <C> <C>
Annual compensation increase 4.50% 7.00% 7.00%
Discount rate 6.50% 7.25% 7.50%
</TABLE>
Directors health benefits plan
------------------------------
The Bank has a directors health benefit plan which provides for the
continuation of the directors' medical insurance coverage for their
lifetime after retirement. Benefits under this plan are available to
directors retiring after attainment of age 60 and twenty years of
service. This plan is unfunded. The following tables present the status
of the plan and the net components of net periodic plan cost:
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Accumulated postretirement benefit obligation - beginning $ 158,388 $ 160,094
Service cost 204 190
Interest cost 11,483 12,007
Actuarial loss (gain) 4,987 (13,903)
--------- ---------
Accumulated postretirement benefit obligation - ending 175,062 158,388
Unrecognized net gain 45,709 55,426
--------- ---------
Accrued plan cost included in
accounts payable and other liabilities $ 220,771 $ 213,814
========= =========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1998 1997 1996
---------------- ---------------- -------------
<S> <C> <C> <C>
Net periodic plan cost included the following components:
Service cost $ 204 $ 190 $2,866
Interest cost 11,483 12,007 10,969
Amortization of unrecognized gain (4,730) (3,384) (4,016)
--------- ------- -------
Net periodic plan cost included in other expense $ 6,957 $ 8,813 $9,819
========= ======= =======
</TABLE>
43
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
12. BENEFIT PLANS (Cont'd.)
- ------------------
Directors health benefit plan (Cont'd.)
-----------------------------
A discount rate of 6.50%, 7.25% and 7.50% was assumed for the years
ended December 31, 1998, 1997 and 1996, respectively. For the years
ended December 31, 1998 1997and 1996, a medical cost trend rate of
6.5%, 7.0% and 7.5%, respectively, decreasing 0.5% per year thereafter
until an ultimate rate of 5.0% is reached, was used in the plan's
valuation. Increasing the assumed medical cost trend by one percent in
each year would increase the accumulated postretirement benefit
obligation as of December 31, 1998, by $15,335 and the aggregate of the
service and interest components of net periodic postretirement benefit
cost for the year ended December 31, 1998 by $1,392, while a one
percent decrease in the assumed medical cost trend would result in
comparable decreases of $13,475 and $1,299, respectively.
ESOP
----
Effective upon conversion, an ESOP was established for all eligible
employees. The ESOP used $2,433,400 of proceeds from a term loan from
the Company to purchase 243,340 shares of Company common stock in the
initial offering. The term loan from the Company to the ESOP, including
interest, is payable over one-hundred-eighty (180) equal monthly
installments. The initial interest rate is 8.25% and is subject to
semi-annual adjustment based on the prime rate. The Bank intends to
make contributions to the ESOP which will be equal to the principal and
interest payment required from the ESOP on the term loan. Shares
purchased with the loan proceeds are pledged as collateral for the term
loan and are held in a suspense account for future allocation among
participants. Contributions to the ESOP and shares released from the
suspense account will be allocated among the participants on the basis
of compensation, as described by the plan, in the year of allocation.
The ESOP is accounted for in accordance with SOP 93-6, which was issued
by the AICPA in November 1993. Accordingly, the ESOP shares pledged as
collateral are reported as unearned ESOP shares in the consolidated
statements of financial condition. As shares are committed to be
released from collateral, the Company reports compensation expense
equal to the current market price of the shares, and the shares become
outstanding for basic net income per common share computations. ESOP
compensation expenses were $306,489, $257,575 and $177,679 for the
years ended December 31, 1998, 1997 and 1996, respectively.
44
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
12. BENEFIT PLANS (Cont'd.)
- ------------------
ESOP (Cont'd.)
----
The ESOP shares were as follows:
December 31,
-----------------------------
1998 1997
------------- ------------
Allocated shares 33,927 16,223
Shares committed to be released 15,739 16,474
Unreleased shares 193,674 210,643
----------- -----------
Total ESOP shares 243,340 243,340
=========== ===========
Fair value of unreleased shares $ 3,873,480 $ 4,318,182
=========== ===========
MSBP
----
On July 3, 1996, the Bank established a MSBP to provide both key
employees and outside directors with a proprietary interest in the
Company in a manner designed to encourage such persons to remain with
the Bank. The Bank, during the year ended December 31, 1997 contributed
$1,688,171 to the MSBP to allow the MSBP to purchase 121,670 shares of
common stock of the Company in the open market at an average cost of
$13.875 per share.
Under the MSBP, awards are granted in the form of common stock held by
the MSBP Trust. The awards vest over a period of time not more than
five years, commencing one year from the date of award. The awards
become fully vested upon termination of employment due to death or
disability. At December 31, 1998 and 1997, 103,798 shares and 79,248
shares, respectively, had been granted to directors and, at both
December 31, 1998 and 1997, 26,767 shares had been granted to officers
and employees. 37,522 shares and 16,311 shares were vested at December
31, 1998 and 1997, respectively. $501,237, $271,101 and $87,903 of
expense related to the MSBP shares was recorded during the years ended
December 31, 1998, 1997 and 1996, respectively.
45
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
12. BENEFIT PLANS (Cont'd.)
- ----------------------
Stock Option Plan
-----------------
The Company adopted the 1996 Stock Option Plan (the "Plan") authorizing
the grant of stock options equal to 304,175 shares of common stock to
officers, directors and key employees of the Bank or the Company.
Options granted under the Plan may be either options that qualify as
incentive stock options as defined in Section 422 of the Internal
Revenue Code of 1986, as amended, or non-statutory options. Options
granted will vest and will be exercisable on a cumulative basis in
equal installments at the rate of 20% per year commencing one year from
the date of grant. All options granted will be exercisable in the event
the optionee terminates his employment due to death or disability. The
options expire ten years from the date of grant.
In the event of change in control of the Bank or Company, the optionee
will be given: (1) substitute options by the acquiring or succeeding
corporation, (2) shares of stock issueable upon the exercise of such
substitute options or (3) cash for each option granted, equal to the
difference between the exercise price of the option and the fair market
value or merger price equivalent to cash payment for each share of
common stock exchanged in the change of control transaction.
Shares of common stock have been granted under the plan as
non-incentive stock options to directors and incentive stock options to
officers and employees, respectively, as follows:
<TABLE>
<CAPTION>
Shares Weighted
-------------------------------------- Average
Non- Exercise Exercise
Incentive Incentive Total Price Price
----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Granted in 1996 121,665 109,496 231,161 $ 10.625 $ 10.625
Granted in 1997 - 16,000 16,000 20.000 20.000
------- ------- -------
Balance at December 31, 1997 121,665 125,496 247,161 11.232
Cancelled - (304) (304) 10.625 10.625
Forfeited - (6,083) (6,083) 10.625 10.625
------- ------- -------
Balance at December 31, 1998 121,665 119,109 240,774 11.248
======= ======= =======
</TABLE>
No options have been exercised. Options for 93,110 shares were
excercisable at December 31, 1998 at a weighted average exercise price
of $10.947. Options for 46,232 shares were exercisable at December 31,
1997 at a weighted average exercise price of $10.625.
46
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
12. BENEFIT PLANS (Cont'd.)
- ----------------------
Stock Option Plan (Cont'd.)
-----------------
The Company, as permitted by Statement No. 123, recognizes compensation
cost for stock options granted based on the intrinsic value method
instead of the fair value based method. The weighted-average grant-date
fair value of options granted during 1997 and 1996, all of which have
exercise prices equal to the market price of the Company's common stock
at the grant date, were estimated using the Black-Scholes
option-pricing model. Such fair values and the assumptions used for
estimating fair values are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
------------ ----------
<S> <C> <C>
Weighted average grant-date fair value per share $ 5.87 $ 2.81
Expected common stock dividend yield 1.00% 0.94%
Expected volatility 23.29% 13.90%
Expected option life 5 years 5 years
Risk-free interest rate 5.88% 6.875%
</TABLE>
Had the Company used the fair value based method, net income for the
years ended December 31, 1998, 1997 and 1996 would have been decreased
to $1,616,000, $1,736,000 and $574,000, respectively, and basic and
diluted net income per common share would have been reduced to $0.73
and $0.70, respectively, for the year ended December 31, 1998, $0.73
and $0.70, respectively, for the years ended December 31, 1997 and
$0.21 each during the year ended December 31, 1996.
13. INCOME TAXES
- ---------------------
The Bank qualifies as a Savings Institution under the provisions of the Internal
Revenue Code and was therefore, prior to January 1, 1996, permitted to deduct
from taxable income an allowance for bad debts based on the greater of: (1)
actual loan losses (the "experience method"); or (2) eight (8) percent of
taxable income before such bad debt deduction less certain adjustments (the
"percentage of taxable income method").
On August 21, 1996, legislation was signed into law which repealed the
percentage of taxable income method for tax bad debt deductions. The repeal is
effective for the Bank's taxable year beginning January 1, 1996. In addition,
the legislation requires the Bank to include in taxable income its bad debt
reserves in excess of its base year reserves over a six, seven, or eight year
period depending upon the attainment of certain loan origination levels. Since
the percentage of taxable income method for Federal tax bad debt deductions and
the corresponding increase in the Federal tax bad debt reserve in excess of the
base year have been reflected as temporary differences pursuant to FASB
Statement No. 109, with deferred income taxes recorded thereon, this change in
the tax law did not have a material adverse effect on the Company's consolidated
financial position or operations.
47
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
13. INCOME TAXES (Cont'd.)
- ---------------------
Retained earnings at December 31, 1998 includes approximately $2.4 million of
tax bad debt deductions which, in accordance with FASB Statement No. 109, are
considered a permanent difference between the book and income tax basis of loans
receivable, and for which income taxes have not been provided. If such amount is
used for purposes other than bad debt losses, including distributions in
liquidation, it will be subject to income tax at the then current rate.
The provision for income taxes is summarized as follows:
Year Ended December 31,
----------------------------------------------
1998 1997 1996
-------------- -------------- -------------
Current:
Federal $ 887,989 $ 990,405 $ 540,688
State 104,111 117,522 87,761
--------- ---------- ---------
992,100 1,107,927 628,449
--------- ---------- ---------
Deferred:
Federal (135,889) (32,405) (222,744)
State (12,361) (3,122) (20,261)
--------- ---------- ---------
(148,250) (35,527) (243,005)
--------- ---------- ---------
$ 843,850 $1,072,400 $ 385,444
========= ========== =========
The provision for income taxes differs from that computed at the federal
statutory rate of 34% as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1998 1997 1996
-------------- --------------- -------------
<S> <C> <C> <C>
Tax at the statutory rate $ 881,132 $ 995,695 $ 338,753
New Jersey Savings Institution Tax,
net of federal income tax effect 60,555 75,504 44,550
Dividends received deduction (96,381) - -
Other (1,456) 1,201 2,141
--------- ----------- ---------
$ 843,850 $ 1,072,400 $ 385,444
========= =========== =========
</TABLE>
48
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
13. INCOME TAXES (Cont'd.)
- ---------------------
The tax effects of existing temporary differences which give rise to significant
portions of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 380,915 $ 316,151
Deferred loan origination fees, net 63,821 63,821
Deferred compensation 176,979 115,025
Minimum pension liability 156,561 120,111
Goodwill 133,544 90,101
MSBP 4,757 15,513
Unrealized loss on securities available for sale 190,927 39,938
---------- ---------
Total deferred tax assets 1,107,504 760,660
---------- ---------
Deferred tax liabilities:
Depreciation of premises and equipment 81,671 67,944
Other - 2,572
---------- ---------
Total deferred tax liabilities 81,671 70,516
---------- ---------
Net deferred tax asset included in other assets $1,025,833 $ 690,144
========== =========
</TABLE>
At December 31, 1998 and 1997, current income taxes receivable of $309,549 and
$25,526, respectively, are included in other assets. At December 31, 1998 and
1997, income taxes payable of $95,242 and $119,876, respectively, are included
in other liabilities.
49
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
14. NET INCOME PER COMMON SHARE
- ------------------------------------
Year Ended December 31, 1998
-----------------------------------------
Weighted
Net Average Per Share
Income Shares Amounts
------------ ------------- ----------
Basic net income per share $ 1,747,716 2,207,591 $ 0.79
======
Effect of dilutive securities:
Stock options - 96,875
MSBP unearned shares - 6,774
----------- -----
Diluted net income per share $ 1,747,716 2,311,240 $ 0.76
=========== ========== ======
Year Ended December 31, 1997
-----------------------------------------
Weighted
Net Average Per Share
Income Shares Amounts
------------ -------------- ----------
Basic net income per share $ 1,856,115 2,389,063 $ 0.78
======
Effect of dilutive securities:
Stock options - 71,296
MSBP unearned shares - 6,531
----------- ---------
Diluted net income per share $ 1,856,115 2,466,890 $ 0.75
=========== ========= ======
Year Ended December 31, 1996
-----------------------------------------
Weighted
Net Average Per Share
Income Shares Amounts
------------ ------------ ----------
Basic net income pre share $ 610,889 2,727,627 $ 0.22
======
Effect of dilutive securities:
Stock options - 7,336
MSBP unearned shares - 1,681
----------- ---------
Diluted net income per share $ 610,889 2,736,644 $ 0.22
=========== ========= ======
50
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
15. LEGISLATIVE MATTERS
- ------------------------
On September 30, 1996, legislation was enacted which, among other things,
imposed a special one-time assessment on Savings Association Insurance Fund
("SAIF") member institutions, including the Bank, to recapitalize the SAIF and
spread the obligation for payment of Financial Corporation ("FICO") bonds across
all SAIF and Bank Insurance Fund ("BIF") members. The special assessment levied
amounted to 65.7 basis points on SAIF assessable deposits held as of March 31,
1995. The special assessment was recognized in the third quarter of 1996 and is
tax deductible. The Bank took a charge of $1,167,427 as a result of the special
assessment. This legislation eliminated the substantial disparity between the
amount that BIF and SAIF members had been paying for deposit insurance premiums.
Currently, the Federal Deposit Insurance Corporation ("FDIC") has estimated
that, in addition to normal deposit insurance premiums, BIF members will pay a
portion of the FICO payment equal to 1.3 basis points on BIF-insured deposits
compared to 6.4 basis points by SAIF members on SAIF-insured deposits.
The FDIC has lowered SAIF assessments to a range comparable to that of BIF
members, although SAIF members must also make the FICO payments described above.
Management cannot predict the precise level of FDIC insurance assessments on an
ongoing basis.
16. COMMITMENTS
- ----------------
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit. Commitments to
extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the loan agreement. These commitments
are comprised of the undisbursed portion of construction loans, unused amounts
of lines of credit and residential loan originations. The Bank's exposure to
credit loss from nonperformance by the other party to the financial instruments
for commitments to extend credit is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments.
Collateral, usually in the form of residential real estate, is generally
required to support financial instruments with credit risk.
At December 31, 1998, the Bank had commitments outstanding to originate mortgage
loans of $5,128,000, of which $1,251,000 were for adjustable rate loans with
initial rates over the first ten years of the loan terms ranging from 6.25% to
6.75% and $3,877,000 were for fixed rate loans with rates ranging from 6.25% to
7.00%. The commitments are due to expire within sixty days. The rates at which
the Bank has committed to fund these loans are set based on the rate in effect
when the borrower accepts the commitment in writing.
At December 31, 1998, outstanding commitments related to unused home equity
lines of credit totaled $4,618,000. These amounts, when used, will carry
interest rates that will float at rates ranging from the prime rate plus 1/4% to
the prime rate plus 1 3/4%.
51
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
16. COMMITMENTS (Cont'd.)
- --------------------
Rental expenses related to the occupancy of premises totaled approximately
$68,000, $30,000 and $38,000 for the years ended December 31, 1998, 1997 and
1996, respectively. Minimum non-cancellable obligations under lease agreements
with original terms of more than one year are as follows:
December 31, Amount
------------ ----------
1999 $ 36,360
2000 36,360
2001 36,360
2002 15,150
--------
$124,230
========
17. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------
The fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than a forced or liquidation sale. Significant estimations were used for
the purposes of this disclosure. The following methods and assumptions were used
to estimate the fair value of each class of financial instruments for which it
is practicable to estimate such value:
Cash and cash equivalents and interest receivable
-------------------------------------------------
For cash and cash equivalents and interest receivable, the carrying
amounts approximate fair value.
Investment and mortgage-backed securities
-----------------------------------------
For investment and mortgage-backed securities, both available for sale
and held to maturity, fair value is estimated using quoted market
prices.
Loans receivable
----------------
The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
Deposits
--------
The fair value of demand, savings and money market deposits is the
amount payable on demand at the reporting date. The fair value of
certificates of deposit is estimated by discounting the future cash
flows using the rates currently offered for deposits of similar
remaining maturities.
52
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
17. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont'd.)
- ---------------------------------------------------------------
Borrowed money
--------------
The fair value of advances and securities sold under agreements to
repurchase is estimated by discounting cash flows using rates currently
available for borrowings of similar remaining securities.
Commitments to extend credit
----------------------------
The fair value of commitments to extend credit is estimated using the
fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between current
levels of interest rates and the committed rates.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1998 1997
-------------------------- --------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 33,393 $ 33,393 $ 6,788 $ 6,788
Investment securities available for sale 39,423 39,423 - -
Investment securities held to maturity 40,577 40,358 57,988 58,129
Mortgage-backed securities available for sale 13,971 13,971 13,929 13,929
Mortgage-backed securities held to maturity 61,373 61,307 90,957 91,246
Loans receivable 149,062 154,536 147,033 148,534
Interest receivable 1,961 1,961 2,079 2,079
Financial liabilities:
Deposits 243,048 244,613 230,133 226,113
Borrowed money 68,500 68,488 58,720 58,708
Commitments:
To fund loans 9,746 9,746 7,306 7,306
</TABLE>
Fair value estimates are made at a specific point in time based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the entire holdings of
a particular financial instrument. Because no market exists for a
significant portion of the financial instruments, fair value estimates
are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in
nature, involve uncertainties and matters of judgment and, therefore,
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates. In addition, fair value estimates
are based on existing on-and-off balance sheet financial instruments
without attempting to estimate the value of anticipated future business
and exclude the value of assets and liabilities that are not considered
financial instruments. Other significant assets that are not considered
financial assets include premises and equipment. In addition, the tax
ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have
not been considered in any of the estimates. Finally, reasonable
comparability between financial institutions may not be likely due to
the wide range of permitted valuation techniques and numerous estimates
which must be made given the absence of active secondary markets for
many of the financial instruments. The lack of uniform valuation
methodologies introduces a greater degree of subjectivity to those
estimated fair values.
53
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
18. PARENT ONLY FINANCIAL INFORMATION
- --------------------------------------
The Company operates one wholly owned subsidiary, the Bank. The earnings of the
Bank are recognized by the Company using the equity method of accounting.
Accordingly, the earnings of the Bank are recorded as increases in the Company's
investment in the subsidiary. The following are the condensed financial
statements for the Company (parent company only) as of December 31, 1998, 1997
and for the periods ended December 31, 1998, 1997 and 1996. The Company had no
operations prior to the Bank's conversion to stock form on January 5, 1996.
<TABLE>
<CAPTION>
December 31,
---------------------------------
Statements of Financial Condition 1998 1997
--------------------------------- --------------- --------------
<S> <C> <C>
Assets
------
Cash and due from banks $ 1,167,896 $ 1,167,965
Securities available for sale 6,331,875 -
Loan receivable from subsidiary - 6,044,666
ESOP loan receivable 2,049,555 2,213,081
Investment in subsidiary 31,273,275 29,200,841
Other assets 127,965 18,000
----------- -----------
Total assets $40,950,566 $38,644,553
=========== ===========
Liabilities and stockholders' equity
Liabilities
Due to subsidiary $ 3,405,982 $ 257,783
Other liabilities 99,128 92,109
----------- -----------
3,505,110 349,892
----------- -----------
Stockholders' equity
Common stock 304,175 304,175
Additional paid in capital 29,204,431 29,067,633
Retained earnings 19,517,521 18,275,517
Common stock acquired by ESOP (1,936,741) (2,106,432)
Unearned restricted MSBP stock (855,791) (1,329,167)
Treasury stock (8,191,308) (5,632,286)
Accumulated other comprehensive income (596,831) (284,779)
----------- -----------
Total stockholders' equity 37,445,456 38,294,661
----------- -----------
Total liabilities and stockholders equity $40,950,566 $38,644,553
=========== ===========
</TABLE>
54
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
-----------------------------------------
18. PARENT ONLY FINANCIAL INFORMATION (Cont'd.)
- --------------------------------------
STATEMENTS OF INCOME
--------------------
<TABLE>
<CAPTION>
From
Inception
January 5,
Year Ended December 31, 1996 to
--------------------------------- December 31,
1998 1997 1996
------------- ------------ -------------
<S> <C> <C> <C>
Interest income $ 543,398 $ 666,225 $ 880,582
Equity in undistributed earnings of subsidiary 1,591,741 1,598,621 248,247
----------- ----------- ----------
2,135,139 2,264,846 1,128,829
Expenses 336,173 235,731 274,940
----------- ----------- ----------
Income before income taxes 1,798,966 2,029,115 853,889
Income taxes 51,250 173,000 243,000
----------- ----------- ----------
Net income $ 1,747,716 $ 1,856,115 $ 610,889
=========== =========== ==========
</TABLE>
55
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
-----------------------------------------
18. PARENT ONLY FINANCIAL INFORMATION (Cont'd.)
- --------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
From
Inception
January ,
Year Ended December 31, 1996 to
1998 1997 1996
----------------- ------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,747,716 $ 1,856,115 $ 610,889
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of premiums 1,044 - -
Equity in undistributed earnings of subsidiary (1,591,741) (1,598,620) (248,247)
(Increase) in other assets (100,764) (5,833) (12,167)
Increase in other liabilities 7,019 30,327 61,782
----------- ----------- -----------
Net cash provided by operating activities 63,274 281,989 412,257
----------- ----------- -----------
Cash flows from investing activities:
Purchase of all outstanding stock of the Bank - - (14,638,780)
Purchase of securities available for sale (6,355,000) - -
Loan to the Bank - - (12,205,380)
Repayments of loan by the Bank 6,044,666 2,809,598 3,351,116
Loan to ESOP - - (2,433,400)
Repayments of loan by ESOP 163,526 129,841 90,478
----------- ----------- -----------
Net cash (used in) provided by investing activities (146,808) 2,939,439 (25,835,966)
----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock - - 29,263,522
Increase in due from subsidiary 3,148,199 128,891 128,892
Acquisition of treasury stock (2,559,022) (2,355,282) (3,277,004)
Dividends paid (505,712) (382,654) (136,119)
----------- ----------- -----------
Net cash provided by (used in) financing activities 83,465 (2,609,045) 25,979,291
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (69) 612,383 555,582
Cash and cash equivalents - beginning 1,167,965 555,582 -
----------- ----------- -----------
Cash and cash equivalents - ending $ 1,167,896 $ 1,167,965 $ 555,582
=========== =========== ===========
</TABLE>
56
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
- -----------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31, 1998
--------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $ 5,608 $ 5,898 $ 5,651 $ 5,589
Interest expense 3,518 3,768 3,745 3,664
------- ------- ------- -------
Net interest income 2,090 2,130 1,906 1,925
Provision for loan losses 60 60 60 (19)
Non-interest income 63 102 116 122
Non-interest expenses 1,387 1,432 1,253 1,629
Income taxes 247 246 226 125
------- ------- ------- -------
Net income $ 459 $ 494 $ 483 $ 312
======= ======= ======= =======
Net income per common share:
Basic $ 0.20 $ 0.23 $ 0.22 $ 0.14
======= ======= ======= =======
Diluted $ 0.19 $ 0.22 $ 0.21 $ 0.14
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
--------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $ 4,981 $ 4,971 $ 5,348 $ 5,764
Interest expense 2,995 3,034 3,322 3,569
------- ------- ------- -------
Net interest income 1,986 1,937 2,026 2,195
Provision for loan losses 60 60 60 60
Non-interest income 61 215 68 84
Non-interest expenses 1,272 1,307 1,348 1,477
Income taxes 270 316 229 257
------- ------- ------- -------
Net income $ 445 $ 469 $ 457 $ 485
======= ======= ======= =======
Net income per common share:
Basic $ 0.18 $ 0.20 $ 0.19 $ 0.21
======= ======= ======= =======
Diluted $ 0.17 $ 0.19 $ 0.19 $ 0.20
======= ======= ======= =======
</TABLE>
57
<PAGE>
LITTLE FALLS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
20. IMPACT OF RECENT ACCOUNTING STANDARDS
- ----------------------------------------------
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities". Statement No. 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statements of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. The accounting for changes in the fair value of a derivative (that
is, gains and losses) depends on the intended use of the derivative and the
resulting designation.
At the date of initial application of Statement No. 133, an entity may transfer
any held-to-maturity security into the available-for-sale category or the
trading category. An entity will then be able in the future to designate a
security transferred into the available-for-sale category as the hedged item, or
its variable interest payments as the cash flow hedged transactions, in a hedge
of the exposure to changes in market interest rates, changes in foreign currency
exchange rates, or changes in the overall fair value. (Statement No. 133
precludes a held-to-maturity security from being designated as the hedged item
in a fair value hedge of market interest rate risk or the risk of changes in its
overall fair value and precludes the variable cash flows of a held-to-maturity
security from being designated as the hedged transaction in a cash flow hedge of
market interest rate risk). Statement No. 133 provides that such transfers from
the held-to-maturity category at the date of initial adoption shall not call
into question an entity's intent to hold other debt securities to maturity in
the future.
Statement No. 133 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999, the quarter ended March 31, 2000 for the Company
and Bank. Initial application shall be as of the beginning of an entity's fiscal
quarter. Earlier application of all of the provisions of Statement No. 133 is
permitted only as of the beginning of a fiscal quarter. Earlier application of
selected provisions or retroactive application of provisions of Statement No.
133 are not permitted.
Management of the Company and Bank has not yet determined when Statement No. 133
will be implemented, but does not believe the ultimate implementation of
Statement No. 133 will have a material impact on their consolidated financial
position or results of operations.
58
<PAGE>
Board of Directors of Little Falls Bancorp, Inc.
and
Little Falls Bank
Albert J. Weite, Chairman of the Board Edward J. Seugling, Vice Chairman of
Leonard G. Romaine (Bank only) the Board
John P. Pullara Raoul G. Barton
George Kuiken
Norman A. Parker
Executive Officers of Little Falls Bancorp, Inc.
and/or
Little Falls Bank
Leonard G. Romaine Richard A. Capone Anne Bracchitta
President Chief Financial Officer and Treasurer Secretary
Michael J. Allen Mary Denise Hopper
Vice President Vice President
------------------------------------------------
Corporate Counsel: Independent Auditors:
Vincent Marino Radics & Co., LLC
86 Main Street 55 US Highway #46
Little Falls, New Jersey 07424 Pine Brook, New Jersey 07058
Special Counsel: Transfer Agent and Registrar:
Malizia, Spidi, Sloane & Fisch, P.C. Chase Mellon Shareholder
One Franklin Square Services, L.L.C.
1301 K Street, N.W., Suite 700 East 4 50 West 33rd Street
Washington, D.C. 20005 New York, New York 10001-2697
------------------------------------------------
The Company's Annual Report for the Year Ended December 31, 1998 filed
with the Securities and Exchange Commission on Form 10-K without
exhibits is available without charge upon written request. For a copy
of the Form 10-K or any other investor information, please write the
Secretary of the Company at 86 Main Street, Little Falls, New Jersey.
Copies of any exhibits to the Form 10-K are available at cost.
59
<PAGE>
OFFICE LOCATIONS
LITTLE FALLS BANCORP, INC.
86 Main Street
Little Falls, New Jersey 07424
(973) 256-6100
LITTLE FALLS BANK
Main Office
86 Main Street
Little Falls, New Jersey 07424
(973) 256-6100
Branch Offices
West Paterson
Route 46 & McBride Avenue
West Paterson, New Jersey 07424
Spruce Run
220 Main Street
Glen Gardner, New Jersey 08826
Milford
34 Bridge Street
Milford, New Jersey 08848
Alexandria
636 Milford-Frenchtown Road
Alexandria Township, New Jersey 08848
Kingwood
Route 12 and 519
Baptistown, New Jersey 08825
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
(i) Limitation of Liability of Directors and Officers. Section
14A:2-7(3) of the New Jersey Business Corporation Act permits a corporation to
provide in its Certificate of Incorporation that a director or officer shall not
be personally liable to the corporation or its shareholders for breach of any
duty owed to the corporation or its shareholders, except that such provision
shall not relieve a director or officer from liability for any breach of duty
based upon an act or omission (a) in breach of such person's duty of loyalty to
the corporation or its shareholders, (b) not in good faith or involving a
knowing violation of law or (c) resulting in receipt by such person of any
improper personal benefit. HUBCO's Certificate of Incorporation includes
limitations on the liability of officers and directors to the fullest extent
permitted by New Jersey law.
(ii) Indemnification of Directors, Officers, Employees and Agents.
Under Article X of its Certificate of Incorporation, HUBCO must, to the fullest
extent permitted by law, indemnify its directors, officers, employees and
agents. Section 14A:3-5 of the New Jersey Business Corporation Act provides that
a corporation may indemnify its directors, officers, employees and agents
against judgments, fines, penalties, amounts paid in settlement and expenses,
including attorneys' fees, resulting from various types of legal actions or
proceedings if the actions of the party being indemnified meet the standards of
conduct specified therein. Determinations concerning whether or not the
applicable standard of conduct has been met can be made by (a) a disinterested
majority of the Board of Directors, (b) independent legal counsel, or (c) an
affirmative vote of a majority of shares held by the shareholders. No
indemnification is permitted to be made to or on behalf of a corporate director,
officer, employee or agent if a judgment or other final adjudication adverse to
such person establishes that his acts or omissions (A) were in breach of his
duty of loyalty to the corporation or its shareholders, (B) were not in good
faith or involved a knowing violation of law or (C) resulted in receipt by such
person of an improper personal benefit.
(iii) Insurance. HUBCO's directors and officers are insured against
losses arising from any claim against them such as wrongful acts or omissions,
subject to certain limitations.
Item 21. Exhibits and Financial Statement Schedules.
A. Exhibits
Exhibit
Number Description
2(a) Agreement and Plan of Merger, dated as of January 26, 1999, by and
among HUBCO, Inc. ("HUBCO"), Hudson United Bank (the "Bank"), Little
Falls Bancorp, Inc. ("Little Falls") and Little Falls Bank (the
"Association") (included as Appendix A to the Proxy Statement). *
2(b) Stock Option Agreement, dated as of January 26, 1999, by and between
HUBCO and Little Falls (included as Appendix B to the Proxy Statement).
*
5 Opinion of Pitney, Hardin, Kipp & Szuch as to the legality of the
securities to be registered.
8 Opinion of Pitney, Hardin, Kipp & Szuch as to certain tax consequences
of the Merger.
23(a) Consent of Radics & Co., LLC.
23(b) Consent of Arthur Andersen LLP.
23(c) Consent of FinPro, Inc.
23(d) Consent of Pitney, Hardin, Kipp & Szuch (included in Exhibits 5 and 8
hereto).
99(a) Form of Proxy Card
99(b) Form of Election
- -------------------------
* Included elsewhere in this registration statement.
** Incorporated by reference.
B. Report, Opinion or Appraisals
Form of Fairness Opinion of FinPro, Inc. is included as Appendix C to
the Proxy Statement-Prospectus.
Item 22. Undertakings
1. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
2. The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
3. The registrant undertakes that every prospectus (i) that is filed pursuant to
paragraph 2 immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a) (3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
4. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
5. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
6. Subject to appropriate interpretation, the undersigned registrant hereby
undertakes to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
7. The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 and Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
8. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
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 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
9. That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
10. To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Mahwah,
State of New Jersey, on the 23rd day of March, 1999.
HUBCO, INC.
By: KENNETH T. NEILSON
-------------------
Kenneth T. Neilson,
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Chairman, President, Chief
Executive Officer and Director
KENNETH T. NEILSON (Principal Executive Officer) March 23, 1999
- ---------------------------------------
(Kenneth T. Neilson)
ROBERT J. BURKE Director March 23, 1999
- ---------------------------------------
(Robert J. Burke)
Director March ___, 1999
- ---------------------------------------
(Donald P. Calcagnini)
Director March ___, 1999
- ---------------------------------------
(Joan David)
NOEL DECORDOVA, JR. Director March 23, 1999
- ---------------------------------------
(Noel deCordova, Jr.)
THOMAS R. FARLEY
- --------------------------------------- Director March 23, 1999
(Thomas R. Farley)
BRYANT D. MALCOLM
- ---------------------------------------
(Bryant D. Malcolm) Director March 23, 1999
W. PETER McBRIDE Director March 23, 1999
- ---------------------------------------
(W. Peter McBride)
CHARLES F.X. POGGI Director March 23, 1999
- ---------------------------------------
(Charles F.X. Poggi)
DAVID A. ROSOW Director March 23, 1999
- ---------------------------------------
(David A. Rosow)
JAMES E. SCHIERLOH Director March 23, 1999
- ---------------------------------------
(James E. Schierloh)
SISTER GRACE FRANCES STRAUBER Director March 23, 1999
- ---------------------------------------
(Sister Grace Frances Strauber)
JOHN H. TATIGIAN, JR. Director March 23, 1999
- ---------------------------------------
(John H. Tatigian, Jr.)
Executive Vice President and
JOSEPH F. HURLEY Chief Financial Offer March 23, 1999
- ---------------------------------------
(Joseph F. Hurley)
RICHARD ALBAN Controller March 23, 1999
- ---------------------------------------
(Richard Alban)
</TABLE>
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
2(a) Agreement and Plan of Merger, dated as of January 26, 1999, by and
among HUBCO, Inc. ("HUBCO"), Hudson United Bank (the "Bank"), Little
Falls Bancorp, Inc. ("Little Falls") and Little Falls Bank (the
"Association") (included as Appendix A to the Proxy Statement). *
2(b) Stock Option Agreement, dated as of January 26, 1999, by and between
HUBCO and Little Falls (included as Appendix B to the Proxy Statement).
*
5 Opinion of Pitney, Hardin, Kipp & Szuch as to the legality of the
securities to be registered.
8 Opinion of Pitney, Hardin, Kipp & Szuch as to certain tax consequences
of the Merger.
23(a) Consent of Radics & Co., LLC.
23(b) Consent of Arthur Andersen LLP.
23(c) Consent of FinPro, Inc.
23(d) Consent of Pitney, Hardin, Kipp & Szuch (included in Exhibits 5 and 8
hereto).
99(a) Form of Proxy Card
99(b) Form of Election
- -------------------------
* Included elsewhere in this registration statement.
** Incorporated by reference.
EXHIBIT 5
Pitney, Hardin, Kipp & Szuch
200 Campus Drive
Florham Park, New Jersey 07932
March 23, 1999
HUBCO, Inc.
1000 MacArthur Boulevard
Mahwah, New Jersey 07430
Re: Merger of HUBCO, Inc. and Little Falls Bancorp
We have acted as counsel to HUBCO, Inc. ("HUBCO") in connection with
its proposed issuance of its no par value common stock (the "Common Stock"),
pursuant to the Agreement and Plan of Merger among HUBCO, Hudson United Bank,
Little Falls Bancorp and Little Falls Bank dated as of January 26, 1999. The
Common Stock is being registered pursuant to a Registration Statement on Form
S-4 (the "Registration Statement") being filed with the Securities and Exchange
Commission on the date hereof.
We have examined originals, or copies certified or otherwise identified
to our satisfaction, of the Certificate of Incorporation and By-laws of HUBCO
currently in effect, relevant resolutions of the Board of Directors of HUBCO,
and such other documents as we deemed necessary in order to express the opinion
hereinafter set forth.
Based on the foregoing and assuming that the Registration Statement has
been declared effective under the Securities Act of 1933, as amended, we are of
the opinion that when issued as described in the Registration Statement,
including the Prospectus relating to the Common Stock (the "Prospectus"), the
Common Stock will be legally issued, fully paid and non-assessable.
We consent to use of this opinion as an Exhibit to the Registration
Statement and to the reference to this firm under the heading "Legal Opinion" in
the Prospectus. In giving such consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933 or the rules of the SEC thereunder.
Very truly yours,
PITNEY, HARDIN, KIPP & SZUCH
EXHIBIT 8
Pitney, Hardin, Kipp & Szuch
200 Campus Drive
Florham Park, New Jersey 07932
March 23, 1999
HUBCO, Inc.
1000 MacArthur Boulevard
Mahwah, New Jersey 07430
Attn: Kenneth T. Neilson, Chairman, President and
Chief Executive Officer
Little Falls Bancorp, Inc.
86 Main Street
Little Falls, New Jersey 07424
Attn: Leonard G. Romaine, President
Re: Merger of Little Falls Bancorp, Inc. into HUBCO, Inc.
Gentlemen:
We have represented HUBCO, Inc. ("HUBCO"), a New Jersey
corporation which is a registered bank holding company, and Hudson United Bank
(the "Bank"), a New Jersey chartered commercial bank which is a wholly owned
subsidiary of HUBCO, in connection with the proposed merger of Little Falls
Bancorp, Inc. ("Little Falls"), a New Jersey corporation which is a registered
bank holding company, into HUBCO (the "Merger"). The Merger shall be effected
pursuant to the provisions of an Agreement and Plan of Merger dated as of
January 26, 1999 (the "Merger Agreement") by and among HUBCO, the Bank, Little
Falls and Little Falls Bank (the "Savings Bank"), a federally chartered savings
bank which is a wholly owned subsidiary of Little Falls. The within opinion is
delivered pursuant to Section 6.1(d) of the Merger Agreement. Capitalized terms
used herein not otherwise defined shall have the meanings ascribed to such terms
in the Merger Agreement.
Pursuant to the Merger Agreement, at the Effective Time the
Merger shall be effected by the merger of Little Falls into HUBCO pursuant to
New Jersey law, with HUBCO surviving. Each share of Little Falls Common Stock
shall be converted, at the election of the holder of such share, into the right
to receive either $20.64 in cash or shares of HUBCO Common Stock with a minimum
Exchange Ratio of .600 and a maximum Exchange Ratio of .700; provided, however,
pursuant to the Merger Agreement such elections will be adjusted as necessary to
assure that the aggregate number of shares of Little Falls Common Stock which
shall be converted into cash shall equal not more than 49% of the number of
shares of Little Falls Common Stock outstanding immediately prior to the
Effective Time, and the aggregate number of shares of Little Falls Common Stock
which shall be converted into HUBCO Common Stock shall equal not less than 51%
of the number of such shares outstanding immediately prior to the Effective
Time. Notwithstanding the foregoing, no fractional shares of HUBCO Common Stock
shall be issued, and in lieu thereof, any holder of Little Falls Common Stock
who otherwise would be entitled to receive a fractional share will receive cash
equal to the value of such fractional share.
At the Effective Time, unexercised stock options pertaining to
Little Falls Common Stock shall be converted into options to purchase shares of
HUBCO Common Stock.
You have delivered certificates in which you have made factual
representations in regard to the Merger and have authorized us to rely on such
representations in expressing the within opinions. As counsel to HUBCO, we have
examined those certificates, the Merger Agreement and copies of ancillary
agreements, certificates, instruments and documents pertaining to the Merger
delivered by the parties thereto. In such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to
us. As to any facts material to our opinions expressed herein, we have relied on
representations of the parties to the Merger and the bank Merger without
undertaking to verify the same by independent investigation. The within opinions
are based on our analysis of the Code, Treasury Regulations promulgated
thereunder, and relevant interpretive authorities as in effect on the date
hereof.
Based on the foregoing, we are of the opinion that:
1. The Merger will be treated for federal income tax purposes
as a "reorganization" qualifying under Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"). (Hereafter, "Section" references shall be
references to Sections of the Code.).
2. No gain or loss will be recognized by HUBCO or Little Falls
in connection with the Merger. Sections 361(a) and 1032.
3. Little Falls shareholders who receive HUBCO Common Stock in
the Merger will not recognize any gain or loss for federal income tax purposes
upon the exchange in the Merger of shares of Little Falls Common Stock solely
for HUBCO Common Stock. Section 354(a).
4. Little Falls shareholders receiving cash in lieu of
fractional shares of HUBCO Common Stock will be treated as if such fractional
shares had been received from HUBCO and then subsequently redeemed by HUBCO. The
cash received by the Little Falls shareholder in lieu of fractional shares will
be treated as having been received as full payment in exchange for the
fractional shares deemed to have been redeemed as provided in Section 302 (a).
Accordingly, such shareholders will recognize gain or loss on the receipt of
such cash measured by the difference between the amount of such cash and the
respective adjusted basis of such shareholders in their fractional shares of
HUBCO Common Stock considered to have been redeemed.
5. The basis of any HUBCO Common Stock received by a
shareholder of Little Falls in connection with the Merger (including the basis
of any fractional share interest in HUBCO Common Stock) will be the same as the
basis of the shares of Little Falls common stock surrendered in exchange
therefor. Section 358(a).
6. The holding period of the HUBCO Common Stock received by
the shareholders of Little Falls in connection with the Merger will include the
period during which their Little Falls Common Stock converted in the Merger was
held, provided such stock was held as a capital asset on the date of the Merger.
Section 1223(l).
7. In the case of shareholders of Little Falls whose Little
Falls Common Stock is converted solely into cash in connection with the Merger,
gain or loss shall be recognized, measured by the difference, if any, between
the shareholder's adjusted basis in his Little Falls Common Stock and the amount
of cash into which such stock is converted. In the case of shareholders of
Little Falls whose Little Falls Common Stock is converted partly into cash and
partly into HUBCO Common Stock in connection with the Merger, gain (but not
loss), if any, shall be recognized, but in an amount not in excess of the amount
of the cash received. In the case of Little Falls shareholders who recognize
gain upon the conversion of their Little Falls Common Stock into cash and in
whose hands such Common Stock was a capital asset on the Effective Date, such
gain shall be treated as capital gain (long-term or short-term, depending on the
shareholders' respective holding periods for their Little Falls Common Stock),
except in the case of any stockholder as to which the conversion has the effect
of a distribution of a dividend within the meaning of Section 356(a)(2).
The opinions expressed herein are delivered to you solely in
connection with and for the purposes of the transactions contemplated by the
Merger Agreement, and are not to be relied upon by any other person, quoted in
whole or in part, or otherwise referred to (except in a list of closing
documents), nor are they to be provided to any other person without our prior
written consent. Notwithstanding the foregoing sentence, we consent to the
filing with the SEC of this letter as an exhibit to the Registration Statement
on Form S-4 of which the Proxy Statement is a part, and to the reference to our
firm under the heading "Federal Income Tax Consequences" contained therein. In
giving such consent, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 or the
rules of the SEC thereunder.
Very truly yours,
PITNEY, HARDIN, KIPP & SZUCH
EXHIBIT 23(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference into the
Registration Statement on Form S-4 HUBCO, Inc. of our report in regard to Little
Falls Bancorp, Inc. (the "Company"), which is dated January 22, 1999, except for
the last two paragraphs of Note 2, as to which the date is January 26, 1999, and
is included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. Additionally, we hereby consent to the references to our firm
under the headings "Experts" in the Registration Statement.
RADICS & CO., LLC
Pine Brook, New Jersey
March 22, 1999
EXHIBIT 23(b)
INDEPENDENT ACCOUNTANTS' CONSENT
As independent public accountants, we hereby consent to the
incorporation by reference in this Registration Statement on Form S-4 of our
report dated January 12, 1999 included in HUBCO's Annual Report on Form 10-K and
to all references to our firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 23, 1999
EXHIBIT 23(c)
CONSENT OF FINPRO, INC.
We hereby consent to the use of our firm's name in the Form S-4 Registration
Statement of HUBCO and amendments thereto relating to the registration of shares
of HUBCO common stock to be used in connection with the proposed acquisition of
Little Falls Bancorp. We also consent to the inclusion of our opinion letter as
an Appendix to the Proxy Statement-Prospectus included as part of the Form S-4
Registration Statement, and to the references to our opinion included in the
Proxy Statement-Prospectus.
FINPRO, INC.
Date: March 23, 1999
EXHIBIT 99(a)
LITTLE FALLS BANCORP, INC
86 MAIN STREET
LITTLE FALLS, NEW JERSEY
SPECIAL MEETING OF STOCKHOLDERS
April 27, 1999
The undersigned hereby appoints the Board of Directors of Little Falls
Bancorp, Inc. ("Little Falls"), or its designee, with full powers of
substitution, to act as attorneys and proxies for the undersigned, to vote all
shares of capital stock of Little Falls which the undersigned is entitled to
vote at the Special Meeting of Stockholders ("Meeting"), to be held at The
Bethwood, 38 Lackawanna Avenue, Totowa, New Jersey, on April 27, 1999 at 1:00
p.m. local time, and at any and all adjournments thereof, as follows:
1. To consider and vote upon a proposal to approve an Agreement
and Plan of Merger, dated January 26, 1999 (the "Agreement")
among HUBCO, Inc. ("HUBCO"), a New Jersey corporation and
registered bank holding company, Hudson United Bank (the
"Bank"), a New Jersey state-chartered commercial banking
corporation and wholly-owned subsidiary of HUBCO, Little Falls
Bancorp, Inc., a New Jersey corporation and registered savings
and loan holding company ("Little Falls"), and Little Falls
Bank, a federally-chartered savings bank and wholly-owned
subsidiary of Little Falls. Pursuant to the Agreement, Little
Falls will be merged with and into HUBCO with HUBCO surviving
and Little Falls shareholders receiving the consideration set
forth in the Agreement. Immediately after the merger of Little
Falls into HUBCO, Little Falls Bank shall be merged with and
into the Bank with the Bank surviving.
FOR AGAINST ABSTAIN
| | | | | |
2. In their discretion, upon such other matters as may properly come before
the meeting.
The Board of Directors recommends a vote "FOR" the above listed
proposition.
THIS SIGNED PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS SIGNED PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY
OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS SIGNED PROXY WILL BE VOTED BY
THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD
OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting, or
at any adjournments thereof, and after notification to the Secretary of Little
Falls at the Meeting of the stockholder's decision to terminate this proxy, the
power of said attorneys and proxies shall be deemed terminated and of no further
force and effect. The undersigned may also revoke this proxy by filing a
subsequently dated proxy or by notifying the Secretary of Little Falls of his or
her decision to terminate this proxy.
The undersigned acknowledges receipt from Little Falls prior to the
execution of this proxy of Notice of the Meeting, a Proxy Statement/Prospectus
dated March __, 1999, and an Election Form/Letter of Transmittal.
Please check here if you
plan to attend the Meeting |_|
Dated: , 1999
- ------------------------------- -------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
- ------------------------------- -------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this Proxy card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
EXHIBIT 99(b)
FORM OF ELECTION / LETTER OF TRANSMITTAL
For use by shareholders of Little Falls
Bancorp, Inc. In connection with the merger of
Little Falls with HUBCO, Inc.
Please read the instructions carefully
You must use this form:
* To tell the Exchange Agent whether you prefer to receive stock or
cash in the merger in exchange for your Little Falls Bancorp
common stock.
* To submit your Little Falls stock certificate.
If you fail to submit this form by the deadline described below, or if
you fail to enclose your Little Falls stock certificate with this form, you will
be treated as though you expressed no preference between cash and stock.
The deadline for submission of this form is 5:00 p.m. on the date that
is three business days prior to the day on which Little Falls is merged into
HUBCO. At the time this form is being sent to you, HUBCO and Little Falls
anticipate that the merger will close on May 14, 1999 and the deadline for
submission will be 5:00 p.m. on May 11, 1999. Once HUBCO and Little Falls know
the closing date for certain, they will mail you a notice to tell you the
deadline. To ensure that you meet the deadline, you may want to submit this form
and your stock certificate earlier. We will permit you to revoke the form and we
will return your stock certificate to you if you notify the Exchange Agent in
writing prior to the deadline.
To meet the deadline, you must properly complete this form and cause it
to be delivered by the deadline, along with your stock certificates and any
other documents noted in the instructions below, to the Exchange Agent at the
address shown below. If this document is delivered to any address other than the
one shown below, it will not be a valid delivery. The Exchange Agent can not be
responsible for documents delivered to the wrong address.
----------------------
The Exchange Agent is:
HUDSON UNITED BANK, TRUST DEPARTMENT
455 Prospect Avenue
West Orange, New Jersey 07052
Attn: Janet Gerrity
Telephone: (973) 243-8982
----------------------
<PAGE>
YOU MUST COMPLETE BOXES A, B and D
To the Exchange Agent:
This document is being delivered to you in connection with the merger
of Little Falls Bancorp, Inc. with HUBCO, Inc.
I hereby surrender the stock certificates identified in Box A. I have
indicated below my preference to receive either cash or HUBCO common stock in
the merger in exchange for the shares represented by those certificates. I
understand that HUBCO may override my election if necessary to maintain an
agreed upon ratio of cash to stock consideration in the merger.
(Check only one of the following 3 choices):
__ I prefer to receive cash.
__ I prefer to receive HUBCO common stock.
__ I express no preference between cash and HUBCO common stock.
By signing below, I certify that this election covers all of the shares
of Little Falls common stock registered in my name and either (1) beneficially
owned by me or (2) owned by me in a representative or fiduciary capacity for a
particular beneficial owner. This election is subject to the terms and
conditions set forth in the Proxy Statement-Prospectus dated March __, 1999
furnished to the shareholders of Little Falls in connection with the Little
Falls/HUBCO merger. I acknowledge receiving a copy of that Proxy
Statement-Prospectus. I understand that I can obtain additional copies from the
Exchange Agent if I wish.
You should refer to the tax issues addressed in the Proxy
Statement-Prospectus before making your election.
BOX A
- --------------------------------------------------------------------------------
CERTIFICATE INFORMATION
List below the Little Falls stock certificates to which this document relates.
(Attach additional sheets if necessary)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------- ---------------------------------- -------------------------------
Name and Address of Registered Holder(s) Certificate Number Number of Shares
As Shown on the Share Records Represented by
(Please fill in, if blank) Each Certificate
- ---------------------------------------------------------------- ---------------------------------- -------------------------------
<S> <C> <C>
---------------------------------- -------------------------------
---------------------------------- -------------------------------
---------------------------------- -------------------------------
---------------------------------- -------------------------------
Total Shares :
- ---------------------------------------------------------------- ---------------------------------- -------------------------------
</TABLE>
<PAGE>
CERTIFICATE HOLDER(S) SIGN HERE
I hereby represent and warrant that I have full power and authority to
complete and deliver this document and to deliver for surrender and cancellation
the certificates described in Box A and any other certificates that I have
delivered along with this document. I represent and warrant that the shares
represented by the certificates are free and clear of all liens, restrictions,
charges and encumbrances and are not subject to any adverse claim. If the
Exchange Agent requests, I will execute and deliver any additional documents
necessary or desirable to complete the exchange of the certificates. All
authority that I confer by this document will survive my death or incapacity and
all my obligations hereunder will be binding on my heirs, personal
representatives, successors and assigns. I acknowledge that the certificates
will not be deemed delivered until this document and the accompanying
certificates are actually received by the Exchange Agent. Until then, the risk
of loss and title to the certificates will not pass to the Exchange Agent.
<TABLE>
<CAPTION>
BOX B BOX C
- ------------------------------------------------------------- --------------------------------------------------------
SIGN HERE Complete ONLY if required by Instruction 5.
<S> <C>
(To be completed by all persons surrendering stock SIGNATURE GUARANTEE
certificates and executing this document)
Your signature must be MEDALLION GUARANTEED
- -------------------------------------------------------------- by an elibible financial institution.
(Signature of holder(s))
- -------------------------------------------------------------- NOTE: A notarization by a notary public
(Signature of holder(s)) is not acceptable.
- -------------------------------------------------------------- FOR USE BY FINANCIAL INSTITUIONS ONLY. PLACE
(Signature of holder(s)) MEDALLION GUARANTEE IN SPACE BELOW.
Dated:--------------------------------------------------------
Name(s):------------------------------------------------------
- --------------------------------------------------------------
- --------------------------------------------------------------
Address:------------------------------------------------------
- --------------------------------------------------------------
(Including zip code)
- -----
- -----
Check box if change of address
Phone:-----------------------------------------------
(So the Exchange Agent can contact you in case of questions,
although the Exchange Agent is under no obligation to do so.)
Must be signed by registered holders exactly as names appear on share
certificates or by persons authorized to become registered holders by
documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a
corporation or in any other fiduciary or representative capacity,
please indicate full title. (See Instruction 6).
Title:--------------------------------------------------------
(Other than signatures, please print or type)
- --------------------------------------------------------------- --------------------------------------------------------
</TABLE>
<PAGE>
IMPORTANT TAX INFORMATION
Please provide your social security or other taxpayer identification
number on this substitute form W-9 and certify in the substitute form W-9 that
you are not subject to backup withholding. Failure to complete and return this
form may result in backup withholding of 31% of any cash payments made to you
pursuant to the merger.
<TABLE>
<CAPTION>
BOX D
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE PART I--Please Provide Your TIN in the Social Security Number
FORM W-9 Box at Right and Certify by Signing and OR
Department of the Treasury Dating Below. Employer Identification Number
Internal Revenue Service (See Instruction 9).
Payer's Request for Taxpayer ______________________
Identification Number (TIN)
---------------------------------------------------------------------------------
PART II--Awaiting TIN
/ /
------
For Payees exempt from backup withholding, complete as directed in
Instruction 9.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Certification. Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or the IRS has notified me that I am no longer subject to
backup withholding.
Certification Instructions. You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting of interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item
SIGNATURE: DATE:
- --------------------------------------------------------------------------------
You must complete the following certificate if you checked the Box in part II of
Substitute Form W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate IRS
Center or Social Security Administration Office or (b) I intend to mail or
deliver an application in the near future. I understand that, notwithstanding
that I have checked the box in Part II (and have completed this Certificate of
Awaiting Taxpayer Identification Number), 31% of all reportable payments made to
me will be withheld until I provide a properly certified taxpayer identification
number to the Exchange Agent.
Signature Date
- --------------------------------------------------------------------------------
<PAGE>
SPECIAL PAYMENT AND MAILING INSTRUCTIONS
I understand that the HUBCO stock certificates or payment checks for
cash that will be issued in exchange for the Little Falls stock certificates I
surrender will be issued in the same names as the Little Falls stock
certificates and will be mailed to the address of the registered holders
indicated in Box A, unless I indicate otherwise in Box E or Box F below. If Box
E is completed, my signature must be guaranteed in Box C as described in
Instruction 5.
<TABLE>
<CAPTION>
BOX E BOX F
- ------------------------------------------------------------- --------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS SPECIAL MAILING INSTRUCTIONS
(See Instruction 5) (See Instruction 7)
<S> <C>
TO BE COMPLETED ONLY if the new HUBCO stock certificates or TO BE COMPLETED ONLY if the new
payment checks are to be issued in the name of someone HUBCO stock certificates or payment checks
other than the registered holders listed in Box A. are to be delivered to the registered holders
or someone other than the registered holders at
an address other than the address shown in Box B
ISSUE TO: (or Box A if no address is shown in Box B).
Name:--------------------------------------------------------
MAIL TO:
Address:-----------------------------------------------------
Name:--------------------------------------------
- -------------------------------------------------------------
(street and number) Address:-----------------------------------------
- ------------------------------------------------------------- -------------------------------------------------
(city, state and zip code) (street and number)
- ------------------------------------------------------------- -------------------------------------------------
(Tax Identification or Social Security Number) (city, state and zip code)
(Please print or type) (Please print or type)
- ------------------------------------------------------------- --------------------------------------------------------
</TABLE>
<PAGE>
INSTRUCTIONS
(1) Execution and Delivery. This document, or a copy of it, must be
properly filled in, dated and signed. It must be delivered, together with your
Little Falls stock certificates, to the Exchange Agent at the appropriate
address set forth on the first page of this document.
You may choose any method to deliver this document and your stock
certificates; however, you assume all risk of non-delivery. If you choose to use
the mail, we recommend that you use registered mail, return receipt requested,
and that you properly INSURE all stock certificates. Delivery of stock
certificates will be considered effective and risk of loss and title to stock
certificates will pass only when those stock certificates are actually received
by the Exchange Agent.
The Exchange Agent will mail the new HUBCO stock certificates or
payment checks to which you are entitled, only after:
* you have delivered to the Exchange Agent this form, or a copy of it,
properly completed,
* you have delivered your Little Falls stock certificates to the
Exchange Agent along with this form,
* you have followed the relevant instructions in this document in
completing this form and delivering this form and your stock
certificates to the Exchange Agent, and
* the merger has occurred.
(2) Signatures. Except as otherwise permitted below, you must sign this
Letter of Transmittal exactly the way your name appears on the face of your
Little Falls stock certificates. If the shares are owned by two or more persons,
each one must sign exactly as his or her name appears on the face of the
certificates. If shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this form as there are different registrations of the certificates. If
shares of Little Falls common stock have been assigned by the registered owner,
this document should be signed in exactly the same way as the name of the
assignor appearing on the stock certificates or transfer documents. See
Instructions 5(a) and 5(b).
(3) Resolution of Disputes. Any and all disputes regarding these Forms
of Election/Letters of Transmittal will be resolved by HUBCO and its decision
will be conclusive and binding on all concerned. HUBCO may delegate this
function to the Exchange Agent in whole or in part. HUBCO and the Exchange Agent
each has absolute discretion to reject any and all documents and surrenders of
Little Falls stock certificates that it decides are not in proper form. HUBCO
and the Exchange Agent each has absolute discretion to waive any immaterial
irregularities in any document or in the surrender of any stock certificate. A
Form of Election/Letter of Transmittal will not be considered to have been
submitted, and a Little Falls stock certificate will not be considered to have
been surrendered, until all defects or irregularities have either been waived or
cured.
(4) Issuing Payment Checks and New Certificates in the Same Name. If
all new HUBCO stock certificates or payment checks are to be issued in the name
of the registered holders inscribed on the surrendered stock certificates, the
surrendered stock certificates do not need to be endorsed and the signatures on
this document do not need to be guaranteed. If you need to correct a name or
change a name, but no change in ownership is involved, see Instruction 5(c).
(5) Issuing Payment Checks and New Certificates in Different Names. If
any new HUBCO stock certificates or payment checks are to be issued in the name
of someone other than the registered holders of the surrendered stock
certificates, you must follow the instructions below. Note that in each
circumstance listed below, shareholders must have signatures guaranteed in Box C
and complete Box E.
(a) Endorsement and Guarantee. The surrendered Little Falls stock
certificates must be properly endorsed (or accompanied by appropriate
stock powers properly executed) by the registered holders of those
certificates to the person who is to receive the new HUBCO stock
certificates or payment checks. The signatures of the registered
holders on the endorsement or stock powers must correspond with the
names written upon the face of the Little Falls stock certificates in
every particular instance and must be medallion guaranteed by an
eligible guarantor institution as defined below.
Definition of Eligible Guarantor Institution. The
term "eligible guarantor institution" is defined in Rule
17Ad-15 of the regulations of the Securities and Exchange
Commission. The types of entities listed below typically
qualify as eligible guarantor institutions. If you are not
certain whether a particular institution is an eligible
guarantor institution, you should check with the Exchange
Agent before using that institution to guarantee your
signature.
* Banks;
* Brokers, dealers, municipal securities dealers,
municipal securities brokers, government securities
dealers, and government securities brokers;
* Credit unions;
* National securities exchanges, registered securities
associations, and clearing agencies; and
* Savings associations.
(b) Transferor's Signature. This document must be signed by the
transferor or assignor or his or her agent, and should not be signed by
the transferee or assignee. See Box B. The signature of the transferor
or assignor must be medallion guaranteed by an eligible guarantor
institution in the manner described in Instruction 5(a).
(c) Correction of or Change in Name. For a correction of name or for
a change in name which does not involve a change in ownership, proceed
as follows: For a change in name by marriage, etc., this document
should be signed, e.g., "Mary Doe, now by marriage Mary Jones." For a
correction in name, this document should be signed, e.g., "James E.
Brown, incorrectly inscribed as J. E. Brown." The signature in each
case should be guaranteed in the manner described in Instruction 5(b)
above and Box E should be completed.
You should consult your own tax advisor as to any possible tax
consequences resulting from the issuance of new HUBCO stock certificates or
payment checks in a name different from that of the registered holders of the
surrendered Little Falls stock certificates.
(6) Supporting Evidence. If this document, any stock certificate
endorsement or any stock power is executed by
* an agent,
* an attorney,
* an administrator,
* an executor,
* a guardian,
* a trustee,
* an officer of a corporation on behalf of the corporation, or
* any other person in any fiduciary or representative capacity,
then you must submit documentary evidence of the signer's appointment and
authority to act in that capacity (including court orders and corporate
resolutions when necessary), as well as evidence of the authority of the person
making the execution. The documentary evidence must be in a form that is
satisfactory to the Exchange Agent.
(7) Special Instructions for Delivery by the Exchange Agent. The new
HUBCO stock certificates or payment checks will be mailed to the address of the
registered holders indicated in Box A, unless different instructions are given
in Box F.
(8) Lost, Stolen or Destroyed Certificates. If you are unable to locate
a Little Falls stock certificate, the Exchange Agent will send you additional
documentation that you must complete in order to exchange your lost or destroyed
certificates. There may be a fee to replace lost certificates. The person to
contact regarding lost or destroyed certificates is:
Janet Gerrity
Hudson United Bank, Trust Department
(973) 243-8982.
(9) Federal Income Tax Withholding. Under Federal income tax law, the
Exchange Agent is required to file a report with the IRS disclosing certain cash
payments it makes to holders of Little Falls stock certificates. Unless an
exemption applies, you must provide the Exchange Agent with your correct tax
identification number (your "TIN") on Substitute Form W-9 to avoid "backup
withholding" of Federal income tax on any cash received upon the surrender. The
TIN for an individual is his or her social security number. This document
includes a Substitute Form With-9 as Box D. The Substitute Form W-9 requires
that you certify, under penalties of perjury, that the TIN number provided is
correct and that you are not otherwise subject to backup withholding. If the
correct TIN and certifications are not provided, you may be subject to a $50
penalty which may be imposed by the IRS, and payments made for surrender of
stock certificates may be subject to backup withholding at a rate of 31%. In
addition, if you make a false statement that results in no imposition of backup
withholding, and there was no reasonable basis for making the statement, you may
be subject to a $500 penalty that may also be imposed by the IRS.
Backup withholding is not an additional Federal income tax. Rather, the
Federal income tax liability of a person subject to backup withholding will be
reduced by the amount of the tax withheld. If backup withholding results in an
overpayment of income taxes, a refund may be obtained from the IRS.
<PAGE>
The TIN that must be provided on the Substitute Form W-9 is that of the
registered holders of the stock certificates at the effective time of the Little
Falls/HUBCO merger. The box in Part II of the Substitute Form W-9 may be checked
if the person surrendering the stock certificates has not been issued a TIN and
has applied for a TIN or intends to apply for a TIN in the near future. If the
box in Part II has been checked, the person surrendering the stock certificates
must also complete the Certificate of Awaiting Taxpayer Identification Number in
order to avoid backup withholding. Even though the box in Part II may be checked
(and the Certificate of Awaiting Taxpayer Identification Number may be
completed), the Exchange Agent will withhold 31% on all cash payments with
respect to surrendered stock certificates made before the Exchange Agent has
received a properly certified TIN.
Exempt persons (including, among others, corporations) are not subject
to backup withholding. A foreign individual may qualify as an exempt person by
submitting Form W-8 or a substitute Form W-8, signed under penalties of perjury,
certifying to that person's exempt status. A form of such statement can be
obtained from the Exchange Agent. You should consult your own tax advisor
regarding your qualification for an exemption from backup withholding and the
procedure for obtaining the exemption, or for further guidance in completing the
Substitute Form W-9.
(10) Questions and Requests for Information or Assistance. If you have
any questions or need assistance to complete this document, or you want
additional copies of this document, please contact the Exchange Agent. You may
reach the Exchange Agent:
by telephone at
(973) 243-8982
or
(973) 243-8977
or by writing to
Janet Gerrity,
Hudson United Bank,
455 Prospect Avenue,
West Orange, New Jersey 07052.
