SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the transition period from to
Commission file number 0-11535
CITY NATIONAL BANCSHARES CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2434751
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 Broad Street, 07102
Newark, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (973) 624-0865
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Title of each class
Common stock, par value $10 per share
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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. [ ]
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
The aggregate market value of voting stock held by nonaffiliates of the
Registrant as of March 15, 1998 was approximately $1,312,440.
There were 114,141 shares of common stock outstanding at March 15, 1998.
Documents incorporated by reference:
Certain portions of the definitive Proxy Statement for the 1998 Annual Meeting
of shareholders to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A are incorporated herein by reference in Part III.
<PAGE>
1
Part I
Item 1. Business
Description of business
City National Bancshares Corporation (the "Corporation" or "CNBC") is a New
Jersey corporation incorporated on January 10, 1983. At December 31, 1997, CNBC
had consolidated total assets of $138.9 million, total deposits of $119.7
million and stockholders' equity of $10 million. Its only subsidiary is City
National Bank of New Jersey (the "Bank" or "CNB"), a nationally chartered
commercial bank which commenced operations on June 11, 1973. CNB has one
subsidiary, City National Investments, Inc., an investment company which holds,
maintains and manages investment assets for CNB.
In 1994, the Bank acquired a branch office from the Resolution Trust
Corporation, assuming deposits of $25.2 million, while in 1996, the Bank
acquired a branch office from another financial institution, assuming deposits
of $7.7 million.
CNB is a national banking association chartered in 1973 under the laws of the
United States of America. CNB is minority owned and controlled and therefore
eligible to participate in certain federal government programs. CNB is a member
of the Federal Reserve Bank, the Federal Home Loan Bank and the Federal Deposit
Insurance Corporation. CNB provides a wide range of retail and commercial
banking services through three offices located in northern New Jersey. Deposit
services include savings and checking accounts, certificates of deposit and
money market and retirement accounts. The Bank also provides many forms of small
to medium size business financing, including revolving credit, credit lines,
term loans and all forms of consumer financing, including auto, home equity and
mortgage loans and maintains banking relationships with several major domestic
corporations.
CNB specializes in providing credit and deposit services to businesses and
individuals located within urban areas in New Jersey, particularly in the Newark
area.
The Bank has no trust department.
Competition
The market for banking and bank related services is highly competitive. The Bank
competes with other providers of financial services such as other bank holding
companies, commercial saving banks, savings and loan associations, credit
unions, money market and mutual funds, mortgage companies, and a growing list of
other local, regional and national institutions which offer financial services.
Mergers between financial institutions within New Jersey and in neighboring
states have added competitive pressures. Competition is expected to intensify as
a consequence of interstate banking laws now in effect or that may be in effect
in the future. CNB competes by offering quality products and convenient services
at competitive prices. CNB regularly reviews its products and locations and
considers various branch acquisition prospects.
Management believes that as New Jersey's only African-American owned and
controlled Bank, it has a unique ability to provide commercial banking services
to that segment of the minority community.
Supervision and regulation
The banking industry is highly regulated. The following discussion summarizes
some of the material provisions of the banking laws and regulations affecting
City National Bancshares Corporation and City National Bank of New Jersey.
Bank holding company regulations
CNBC is a bank holding company within the meaning of the Bank Holding Company
Act (the "Act") of 1956, and as such, is supervised by the Board of Governors of
the Federal Reserve System (the "FRB").
The Act prohibits CNBC, with certain exceptions, from acquiring ownership or
control of more than five percent of the voting shares of any company which is
not a bank and from engaging in any business other than that of banking,
managing and controlling banks or furnishing services to subsidiary banks. The
Act also requires prior approval by the FRB of the acquisition by CNBC of more
than five percent of the voting stock of any additional bank. The Act also
restricts the types of businesses, activities, and operations in which a bank
holding company may engage.
The Riegle-Neal Interstate Bank and Branching Efficiency Act of 1994 (the
"Branching Act") significantly changed interstate banking rules. Pursuant to the
Branching Act, a bank holding company will be able to acquire banks in states
other than its home state beginning September 29, 1995, regardless of applicable
state laws.
<PAGE>
2
The Branching Act also authorizes banks to merge across state lines, thereby
creating interstate branches, beginning June 1, 1997. Under such legislation,
each state has the opportunity either to "opt out" of this provision, thereby
prohibiting interstate branching in such states, or to "opt in" at an earlier
time, thereby allowing interstate branching within that state prior to June 1,
1997. Furthermore, a state may "opt-in" with respect to de novo branching,
thereby permitting a bank to open new branches in a state in which the bank does
not already have a branch. Without de novo branching, an out-of-state bank can
enter the state only by acquiring an existing bank.
The New Jersey legislature is presently examining whether it will opt-in with
respect to earlier interstate banking and branching, as well as whether it will
authorize de novo branching and the entry into New Jersey of foreign banks.
Regulation of bank subsidiary
CNB is subject to the supervision of, and to regular examination by the Office
of the Comptroller of the Currency of the United States (the "OCC").
Various laws and the regulations thereunder applicable to CNB impose
restrictions and requirement in many areas, including capital requirements, the
maintenance of reserves, establishment of new offices, the making of loans and
investments, consumer protection and other matters. There are various legal
limitations on the extent to which a bank subsidiary may finance or otherwise
supply funds to its holding company or its non-bank subsidiaries. Under federal
law, no bank subsidiary may, subject to certain limited exceptions, make loans
or extensions of credit to, or investments in the securities of, its parent or
nonbank subsidiaries of its parent (other than direct subsidiaries of such bank)
or, subject to broader exceptions, take their securities as collateral for loans
to any borrower. Each bank subsidiary is also subject to collateral security
requirements for any loans or extension of credit permitted by such exceptions.
CNBC is a legal entity separate and distinct from its subsidiary bank. CNBC's
revenues (on a parent company only basis) result from dividends paid to CNBC by
its subsidiary. Payment of dividends to CNBC by CNB, without prior regulatory
approval, is subject to regulatory limitations. Under the National Bank Act,
dividends may be declared only if, after payment thereof, capital would be
unimpaired and remaining surplus would equal 100% of capital. Moreover, a
national bank may declare, in any one year, dividends only in an amount
aggregating not more than the sum of its net profits for such year and its
retained net profits for the preceding two years. In addition, the bank
regulatory agencies have the authority to prohibit a bank subsidiary from paying
dividends or otherwise supplying funds to a bank holding company if the
supervising agency determines that such payment would constitute an unsafe or
unsound banking practice.
Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"), a depository institution insured by the FDIC can be held liable for
any loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with the default of a commonly controlled FDIC-insured depository
institution or any assistance provided by the FDIC to a commonly controlled
FDIC-insured depository institution in danger of default, or deferred by the
FDIC. Further, under FIRREA, the failure to meet capital guidelines could
subject a banking institution to a variety of enforcement remedies available to
federal regulatory authorities, including the termination of deposit insurance
by the FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
requires each federal banking agency to revise its risk-based capital standards
to ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and the risks of non-traditional activities. In
addition, each federal banking agency has promulgated regulations, specifying
the levels at which a financial institution would be considered "well
capitalized", "adequately capitalized", "undercapitalized", "significantly
undercapitalized", or "critically undercapitalized", and to take certain
mandatory and discretionary supervisory actions based on the capital level of
the institution.
The OCC's regulations implementing these provisions of FDICIA provide that an
institution will be classified as "well capitalized" if it has a total
risk-based capital ratio of at least 10%, has a Tier 1 risk-based capital ratio
of at least 6%, has a Tier 1 leverage ratio of at least 5%, and meets certain
other requirements. An institution will be classified as "adequately
capitalized" if it has a total risk-based capital ratio of at least 8%, has a
Tier 1 risk-based capital ratio of at least 4%, and has Tier 1 leverage ratio of
at least 4%. An institution will be classified as "undercapitalized" if it has a
total risk-based capital ratio of less than 6%, has a Tier 1 risk-based capital
ratio of less than 3%, or has a Tier 1 leverage ratio of less than 3%. An
institution will be classified as "significantly undercapitalized" if it has a
total risk-based capital ratio of less than 6%, or a Tier I risk-based capital
ratio of less than 3%, or a Tier I leverage ratio of less than 3%. An
institution will be classified as "critically undercapitalized" if it has a
tangible equity to total assets ratio that is equal to or less than 2%. An
insured depository institution may be deemed to be in a lower capitalization
category if it receives an unsatisfactory examination.
<PAGE>
3
Insured institutions are generally prohibited from paying dividends or
management fees if after making such payments, the institution would be
"undercapitalized". An "undercapitalized" institution also is required to
develop and submit to the appropriate federal banking agency a capital
restoration plan, and each company controlling such institution must guarantee
the institution's compliance with such plan.
Government policies
The earnings of the Corporation are affected not only by economic conditions,
but also by the monetary and fiscal policies of the United States and its
agencies, especially the Federal Reserve Board. The actions of the Federal
Reserve Board influence the overall levels of bank loans, investments and
deposits and also affect the interest rates charged on loans or paid on
deposits. The monetary policies of the Federal Reserve Board have had a
significant affect on the operating results of commercial banks in the past and
are expected to do so in the future. The nature and impact of future changes in
monetary and fiscal policies on the earnings of the Corporation cannot be
determined.
Employees
On December 31, 1997, CNBC and its subsidiary had 63 full-time equivalent
employees. Management considers relations with employees to be satisfactory.
Item 2. Properties
Properties
The corporate headquarters and main office as well as the operations and data
processing center of CNBC and CNB are located in Newark, New Jersey in a
building owned by CNB. The Bank leases its Hackensack office from the Resolution
Trust Corporation, for which no rent is payable for five years, until 1999, at
which time the Bank will have the opportunity to purchase the property. The Bank
owns the property where its second branch office is located.
Item 3. Legal proceedings
Legal proceedings
There were no material pending legal proceedings to which CNBC of CNB were a
party.
Item 4. Submission of matter to a vote of security holders
Submission of matters to a vote of security holders
During the fourth quarter of 1997, there were no matters submitted to
stockholders for a vote.
Part II
Item 5. Market for the Registrants's Common Equity and relates stockholders
matters
Market for common equity and related stockholder matters
The Corporation's common stock, when publicly traded, is traded
over-the-counter. The common stock is not listed on any exchange and is not
quoted on the National Association of Securities Dealers' Automated Quotation
System. The last customer trade effected by a market maker was unsolicited and
occurred on November 2, 1990. No price quotations are currently published for
the common stock , nor is any market maker executing trades. No price quotations
were published during 1997.
At March 2, 1998, the Corporation had 1,928 common stockholders of record.
On May 2, 1997, the Corporation paid a cash dividend of $1.50 per share to
stockholders of record on April 2, 1997. Whether cash dividends on the common
stock will be paid in the future depends upon various factors, including the
earnings and financial condition of the Bank and the Corporation at the time.
Additionally, federal and state laws and regulations contain restrictions on the
ability of the Bank and the Corporation to pay dividends.
Form 10-K
The annual report filed with the Securities and Exchange Commission on Form 10-K
is available without charge upon written request to City National Bancshares
Corporation, Raul L. Oseguera, Vice President, Stockholder Relations, 900 Broad
Street, Newark, New Jersey, 07102.
Transfer Agent
First City Transfer Company
P.O. Box 170
Iselin, New Jersey 08830
<PAGE>
4
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Five-Year Summary
Dollars in thousands, except per share data 1997 1996 1995 1994 (1) 1993
=================================================================================================================================
Year-end Balance Sheet data:
<S> <C> <C> <C> <C> <C>
Total assets $138,868 $134,951 $114,410 $111,062 $74,786
Total loans 56,947 57,128 44,739 25,563 23,659
Reserve for possible loan losses 825 750 650 625 700
Investment securities 62,360 60,863 55,103 53,751 39,193
Total deposits 119,717 115,854 100,889 103,941 64,435
Long-term debt 3,749 1,749 1,749 249 249
Stockholders' equity 10,032 8,287 6,896 5,588 4,562
=================================================================================================================================
Income Statement data:
Interest income $ 9,571 $ 9,034 $ 7,470 $ 5,596 $ 4,509
Interest expense 4,330 3,802 2,829 2,068 1,469
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income 5,241 5,232 4,641 3,528 3,040
Provision (credit) for possible loan losses 159 91 486 (1,464) (23)
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision (credit)
for possible loan losses 5,082 5,141 4,155 4,992 3,063
Noninterest income 1,199 1,147 1,363 1,375 898
Noninterest expense 4,630 4,839 4,245 3,645 3,019
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income tax expense and cumulative
effect of accounting change 1,651 1,449 1,273 2,722 942
Income tax expense 582 504 471 998 168
- ---------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of
accounting change and extraordinary item 1,069 945 802 1,724 774
Cumulative effect of accounting change - - - - 206
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,069 $ 945 $ 802 $ 1,724 $ 980
=================================================================================================================================
(1) Includes the effects of a $1.6 million recovery of a loan that was charged
off in 1989, which is more fully discussed in "Management's discussion and
analysis of financial condition and results of operations."
Per common share data:
Income before cumulative effect of
accounting change and extraordinary item $ 8.98 $ 8.31 $ 7.22 $ 15.51 $ 7.88
Cumulative effect of accounting change and
extraordinary item - - - - 2.09
Net income per basic share 8.98 8.31 7.22 15.51 9.97
Net income per diluted share 8.11 7.51 6.51 13.90 8.86
Book value 74.34 66.23 62.05 50.28 41.05
Dividends 1.50 1.35 1.25 1.00 N/A
Basic average number of common shares
outstanding 114,141 113,498 111,141 111,141 98,267
Diluted average number of common shares
outstanding 127,991 127,348 124,991 124,991 112,117
Number of common shares outstanding at year-end 114,141 114,141 111,141 111,141 111,141
Financial ratios:
Return on average assets .78% .71% .72% 1.66% 1.20%
Return on average common equity 13.05 13.19 12.71 30.24 25.22
Stockholders' equity as a percentage of total assets 7.22 6.14 6.03 5.03 6.10
Dividend payout ratio 20.30 16.51 17.46 6.45 N/A
</TABLE>
<PAGE>
5
Item 7. Management's discussion and analysis of financial condition and results
of operation
Earnings summary
Net income in 1997 increased $124,000, or 13.1%, to $1,069,000 compared to
$945,000 in 1996. Related earnings per common share on a diluted basis rose to
$8.11 from $7.51. Returns on average common equity and average assets were
13.05% and .78% in 1997 and 13.19% and .71% in 1996.
The primary reason for the improved earnings performance was a 1996 third
quarter assessment of $100,000 paid to the FDIC representing the Bank's share of
replenishing the Savings Association Insurance Fund ("SAIF"), for the purchase
in 1994 of a branch of a failed thrift institution that was SAIF-insured that
did not recur in 1997.
Excluding this assessment, net of tax, earnings from operations rose $58,000 in
1997, up 5.7% from $1,011,000 in 1996 to $1,069,000 in 1997.
Net interest income
Net interest income is the principal source of the Corporation's earnings and
represents the amounts by which the interest and fees earned on loans and other
interest earning assets exceeds the interest paid on the funding sources used to
finance those assets. An analysis of the components of net interest income is
facilitated when the income from tax-exempt investment securities is adjusted to
a taxable equivalent basis, placing tax-exempt assets on a comparable basis with
taxable interest earning assets.
On a fully taxable equivalent ("FTE") basis, net interest income was $5.3
million in 1997 and in 1996, while the related net interest margin decreased to
4.13% from 4.26%. While average interest earning assets rose 3.1% in 1997, the
higher earnings generated from this growth was offset by the decrease in net
interest margin resulting from higher rates paid on funding sources.
Interest income on a FTE basis was $9.6 million in 1997, an increase of
$541,000, or 5.9% compared to 1996. This increase was due primarily to the
higher level of average interest earning assets, which generated an additional
$406,000. Most of the increase in interest earnings assets occurred in the loan
portfolio, which averaged $57.8 million in 1997 compared to $53.5 million in
1996, an increase of 8%. The average yield on interest earning assets rose 20
basis points to 7.50% in 1997, compared to 7.30% in 1996.
Interest expense was $4.3 million in 1997, an increase of $528,000, or 13.9%
from 1996. This increase resulted primarily from higher average rates paid on
interest bearing liabilities, which rose to 3.92% in 1997 compared to 3.51% in
1996, an increase of 41 basis points. Almost all this increase came from higher
average rates paid on time deposits, which rose to 4.57% in 1997 compared to
$4.16% in 1996, an increase of 41 basis points. This growth increase was
attributable to higher balances of certificates of deposit of $100,000 or more,
reflecting the Bank's growing relationship with local municipalities.
Investments
Total investment securities averaged $61.7 million in 1997, a slight increase
from $60.8 million 1996. The activity in the portfolio resulted primarily from
the reinvestment of maturity and call proceeds.
The investment securities available for sale ("AFS") portfolio changed
nominally, from $31 million at December 31, 1996 to $32.7 million a year later,
while the related gross unrealized loss decreased from $108,000 to $14,000,
representing less than .5% of the AFS portfolio's book value at both dates.
The investment securities held to maturity ("HTM") portfolio of $29.7 million at
December 31, 1997 was virtually unchanged from a year earlier.
At December 31, 1997, the Bank held five structured notes with total book and
related market values of $4,250,000 and $4,112,000, reflecting $138,000 of
unrealized depreciation, while a year earlier the structured note portfolio had
a book value of $6,227,000 and related market value of $6,084,000, reflecting a
gross unrealized loss of $143,000. These structured notes consisted of
dual-index and deleveraged notes. The dual index notes are all indexed to a
combination of long and short-term rates, while the deleveraged notes are
indexed to the ten-year Treasury. Accordingly, the value of these securities
could fluctuate depending on interest rate movements. The $1.5 million of dual
index notes mature in 1998, while the $2,749,000 of deleveraged notes mature in
2000.
In September 1994, the Bank transferred certain securities from the AFS to the
HTM portfolio. Immediately prior to the transfer, these securities had a book
value of $6,437,000 and a market value of $5,933,000, resulting in a gross
unrealized loss totalling $504,000, or $302,000 net of tax. This loss is being
amortized by increasing the book value of the related securities over their
remaining maturities.
Finally, at December 31, 1997, the Bank held callable U.S. Government agency
notes with a carrying value of $12.7 million, all which were included in the HTM
portfolio. These notes are callable at various dates from 1998 through 2008.
<PAGE>
6
Management believes that holding either the structured notes or callable
securities will not have a significant impact upon the financial condition or
operations of the Corporation. Information pertaining to the average weighted
yields of investments in debt securities at December 31, 1997 is presented
below. Maturities of mortgaged-backed securities included with U.S. Government
agencies are based on the maturity of the final scheduled payment. Such
securities, which comprise most of the balances shown as maturing beyond five
years, generally amortize on a monthly basis and are subject to prepayment.
Taking into account such contractual amortization and expected prepayments, a
significant amount of principal reduction on the aforementioned securities will
occur within three years:
<TABLE>
<CAPTION>
Investment Securities Available for Sale
Maturing After Maturing After
Maturing One Year But Five Years But
Within Within Within Maturing After
One Year Five Years Ten Years Ten Years Total Total
Dollars in thousands Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 2,751 6.57% $ 2,012 5.80% $ - - % $ - - % $ 4,763 6.24%
U.S. Government agencies 2,321 4.54 3,843 6.20 3,256 7.06 14,868 6.70 24,288 6.46
Obligations of state
political and subdivisions(1) - - - - - - 2,251 7.55 2,251 7.55
Other - - - - 262 7.57 - - 262 7.57
- ---------------------------------------------------------------------------------------------------------------------------------
Total amortized cost $ 5,072 5.64% $ 5,855 6.06% $ 3,518 7.10% $17,119 6.81% $31,564 6.52%
=================================================================================================================================
<FN>
(1) Includes $250,000 of nontax-exempt securities with a 7.60% yield.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Investment Securities Held to Maturity
Maturing After Maturing After
Maturing One Year But Five Years But
Within Within Within Maturing After
One Year Five Years Ten Years Ten Years Total Total
Dollars in thousands Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government agencies $ 1,000 7.04% $10,956 6.14% $12,713 6.72% $ 2,461 5.90% $27,130 6.42%
Obligations of state and
political subdivisions 120 7.96 2,416 6.86 - - - - 2,536 6.91
- ---------------------------------------------------------------------------------------------------------------------------------
Total amortized cost $ 1,120 7.14% $13,372 6.27% $12,713 6.72% $ 2,461 5.90% $29,666 6.46%
=================================================================================================================================
</TABLE>
Average yields are computed by dividing the annual interest, net of premium
amortization and including discount accretion, by the amortized cost of each
type of security outstanding at December 31, 1997. Average yields on tax-exempt
obligations of state and political subdivisions have been computed on a fully
taxable equivalent basis, using the statutory Federal income tax rate of 34%.
The average yield on the AFS portfolio increased from 6.20% in 1996 to 6.52% in
1997 , while the yield on the HTM portfolio rose from 6.36% in 1996 to 6.46% in
1997, reflecting higher yields on securities purchased.
<PAGE>
7
<TABLE>
<CAPTION>
Consolidated Average Balance Sheet with Related Interest and Rates
1997 1996
=================================================================================================================================
Average Average Average Average
Tax equivalent basisdollars in thousands Balance Interest Rate Balance Interest Rate
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest earning assets:
Federal funds sold and securities purchased
under agreements to resell $ 8,073 $ 439 5.43% $ 6,053 $ 317 5.23%
Other short-term investments 742 39 5.32 3,996 215 5.37
Interest-bearing deposits with banks 59 3 5.14 104 5 5.16
Investment securities:
Taxable 1 59,008 3,718 6.30 58,270 3,577 6.14
Tax-exempt 2,722 189 6.95 2,536 176 6.92
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment securities 61,730 3,907 6.33 60,806 3,753 6.17
- ---------------------------------------------------------------------------------------------------------------------------------
Loans 2,3:
Commercial 19,391 1,660 8.56 20,031 1,642 8.20
Real estate 37,684 3,514 9.32 33,104 3,116 9.42
Installment 729 73 9.98 388 46 11.85
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans 57,804 5,247 9.08 53,523 4,804 8.98
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets 128,408 9,635 7.50 124,484 9,094 7.30
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest earning assets:
Cash and due from banks 3,855 4,065
Gross unrealized loss on investment
securities available for sale (83) (164)
Reserve for possible loan losses (806) (724)
Other assets 6,413 4,733
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest earning assets 9,379 7,912
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $137,787 $132,396
=================================================================================================================================
Liabilities and stockholders' equity
Interest bearing liabilities:
Savings deposits 4 $ 31,732 $ 666 2.10 $ 36,427 $ 750 2.06
Time deposits 5 71,343 3,261 4.57 66,420 2,764 4.16
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 103,075 3,927 3.81 102,847 3,514 3.42
Short-term borrowings 3,809 202 5.30 3,620 189 5.21
Long-term debt 3,453 201 5.83 1,749 99 5.69
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 110,337 4,330 3.92 108,216 3,802 3.51
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest bearing liabilities:
Demand deposits 16,294 14,960
Other liabilities 2,150 1,443
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest bearing liabilities 18,444 16,403
- ---------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 9,006 7,777
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $137,787 $132,396
=================================================================================================================================
Net interest income (tax equivalent basis) 5,305 3.58 5,292 3.79
Tax equivalent basis adjustments 6 (64) (60)
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 5,241 $ 5,232
=================================================================================================================================
Average rate paid to fund interest earning assets 3.37 3.06
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income as a percentage of
interest earning assets (tax equivalent basis) 4.13% 4.26%
=================================================================================================================================
<FN>
1 Includes investment securities available for sale and held to maturity
2 Includes nonperforming loans 3 Includes loan fees of $123,000 and $200,000 in 1997 and 1996, respectively
4 Includes noninterest bearing deposits maintained by a state governmental agency of $469,000 in 1997 and 1996
5 Includes noninterest bearing deposits maintained by corporations and U.S. governmental agencies of $10,635,000 in 1997 and
$12,522,000 in 1996
6 The tax equivalent adjustment was computed assuming a 34% statutory federal income tax rate in 1997 and 1996
</FN>
</TABLE>
<PAGE>
8
The table below set forth, on a fully taxable basis, an analysis of the
increase (decrease) in net interest income resulting from the specific
components of income and expenses due to changes in volume and rate. Because of
the numerous simultaneous balance and rate changes, it is not possible to
precisely allocate such changes between balances and rates. Therefore, for
purposes of this table, changes which are not due solely to balance and rate
changes are allocated to rate.
<TABLE>
<CAPTION>
1997 Net Interest Income Increase 1996 Net Interest Income Increase
(Decrease) from 1996 due to (Decrease) from 1995 due to
In thousands Volume Rate Total Volume Rate Total
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Interest income
Loans:
Commercial $ (52) $ 70 $ 18 $ 457 $ (17) $ 440
Real estate 431 (33) 398 797 (46) 751
Installment 40 (13) 27 2 4 6
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans 419 24 443 1,256 (59) 1,197
Taxable investment securities 45 96 141 178 130 308
Tax-exempt investment securities 13 1 14 5 - 5
Federal funds sold and securities
purchased under agreements to resell 106 15 121 62 (24) 38
Other short-term investments (175) (1) (176) 38 (15) 23
Interest-bearing deposits with banks (2) - (2) (4) (1) (5)
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest income 406 135 541 1,535 31 1,566
- ---------------------------------------------------------------------------------------------------------------------------------
Interest expense
Savings deposits 97 (13) 84 8 (33) (25)
Time deposits (205) (292) (497) (751) (85) (836)
Short-term borrowings (10) (3) (13) (47) 14 (33)
Long -term debt (97) (5) (102) (120) 41 (79)
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest expense (215) (313) (528) (910) (63) (973)
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 191 $ (178) $ 13 $ 625 $ (32) $ 593
=================================================================================================================================
</TABLE>
Loans
Total loans averaged $57.8 million in 1997 compared to $53.5 million in 1996, an
increase of 8.0%, while total loans declined slightly at December 31, 1997 to
$56.9 million from a year earlier. The increase in average loans resulted from
greater commercial loan growth and the reduction in loans at year-end was due to
the paydown of syndicated line draw-downs. These lines had draw downs during
1997 and paid off prior to year-end.
Loans originated for sale declined to $1.6 million in 1997 from $3.8 million in
1996, while loans sold decreased to $1.2 million in 1997 from $4.3 million in
1996. Gains and commissions on loan sales declined from $170,000 in 1996 to
$57,000 in 1997.
At December 31, 1997, loans to churches totalled $7.5 million, representing
13.2% of total loans outstanding and are included with real estate loans.
Management does not believe that this loan concentration exposes the Corporation
to any unusual degree of risk.
The Bank generally secures its loans by obtaining primarily first liens on real
estate, both residential and commercial, and does virtually no asset-based
financing. Without additional side collateral, the Bank generally requires
maximum loan-to-value ratios of 70% for loan transactions secured by commercial
real estate.
The Bank's primary market area consists of northern New Jersey, particularly
within the Newark area. Although Newark is undergoing a major renovation, the
city continues to experience a high rate of unemployment. The overall
unemployment rate in the State of New Jersey was 5.1% at the end of 1997
compared to a nationwide rate of 4.9%.
While management believes that its loan portfolio is well secured and able to
withstand a downturn in economic conditions, its effects will be carefully
considered in making credit decisions in 1998.
Management is unaware of any significant potential problem loans at December 31,
1997.
<PAGE>
9
Maturities and interest sensitivities of loans
Information pertaining to maturities and the sensitivity to changes in interest
rates of loans at December 31, 1997 is presented below.
One Year
Due in One Through Due After
In thousands Year or Less Five Years Five Years Total
==============================================================================
Commercial $ 4,012 $ 5,941 $ 9,035 $ 18,988
Real estate:
Construction 604 - - 604
Mortgage 1,498 7,263 27,844 36,605
Installment 57 450 243 750
- -------------------------------------------------------------------------------
Total $ 6,171 $ 13,654 $ 37,122 $ 56,947
===============================================================================
Loans at fixed
interest rates $ 2,386 $ 6,533 $ 7,276 $ 16,195
Loans at variable
Interest rates 3,785 7,121 29,846 40,752
- -------------------------------------------------------------------------------
Total $ 6,171 $ 13,654 $ 37,122 $ 56,947
===============================================================================
Summary of loan loss experience
Changes in the reserve for possible loan losses are summarized below.
Dollars in thousands 1997 1996
===============================================================
Balance, January 1 $ 750 $ 650
- ---------------------------------------------------------------
Charge-offs:
Commercial loans 31 25
Real estate loans 108 65
Installment loans 19 8
- ----------------------------------------------------------------
Total 158 98
- ----------------------------------------------------------------
Recoveries:
Commercial loans 57 20
Real estate loans 5 81
Installment loans 12 6
- ----------------------------------------------------------------
Total 74 107
- ----------------------------------------------------------------
Net (charge-offs) recoveries (84) 9
Provision for possible loan
losses charged to operations 159 91
- -----------------------------------------------------------------
Balance, December 31 $ 825 $ 750
=================================================================
Net charge-offs (recoveries) as a
percentage of average loans .15% (.02)%
Reserve for possible loan losses as
a percentage of loans 1.45 1.31
Reserve for possible loan losses as
a percentage of nonperforming loans 59.10 70.89
=================================================================
The reserve for possible loan losses is maintained at a level determined by
management to be adequate to provide for inherent losses in the loan portfolio.
The reserve is increased by provisions charged to operations and recoveries of
loan charge-offs. The reserve is based on management's evaluation of the loan
portfolio and several other factors, including past loan loss experience, the
credit conditions of the borrower, the value of the underlying collateral,
business and economic conditions and the possibility that there may be inherent
losses in the portfolio which cannot currently be identified.
Net charge-offs comprised .15% of total loans in 1997 while there was a net
recovery in 1996. The reserve for possible loan losses was 1.45% of total loans
at December 31, 1997 compared to 1.31% at December 31, 1996.
<PAGE>
10
Allocation of the reserve for possible loan losses
The reserve for possible loan losses has been allocated based on management's
estimates of the risk elements within the loan categories set forth below at
December 31:
1997 1996
=================================================================
Percentage Percentage
of Loan of Loan
Dollars in thousands Amount Category Amount Category
=================================================================
Commercial $ 348 1.85% $ 250 1.27%
Real estate 382 1.01 376 1.00
Installment 12 1.62 12 2.71
Unallocated 83 - 112 -
- -----------------------------------------------------------------
Total $ 825 1.45% $ 750 1.31%
=================================================================
Nonperforming assets
Information pertaining to nonperforming assets at December 31 is summarized
below:
In thousands 1997 1996
=================================================================
Nonperforming loans
Commercial $ 614 $ 437
Real estate 781 617
Installment 1 4
- -----------------------------------------------------------------
Total nonperforming loans 1,396 1,058
Other real estate owned 415 672
- -----------------------------------------------------------------
Total $1,811 $1,730
=================================================================
The increase in nonperforming loans in 1997 resulted primarily from the addition
of a commercial loan that is 70% guaranteed by the Small Business Administration
and a residential mortgage loan that management considers well-secured.
Total risk elements includes a restructured loan to a commercial borrower
totalling $1.3 million, along with a $100,000 working capital loan to the same
borrower. The $1.3 million commercial mortgage loan is currently performing in
accordance with its modified terms while the working capital loan is currently
performing in accordance with its original terms (See Note 6).
Deposits
Total deposits rose from $115.9 million at December 31, 1996 to $119.7 million a
year later, while average deposits rose 1.3%, from $117.8 million in 1996 to
$119.4 million in 1997. While total deposits did not change significantly from
1996 to 1997, the deposit components experienced larger fluctuations,
particularly at year-end. December 31, 1997 included an $8 million nonrecurring
demand deposit from a U.S. Government agency which was withdrawn on January 2,
1998.
Savings accounts declined during 1997 while time deposits rose due to the
transfer of municipal transaction account balances into longer term deposit
instruments. As a result, the average rate paid on interest bearing deposits
rose from 3.42% in 1996 to 3.81% in 1997.
The Bank's deposit levels may change significantly on a daily basis because
deposit accounts maintained by municipalities represent a significant part of
the Bank's deposits and are more volatile than commercial or retail deposits.
These municipal and U.S. Government accounts represent a substantial part of the
Bank's business, tend to have high balance relationships and comprised most of
the Bank's accounts with balances of $100,000 or more at December 31, 1997.
While local municipalities use the accounts for operating and short-term
investments purposes, the U.S. Government uses noninterest-bearing certificates
of deposit as compensating balances, representing a form of payment for services
provided. All the foregoing deposits require collateralization with readily
marketable U.S. Government securities. While the Bank issues certificates of
deposit to municipalities in amounts of $100,000 at rates which are competitive
with other institutions and somewhat more costly than other sources of deposits,
the overall cost of certificates of deposit of $100,000 or more is reduced by
the maintenance of the foregoing compensating balance accounts.
While the collateral maintenance requirements associated with the Bank's
municipal and U.S. Government account relationships might limit the ability to
readily dispose of investment securities used as such collateral, management
does not foresee any need for such disposal, and in the event of the withdrawal
of any of these deposits, these securities are readily marketable.
Certain corporations and governmental agencies maintain noninterest-bearing
savings and time deposit accounts with the Bank as compensation for services
performed. At December 31, 1997, such balances totalled $469,000 and
$10,635,000, respectively.
<PAGE>
11
Short-term borrowings
Average short-term borrowings rose 5.2% in 1997 because of higher U.S. Treasury
tax and loan note option account balances. The average rate paid for short-term
borrowings increased nine basis points from 5.21% in 1996 to 5.30% in 1997.
Long-term debt
Long-term debt rose from $1,749,000 at December 31, 1996 to $3,749,000 a year
later due to $2 million of Federal Home Loan Bank advances incurred in February,
1997. The average rate paid on long-term debt rose from 5.69% in 1996 to 5.83%
in 1997.
Other operating income
Other operating income increased 4.5%, from $1,147,000 in 1996 to $1,199,000 in
1997. The primary reasons for the increase were higher loan syndication fees,
which rose from $238,000 in 1996 to $283,000 in 1997 and higher earnings from
increased cash surrender value of corporate owned life insurance, which rose
from $3,000 in 1996 to $72,000 in 1997. These increases were partially offset by
lower gains and commissions on loan sales. The syndication fees represent
compensation from large corporations that utilize the Bank to syndicate lines of
credit to other small banks.
Other operating expenses
Other operating expenses, which include expenses other than interest, income
taxes and the provision for possible loan losses, totalled $4.6 million in 1997,
a 4.3% decrease compared to 1996. The primary reason for the decrease was the
nonrecurring $100,000 FDIC SAIF assessment imposed in 1996.
Salaries and other employee benefits remained virtually unchanged in 1997, as
did occupancy and equipment expense.
Other expenses were lower by $199,000 , or 13.2% in 1997 due primarily to the
aforementioned nonrecurring $100,000 FDIC SAIF assessment. Also contributing to
the reduction was lower marketing expense, which declined from $99,000 in 1996
to $38,000 in 1997.
Income tax expense
Income tax expense as a percentage of pre-tax income was 35.3% in 1997 compared
to 34.8% in 1996.
Liquidity
The liquidity position of the Corporation is dependent on the successful
management of its assets and liabilities so as to meet the needs of both deposit
and credit customers. Liquidity needs arise primarily to accommodate possible
deposit outflows and to meet borrowers' requests for loans. Such needs can be
satisfied by investment and loan maturities and payments, along with the ability
to raise short-term funds from external sources.
It is the responsibility of the Asset/Liability Management Committee ("ALCO") to
monitor and oversee all activities relating to liquidity management and the
protection of net interest income from fluctuations in interest rates.
The Bank depends primarily on deposits as a source of funds and also provides
for a portion of its funding needs through short-term borrowings, such as
Federal Funds purchased, securities sold under repurchase agreements and
borrowings under the U.S. Treasury tax and loan note option program.
The major contribution during 1997 from operating activities to the
Corporation's liquidity came from net income while a decrease in accrued
expenses and other liabilities described in Note 10 to the Financial Statements
was the primary use of cash for operating activities.
Net cash used in investing activities was primarily the result of the purchase
of investment securities available for sale, which totalled $42.6 million, while
sources of cash provided by investing activities were derived primarily from
proceeds from maturities, principal payments and early redemptions of investment
securities available for sale, amounting to $41 million.
The primary sources of funds from financing activities resulted from an increase
in deposits of $3.9 million along with the sale of $2 million of preferred
stock, while a $962,000 decrease in short-term borrowings comprised the largest
use of funds.
Effects of inflation
Inflation, as measured by the CPI, declined to 2% in 1997 compared to 2.8% in
1996 and 2.8% in 1995.
<PAGE>
12
The asset and liability structure of the Corporation and subsidiary bank differ
from that of an industrial company since its assets and liabilities fluctuate
over time based upon monetary policies and changes in interest rates. The growth
in earning assets, regardless of the effects of inflation, will increase net
income if the Corporation is able to maintain a consistent interest spread
between earning assets and supporting liabilities. In an inflationary period,
the purchasing power of these net monetary assets necessarily decreases.
However, changes in interest rates may have a more significant impact on the
Corporation's performance than inflation. While interest rates are affected by
inflation, they do not necessarily move in the same direction, or in the same
magnitude as the prices of other goods and services.
The impact of inflation on the future operations of the Corporation should not
be viewed without consideration of other financial and economic indicators, as
well as historical financial statements and the preceding discussion regarding
the Corporation's liquidity and asset and liability management.
Interest rate sensitivity
The management of interest rate risk is also important to the profitability of
the Corporation. Interest rate risk arises when an earning asset matures or when
its interest rate changes in a time period different from that of a supporting
interest bearing liability, or when an interest bearing liability matures or
when its interest rate changes in a time period different from that of an
earning asset that it supports. While the Corporation does not match specific
assets and liabilities, total earning assets and interest bearing liabilities
are grouped to determine the overall interest rate risk within a number of
specific time frames.
Interest sensitivity analysis attempts to measure the responsiveness of net
interest income to changes in interest rate levels. The difference between
interest sensitive assets and interest sensitive liabilities is referred to as
interest sensitive gap. At any given point in time, the Corporation may be in an
asset-sensitive position, whereby its interest-sensitive assets exceed its
interest-sensitive liabilities or in a liability-sensitive position, whereby its
interest-sensitive liabilities exceed its interest-sensitive assets, depending
on management's judgment as to projected interest rate trends.
One measure of interest rate risk is the interest-sensitivity analysis, which
details the repricing differences for assets and liabilities for given periods.
The primary limitation of this analysis is that it is a static (i.e., as of a
specific point in time) measurement which does not capture risk that varies
nonproportionally with changes in interest rates. Because of this limitation,
the Corporation uses a simulation model as its primary method of measuring
interest rate risk. This model, because of its dynamic nature, forecasts the
effects of different patterns of rate movements on the Corporation's mix of
interest sensitive assets and liabilities.
<PAGE>
13
The following table presents the Corporation's interest rate sensitivity
position at December 31, 1997 categorized by anticipated repricing frequency.
Interest Rate Sensitivity Analysis
<TABLE>
<CAPTION>
Interest Sensitivity Period
=================================================================================================================================
Daily Due After Due After Due After
Floating and Three Months Six Months Total One Year or
Due Within But Within But Within Within Noninterest-
In thousands Three Months Six Months One Year One Year sensitive Total
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets
Interest bearing deposits with banks $ 40 $ - $ - $ 40 $ - $ 40
Investment securities 18,173 2,361 4,547 25,081 37,292 62,373
Loans 15,883 4,915 8,497 29,295 27,652 56,947
- ---------------------------------------------------------------------------------------------------------------------------------
Total 34,096 7,276 13,044 54,416 64,944 119,360
- ---------------------------------------------------------------------------------------------------------------------------------
Sources of funds supporting interest-earning assets
Savings deposits (1) 8,597 - - 8,597 16,352 24,949
Time deposits 42,719 7,952 3,841 54,512 15,467 69,979
Short-term borrowings 4,213 - - 4,213 - 4,213
Long-term debt - - - - 3,749 3,749
Noninterest bearing sources - - - - 16,470 16,470
- ---------------------------------------------------------------------------------------------------------------------------------
Total 55,529 7,952 3,841 67,322 52,038 119,360
- ---------------------------------------------------------------------------------------------------------------------------------
Interest-sensitive gap (21,433) (676) 9,203 (12,906)
- ---------------------------------------------------------------------------------------------------------------------------------
Cumulative interest-sensitivity gap $ (21,433) $ (22,109) $ (12,906) $ (12,906)
- ---------------------------------------------------------------------------------------------------------------------------------
Interest-sensitive assets to interest
sensitive liabilities .61:1 91:1 3.39:1 .81:1
- ---------------------------------------------------------------------------------------------------------------------------------
Cumulative interest-sensitive assets
to interest sensitive liabilities .61:1 . 65:1 .82:1 .81:1
- ---------------------------------------------------------------------------------------------------------------------------------
Interest-sensitivity gap as a percentage of
total assets (15.43)% (.49)% 6.63 % (9.29)%
- ---------------------------------------------------------------------------------------------------------------------------------
Cumulative interest-sensitivity gap as a percentage
of total assets (15.43)% (15.92)% (9.29)% (9.29)%
=================================================================================================================================
<FN>
(1) Based on historical experience, management has classified passbook and statement savings accounts as noninterest sensitive
</FN>
</TABLE>
At December 31, 1997, the Corporation had a negative cumulative one-year gap of
$12.9 million, representing 9.29% of total assets and a ratio of .81:1.
Utilizing the dynamic simulation model, management believes that this amount
would not result in a significant change in net interest income should interest
rates rise or fall up to 200 basis points, which is the maximum change that
management uses to measure the Corporation's exposure to interest rate risk.
<PAGE>
14
The following table presents the financial instruments that are sensitive to
changes in interest rates, categorized by expected maturity, and the
instruments' fair values at December 31, 1997. Market risk sensitive instruments
are generally defined as on-and-off balance sheet financial instruments.
<TABLE>
<CAPTION>
Interest Rate Sensitivity Analysis
Expected Maturity
=================================================================================================================================
Average
Interest Total Fair
In thousands Rate (1) 1998 1999 2000 2001 2002 Thereafter Balance Value
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest sensitive assets
Interest bearing deposits
with banks 4.75% $ 40 $ - $ - $ - $ - $ - $ 40 $ 40
Investment securities:
U.S. Treasury securities 6.24 2,753 1,509 501 - - - 4,763 4,784
Obligations of U.S.
government agencies 6.46 21,519 4,423 8,879 1,012 1,457 14,129 51,419 51,348
Obligations of state and
political subdivisions 7.21 121 102 354 1,148 401 2,661 4,787 4,792
Other debt securities 7.66 - - - - - 262 262 262
Equity securities - - - - - - 1,143 1,143 1,146
Loans net of unearned income:
Commercial 8.45 14,694 754 1,309 1,181 941 109 18,988 20,447
Mortgage 9.03 13,563 5,546 7,031 2,091 4,323 4,655 37,209 38,202
Consumer 10.17 231 164 93 60 35 167 750 783
Loans held for sale 9.00 807 - - - - - 807 807
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest sensitive
assests 7.64% $53,728 $12,498 $18,167 $ 5,492 $ 7,157 $23,126 $120,168 $122,611
=================================================================================================================================
Interest sensitive liabilities
Deposits:
SuperNOW and money
market accounts 2.22% $ 8,597 $ - $ - $ - $ - $ - $ 8,597 $ 8,597
Regular savings 2.25 - - - - - 16,352 16,352 16,352
Time 4.71 63,239 4,089 669 250 234 1,498 69,979 70,027
Short-term borrowings 5.57 4,213 - - - - - 4,213 4,213
Long-term debt 5.80 - - - - 2,000 1,749 3,749 3,726
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest sensitive
liabilities 4.19% $ 76,049 $ 4,089 $ 669 $ 250 $ 2,234 $ 19,599 $102,890 $102,915
=================================================================================================================================
<FN>
(1) Tax equivalent basisexcludes equity securities
</FN>
</TABLE>
Expected maturities consist of contractual maturities adjusted for principal
payments. The Corporation uses certain assumptions to estimate fair values and
expected maturities. The actual maturities of these instruments could vary
substantially if future prepayments differ from estimated experience.
<PAGE>
15
Capital
The following table presents the consolidated and bank-only capital components
and related ratios as calculated under regulatory accounting practice at
December 31:
Bank
Consolidated Only
===========================================================================
December 31, December 31,
Dollars in thousands 1997 1996 1997 1996
===========================================================================
Total stockholders' equity $10,032 $ 8,287 $10,628 $9,726
Net unrealized loss on investment
securities available for sale 38 111 45 111
Disallowed intangibles (56) (66) (56) (66)
- ---------------------------------------------------------------------------
Tier 1 capital 10,014 8,332 10,617 9,771
- ---------------------------------------------------------------------------
Qualifying long-term debt 1,749 1,749 249 249
Reserve for possible loan losses 781 734 773 734
- ---------------------------------------------------------------------------
Tier 2 capital 2,530 2,483 1,022 983
- ---------------------------------------------------------------------------
Total capital $12,544 $10,815 $11,639 $10,754
===========================================================================
Risk-adjusted assets $62,491 $58,681 $61,824 $58,681
Total assets 138,868 134,951 137,985 134,951
- ---------------------------------------------------------------------------
Risk-based capital ratios:
Tier 1 capital to risk-
adjusted assets 16.02% 14.20% 17.17% 16.65%
Regulatory minimum 4.00 4.00 4.00 4.00
Total capital to risk-
adjusted assets 20.07 18.43 18.83 18.33
Regulatory minimum 8.00 8.00 8.00 8.00
Leverage ratio 7.21 5.93 7.69 7.01
Total stockholders' equity to
total assets 7.22 6.14 7.90 7.21
===========================================================================
Results of operations - 1996 compared with 1995
Net income in 1996 increased $143,000, or 17.8%, to $945,000 compared to
$802,000 in 1995. Related earnings per common share on a diluted basis rose to
$7.51 form $6.51.
Both 1996 and 1995 included nonrecurring items which affected net income. In the
third quarter of 1996, an assessment of $100,000 was paid to the FDIC
representing the Bank's share of replenishing the Savings Association Insurance
Fund ("SAIF"), for the purchase in 1994 of a branch of a failed thrift
institution that was SAIF-insured, while the first quarter of 1995 included
$198,000 of proceeds received from the RTC, representing earnings on funds
allocated to purchase loans from the RTC, offset in part by a special addition
of $115,000 to the provision for possible loan losses, to provide a reserve on
these loans.
Excluding these items along with net securities gains, earnings from operations
rose $262,000 to $1,006,000 in 1996, up 35.2% from $755,000 in 1995.
The primary reason for the improved earnings performance was an increase in net
interest income, which rose 12.7% compared to 1995, partially offset by higher
costs associated with the operations of a branch office acquired in March, 1996
and the completion of renovations of the Bank's main office.
On a fully taxable equivalent ("FTE") basis, net interest income rose to $5.2
million in 1996 from $4.6 million in 1995, while the related net interest margin
decreased to 4.26% to 4.50%. This improvement in net income resulted from a
higher level of interest earning assets, which averaged $124.5 million in 1996
compared to $104.4 million in 1995. Loan growth comprised most of this increase.
The lower net interest margin reflected a higher cost of deposits along with a
narrower spread on loans.
Total investment securities averaged $60.8 million in 1996 compared to $57
million in 1995, an increase of $3.8 million, or 6.9%. Most of this increase
came from the proceeds received from the deposit assumption and were invested in
U.S. Government agency securities.
Total loans averaged $53.5 million in 1996 compared to $39 million in 1995, an
increase of 37.2%. At December 31,1996, total gross loans were $57.1 million, up
27.7% from $44.7 million at 1995 year-end. This increase resulted from greater
commercial loan growth, as well as increased residential mortgage volume, which
included the purchase of $4 million of performing residential mortgage loans in
connection with the 1996 branch acquisition.
<PAGE>
16
Other operating income decreased 15.8% to $1,147,000 in 1996 from $1,363,000 in
1995 due primarily to the aforementioned proceeds received from the RTC in 1995.
Service charges on deposit accounts declined 16.7% in 1996 primarily due to the
loss of a customer whose account incurred significant service charges in 1995.
These reductions were partially offset by higher agency fees, which rose 45.1%,
to $235,000 in 1996 from $162,000 in 1995. These fees represent compensation
from large corporations that utilize the Bank to syndicate lines of credit.
Other operating expenses totalled $4.8 million in 1996, a 14% increase compared
to 1995. The primary reasons for the increase in overall operating expenses were
the branch acquisition along with costs attributable to the renovation of the
main office.
Occupancy and equipment expense rose $271,000, or 63.5% from 1995 to 1996 due to
higher depreciation expense arising from the renovations of the Bank's main
office.
Other expenses were higher by $150,000, or 11% in 1996 due primarily to the
nonrecurring $100,000 FDIC SAIF assessment. Also contributing to the increase
was higher marketing expense, which rose from $19,000 in 1995 to $85,000 in 1996
as the Bank instituted a market awareness program.
Income tax expense as a percentage of pretax income was 35.3%, up slightly, from
34.8% in 1995.
Year 2000
During 1997, the Corporation established an overall plan to address
system-related Year 2000 issues. The plan calls for either system modifications
to , or replacement of, existing business systems applications. A majority of
the systems are provided and maintained by outside vendors with whom management
is coordinating the Year 2000 efforts. The cost of this Year 2000 compliance
program related to system modifications is not expected to be material to the
Corporation's earnings in 1998 or thereafter. The Corporation currently
anticipates that substantially all of the work under this program, including the
testing of critical systems, will be initially completed by the end of 1998,
with further testing to be performed during 1999.
<PAGE>
KPMG Peat Marwick LLP
New Jersey Headquarters
150 John F Kennedy Parkway
Short Hills, NJ 07078
Independent Auditors' Report
The Board of Directors and Stockholders City National Bancshares Corporation:
We have audited the accompanying consolidated balance sheets of City National
Bancshares Corporation and subsidiary (the Corporation) as of December 31, 1997
and 1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with generally accepted auditing standards.
Those standards require that we plan and perform thee audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Corporation and
subsidiary as of December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick. LLP
February 11. 1998
<PAGE>
17
Item 8. Financial Statements and Supplementary Data
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheet
December 31,
=======================
Dollars in thousands, except per share data .......... 1997 1996
======== ========
Assets
Cash and due from banks (Note 2) ..................... $ 13,260 $ 2,767
Federal funds sold (Note 3) .......................... -- 8,900
Interest-bearing deposits with banks ................. 40 74
Investment securities available for sale (Note 4) .... 32,694 30,997
Investment securities held to maturity
(Market value of $29,638 in 1997 and $29,517
in 1996) (Note 5) .................................. 29,666 29,866
Loans held for sale (Note 1) ......................... 807 291
Loans (Note 6) ....................................... 56,947 57,128
Less: Reserve for possible loan losses (Note 7) ...... 825 750
-------- --------
Net loans ............................................ 56,122 56,378
-------- --------
Premises and equipment (Note 8) ...................... 3,192 3,331
Accrued interest receivable .......................... 1,112 1,078
Other real estate owned .............................. 385 672
Other assets (Note 15) .............................. 1,590 597
-------- --------
Total assets ......................................... $138,868 $134,951
======== ========
Liabilities and Stockholders' Equity
Deposits: (Notes 2, 4, 5, and 9)
Demand ............................................. $ 24,789 $ 13,699
Savings ............................................ 24,949 37,527
Time ............................................... 69,979 64,628
-------- --------
Total deposits ....................................... 119,717 115,854
Short-term borrowings (Notes 6 and 11) ............... 4,213 5,175
Accrued expenses and other liabilities (Note 10) ..... 1,157 3,886
Long-term debt (Note 12) ............................. 3,749 1,749
-------- --------
Total liabilities .................................... 128,836 126,664
Commitments and contingencies (Note 21)
Stockholders' equity (Note17):
Preferred stock, no par value: Authorized
100,000 shares (Note 16);
Series A , issued and outstanding 8 shares
in 1997 and 1996 .................................. 200 200
Series B , issued and outstanding 20 shares
in 1997 and 1996 .................................. 500 500
Series C , issued and outstanding 108 shares
in 1997 and 1996 .................................. 27 27
Series D , issued and outstanding 3,280
shares in 1997 .................................... 820 --
Common stock, par value $10: Authorized
400,000 shares; 114,980 shares issued and
114,141 outstanding in 1997 and 1996 .............. 1,150 1,150
Surplus ............................................ 901 901
Retained earnings .................................. 6,497 5,645
Less:
Net unrealized loss on investment
securities available for sale ................... 38 111
Treasury stock, at cost - 839 shares ............. 25 25
-------- --------
Total stockholders' equity ........................... 10,032 8,287
-------- --------
Total liabilities and stockholders' equity ........... $138,868 $134,951
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
18
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Income
Year Ended December 31,
===================================
Dollars in thousands,
except per share data ................... 1997 1996 1995
======== ======== ========
Interest income
Interest and fees on loans .............. $ 5,247 $ 4,804 $ 3,607
Interest on Federal funds sold and
securities purchased under
agreements to resell .................. 439 317 279
Interest on other short-term
investments ........................... 39 215 192
Interest on deposits with banks ......... 3 5 10
Interest and dividends on
investment securities:
Taxable ............................... 3,718 3,577 3,269
Tax-exempt ............................ 125 116 113
-------- -------- --------
Total interest income ................... 9,571 9,034 7,470
-------- -------- --------
Interest expense
Interest on deposits (Note 9) ........... 3,927 3,514 2,653
Interest on short-term borrowings ....... 202 189 156
Interest on long-term debt .............. 201 99 20
-------- -------- --------
Total interest expense .................. 4,330 3,802 2,829
-------- -------- --------
Net interest income ..................... 5,241 5,232 4,641
Provision for possible loan
losses (Note 7) ....................... 159 91 486
-------- -------- --------
Net interest income after provision
for possible loan losses .............. 5,082 5,141 4,155
-------- -------- --------
Other operating income
Service charges on deposit accounts ..... 604 592 711
Other income (Notes 13 and 15) .......... 577 548 642
Net gains on sales of investment
securities (Notes 4 and 5) ............ 18 7 10
-------- -------- --------
Total other operating income ............ 1,199 1,147 1,363
-------- -------- --------
Other operating expenses
Salaries and other employee
benefits (Note 15) .................... 2,615 2,628 2,455
Occupancy expense (Note 8) .............. 319 289 153
Equipment expense (Note 8) .............. 382 409 274
Other expenses (Note 13) ................ 1,314 1,513 1,363
-------- -------- --------
Total other operating expenses .......... 4,630 4,839 4,245
-------- -------- --------
Income before income tax expense ........ 1,651 1,449 1,273
Income tax expense (Note 14) ............ 582 504 471
-------- -------- --------
Net income .............................. $ 1,069 $ 945 $ 802
======== ======== ========
Net income per common
share (Note 18)
Basic ................................... $ 8.98 $ 8.31 $ 7.22
Diluted ................................. 8.11 7.51 6.51
======== ======== ========
Basic average common shares
outstanding ........................... 114,141 113,498 111,141
Diluted average common
shares outstanding .................... 127,991 127,348 124,991
======== ======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
19
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statement of Changes
in Stockholders' Equity Net Unrealized
Gain (Loss) on
Investment Securities
Common Preferred Retained Available Treasury
Dollars in thousands Stock Surplus Stock Earnings for Sale Stock Total
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 ........................ $ 1,120 $ 886 $ -- $ 4,194 $ (587) $ (25) $ 5,588
Net income ........................................ -- -- -- 802 -- -- 802
Proceeds from issuance of preferred stock ......... -- -- 200 -- -- -- 200
Change in net unrealized loss on investment
securities available for sale ................... -- -- -- -- 446 -- 446
Dividends paid on common stock .................... -- -- -- (140) -- -- (140)
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1995 ........................ 1,120 886 200 4,856 (141) (25) 6,896
Net income ........................................ -- -- -- 945 -- -- 945
Proceeds from issuance of common stock ............ 30 15 -- -- -- -- 45
Proceeds from issuance of preferred stock ......... -- -- 527 -- -- -- 527
Change in net unrealized loss on investment
securities available for sale ................... -- -- -- -- 30 -- 30
Dividends paid on common stock .................... -- -- -- (154) -- -- (154)
Dividends paid on preferred stock ................. -- -- -- (2) -- -- (2)
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1996 ........................ 1,150 901 727 5,645 (111) (25) 8,287
Net income ........................................ -- -- -- 1,069 -- -- 1,069
Proceeds from issuance of preferred stock ......... -- -- 820 -- -- -- 820
Change in net unrealized loss on investment
securities available for sale ................... -- -- -- -- 73 -- 73
Dividends paid on common stock .................... -- -- -- (173) -- -- (173)
Dividends paid on preferred stock ................. -- -- -- (44) -- -- (44)
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1997 ........................ $ 1,150 $ 901 $ 1,547 $ 6,497 $ (38) $ (25) $ 10,032
======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
20
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARY
Consolidated Statement of Cash Flows Year Ended December 31,
===================================
In thousands 1997 1996 1995
================================================================================
Operating activities
Net income ................................. $ 1,069 $ 945 $ 802
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization ............ 367 339 191
Provision for possible loan losses ...... 159 91 486
Accretion of discount, net of premium
amortization on investment securities .. 12 (15) 151
Net gains on sales and calls of investment
securities ............................. (18) (7) (10)
Gains and commissions on loans held for
sale ................................... (57) (170) (122)
(Increase) decrease in accrued interest
receivable ............................... (33) (123) 194
Deferred income tax benefit ............... (104) (53) (203)
(Increase) decrease in other assets ........ (1,143) (4) 984
Decrease in other real estate owned ........ 336 -- 95
(Decrease) increase in accrued expenses
and other liabilities .................... (2,525) 2,702 (150)
-------- -------- --------
Net cash (used in) provided by
operating activities ..................... (1,937) 3,705 2,418
-------- -------- --------
Investing activities
Loans originated for sale .................. (1,611) (3,776) (4,594)
Proceeds from sales of loans held for sale . 1,152 4,210 4,631
Decrease (increase) in loans ............... 48 (8,805) (8,159)
Purchase of loans in conjunction with
branch acquisitions ...................... -- (4,035) (11,479)
Decrease (increase) in interest-bearing
deposits with banks ...................... 34 247 (321)
Proceeds from maturities of investment
securities available for sale,
including sales, principal payments
and early redemptions .................... 41,011 20,917 1,524
Proceeds from maturities of investment
securities held to maturity, including
principal payments and early redemptions . 3,718 4,643 11,127
Purchases of investment securities
available for sale ....................... (42,570) (21,221) (2,745)
Purchases of investment securities held
to maturity .............................. (3,529) (10,025) (10,669)
Purchases of premises and equipment ........ (227) (1,382) (739)
-------- -------- --------
Net cash used in investing activities ...... (1,974) (19,227) (21,424)
-------- -------- --------
Financing activities
Deposits assumed in branch acquisitions .... -- 7,661 --
Increase (decrease) in deposits ............ 3,863 7,304 (3,052)
(Decrease) increase in short-term
borrowings ............................... (962) 1,514 3,661
Proceeds from issuance of long-term debt ... 2,000 -- 1,500
Proceeds from issuance of common stock ..... -- 45 --
Proceeds from issuance of preferred stock .. 820 527 200
Dividends paid on preferred stock .......... (44) (2) --
Dividends paid on common stock ............. (173) (154) (140)
-------- -------- --------
Net cash provided by financing activities .. 5,504 16,895 2,169
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents ......................... 1,593 1,373 (16,837)
Cash and cash equivalents at beginning
of year .................................. 11,667 10,294 27,131
-------- -------- --------
Cash and cash equivalents at end of year ... $ 13,260 $ 11,667 $ 10,294
======== ======== ========
Cash paid during the year:
Interest ................................... $ 4,321 $ 3,960 $ 2,719
Income taxes ............................... 538 335 991
Supplemental schedule for noncash investing activities:
Real estate acquired in settlement
of loans ................................. 49 460 212
Transfers of investment securities
held to maturity to investment
securities available for sale ............ -- -- 21,836
See accompanying notes to consolidated financial statements.
<PAGE>
21
Note 1 Summary of significant accounting policies
The accounting and reporting policies of City National Bancshares Corporation
(the "Corporation" or "CNBC") and its subsidiary City National Bank of New
Jersey (the "Bank" or "CNB") conform with generally accepted accounting
principles and to general practice within the banking industry. In preparing the
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities as of the date of the balance sheet and revenues and
expenses for the related periods. Actual results could differ significantly from
those estimates. The following is a summary of the more significant policies and
practices.
Principles of consolidation
The financial statements include the accounts of CNBC and its wholly-owned
subsidiary, CNB. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Cash and cash equivalents
For purposes of the presentation of the Statement of Cash Flows, Cash and cash
equivalents includes Cash and due from banks and Federal funds sold and
securities purchased under agreements to resell.
Federal Home Loan Bank of New York
The Bank, as a member of Federal Home Loan Bank of New York "FHLB", is required
to hold shares of capital stock of the FHLB based on a specified formula. The
FHLB stock is carried at cost.
Investment securities held to maturity and investment securities available for
sale Investment securities are designated as held to maturity or available for
sale at the time of acquisition. Securities that the Corporation has the intent
and ability at the time of purchase to hold until maturity are designated as
held to maturity. Investment securities held to maturity are stated at cost and
adjusted for amortization of premiums to the earlier of maturity or call date
and accretion of discount to maturity.
Securities to be held for indefinite periods of time but not intended to be held
until maturity or on a long-term basis are classified as investment securities
available for sale. Securities held for indefinite periods of time include
securities that the Corporation intends to use as part of its interest rate
sensitivity management strategy and that may be sold in response to changes in
interest rates, resultant risk and other factors. Investment securities
available for sale are reported at fair market value, with unrealized gains and
losses reported as a separate component of stockholders' equity, net of deferred
tax. Gains and losses realized from the sales of securities available for sale
are determined using the specific identification method.
The Corporation holds in its investment portfolios mortgage-backed securities.
Such securities are subject to changes in the prepayment rates of the underlying
mortgages, which may affect both the yield and maturity of the securities.
Loans held for sale
The Bank originates mortgage loans for sale. Premiums received from purchasers
on sales of conventional nonguaranteed one-to-four family mortgage loans are
recorded as income when received.
Loans held for sale include residential mortgage loans originated with the
intent to sell. Loans held for sale are carried at the lower of aggregate cost
or fair value. Once the determination to sell a loan has been made, it is
transferred to loans held for sale and carried at the lower of remaining
principal balance or market value.
Loans
Loans are stated at the principal amounts outstanding, net of unearned discount
and deferred loan fees. Interest income is accrued as earned, based upon the
principal amounts outstanding. Loan origination fees and certain direct loan
origination costs, as well as unearned discount, are deferred and recognized
over the life of the loan revised for loan prepayments, as an adjustment to the
loan's yield. Recognition of interest on the accrual method is generally
discontinued when a loan contractually becomes 90 days or more past due or a
reasonable doubt exists as to the collectibility of the loan, unless such loans
are well-secured and in the process of collection. At the time a loan is placed
on a nonaccrual status, previously accrued and uncollected interest is generally
reversed against interest income in the current period. Interest on such loans,
if appropriate, is recognized as income when payments are received. A loan is
returned to an accrual status when it is current as to principal and interest
and its future collectibility is expected.
<PAGE>
22
The Corporation has defined the population of impaired loans to be all
nonaccrual loans of $100,000 or more considered by management to be inadequately
secured and subject to risk of loss. Impaired loans of $100,000 or more are
individually assessed to determine that the loan's carrying value does not
exceed the fair value of the underlying collateral or the present value of the
loan's expected future cash flows. Smaller balance homogeneous loans that are
collectively evaluated for impairment such as residential mortgage and
installment loans, are specifically excluded from the impaired loan portfolio.
Where impaired loans are carried at the present value of expected future cash
flows, any change in such value is included with the provision for possible loan
losses. There were no impaired loans during 1997 or 1996.
Reserve for possible loan losses
A substantial portion of the Bank's loans are secured by real estate in New
Jersey particularly within the Newark area. Accordingly, as with most financial
institutions in the market area, the ultimate collectibility of a substantial
portion of the Bank's loan portfolio is susceptible to changes in market
conditions.
The reserve for possible loan losses is maintained at a level determined
adequate to provide for potential losses on loans. The reserve is increased by
provisions charged to operations and recoveries of loans previously charged off
and reduced by loan charge-offs. The reserve is based on management's evaluation
of the loan portfolio considering current economic conditions, the volume and
nature of the loan portfolio, historical loan loss experience and individual
credit and collateral situations.
Management believes that the reserve for possible loan losses is adequate. While
management uses available information to determine the adequacy of the reserve,
future additions may be necessary based on changes in economic conditions or in
subsequently occurring events unforeseen at the time of evaluation.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's reserve for possible loan
losses. Such agencies may require the Bank to increase the reserve based on
their judgment of information available to them at the time of their
examination.
Bank premises and equipment
Premises and equipment are stated at cost less accumulated depreciation based
upon estimated useful lives of three to 39 years, computed using the
straight-line method. Expenditures for maintenance and repairs are charged to
operations as incurred, while major replacements and improvements are
capitalized. The net asset values of assets retired or disposed of are removed
from the asset accounts and any related gains or losses are included in
operations.
Other real estate owned
Other real estate owned ("OREO") acquired through foreclosure or deed in lieu of
foreclosure is carried at the lower of cost or fair value less estimated cost to
sell, net of a valuation allowance. When a property is acquired, the excess of
the loan balance over the estimated fair value is charged to the reserve for
possible loan losses. Operating results, including any future writedowns of
OREO, rental income and operating expenses, are included in "Other expenses".
A reserve for OREO has been established through charges to OREO expense to
maintain properties at the lower of cost or fair value less estimated cost to
sell.
Core deposit premiums
The premium paid for the acquisition of deposits in connection with the purchase
of a branch office is amortized on an accelerated basis over the ten-year
estimated useful life of the assumed deposit base.
Income taxes
Federal income taxes are based on currently reported income and expense after
the elimination of income which is exempt from Federal income tax.
Deferred tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Such temporary
differences include depreciation and the provision for possible loan losses.
Net income per common share
The Corporation adopted Financial Accounting Standards Board ("FASB") Statement
of Financial Accounting Standards No. 128, "Earnings per share" on December 31,
1997. SFAS 128 establishes standards for computing and presenting earnings per
share (EPS) and applies to entities with publicly held common stock or potential
common stock. SFAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS and requires dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex capital
structures.
<PAGE>
23
Basic income per common share is calculated by dividing net income less
dividends paid on preferred stock by the weighted average number of common
shares outstanding. On a diluted basis, both net income and common shares
outstanding are adjusted to assume the conversion of the convertible subordinate
debentures from the date of issue.
Recent accounting pronouncement
In June 1997, the FASB issued SFAS No. 130. "Reporting Comprehensive Income".
SFAS 130 establishes standards for reporting and display of comprehensive income
an its components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. SFAS 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The adoption of SFAS No. 130
is not expected to materially affect the financial statements
Stock-based compensation
On January 1, 1996, the Corporation adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), which
permits entities to recognize as expense over a vesting period the fair value of
all stock-based awards on the date of grant. Alternatively, SFAS 123 also allows
entities to continue to apply the provisions of Accounting Principles Board
("APB") Opinion No. 25 and provide proforma a net income and proforma earnings
per share disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS 123 had been applied.
The Corporation has elected to continue to apply the provisions of APB Opinion
No. 25 and provide the proforma disclosure provisions of SFAS 123 stock
based-compensation as applicable.
Reclassifications
Certain reclassifications have been made to the 1996 and 1995 consolidated
financial statements in order to conform with the 1997 presentation.
Note 2 Cash and due from banks
The Bank is required to maintain a reserve balance with the Federal Reserve Bank
based primarily on deposit levels. These reserve balances averaged $662,000 in
1997 and $1,028,000 in 1996.
Cash and due from banks and demand deposits at December 31, 1997 included an $8
million nonrecurring deposit made by an agency of the U.S Government which was
withdrawn on January 2, 1998. The source of this deposit was a check drawn on a
financial institution that was located out of the Bank's Federal Reserve
district.
Note 3 Federal funds sold and securities purchased under agreements to resell
Federal funds sold averaged $7.8 million during 1997 and $6.0 million in 1996,
while the maximum balance outstanding at any month-end during 1997 and 1996 was
$7.3 million and $11.6 million, respectively. During 1997 and 1996, securities
purchased under agreements to resell averaged $27,000 and $41,000 respectively.
There were no such transactions outstanding at any month-end. The aforementioned
repurchase agreements were collateralized by U.S. Treasury securities held for
the benefit of the Bank at the Federal Reserve Bank.
Note 4 Investment securities available for sale
The amortized cost and market values at December 31 of investment securities
available for sale were as follows:
Gross Gross
Amortized Unrealized Unrealized Market
1997 In thousands Cost Gains Losses Value
======================================================================
U.S. Treasury securities
and obligations of U.S.
government agencies $10,432 $ 75 $ 56 $10,450
Obligations of states and
political subdivisions 2,251 11 13 2,249
Other securities:
Mortgage-backed
securities 18,620 144 178 18,587
Other debt securities 262 - - 262
Equity securities 1,143 3 - 1,146
- ----------------------------------------------------------------------
Total $32,708 $ 233 $ 247 $32,694
======================================================================
<PAGE>
24
Gross Gross
Amortized Unrealized Unrealized Market
1996 In thousands Cost Gains Losses Value
======================================================================
U.S. Treasury securities
and obligations of U.S.
government agencies $11,322 $ 127 $ 81 $11,368
Other securities:
Mortgage-backed 18,900 111 265 18,746
Equity securities 883 - - 883
- ----------------------------------------------------------------------
Total $31,105 $ 238 $ 346 $30,997
======================================================================
At December 31, 1997, the Corporation held structured notes with a total
amortized cost of $1,500,000 and a related market value of $1,445,000,
reflecting gross unrealized depreciation of $55,000.
At December 31, 1996, the Corporation held structured notes with a total
amortized cost of $3,477,000 and a related market value of $3,424,000,
reflecting gross unrealized depreciation of $53,000. The Corporation also held
structured notes in the held to maturity portfolio at December 31, 1997 and
December 31, 1996.
The amortized cost and the market values of investments in debt securities
available for sale presented below as of December 31, 1997 are distributed by
contractual maturity, including mortgage-backed securities, which may have
shorter estimated lives as a result of prepayments of the underlying mortgages.
Amortized Market
In thousands Cost Value
=======================================================================
Due within one year:
U.S. Treasury securities and obligations
of U.S. Government agencies $ 4,251 $ 4,199
Mortgage-backed securities 821 828
Due after one year but within five years:
U.S. Treasury securities and obligations
of U.S. Government agencies 4,513 4,536
Mortgage-backed securities 1,343 1,368
Due after five years but within ten years:
Mortgage-backed securities 3,256 3,297
Other debt securities 262 262
Due after ten years:
U.S. Treasury securities and obligations
of U.S. Government agencies 1,668 1,715
Mortgage-backed securities 13,200 13,094
Obligations of state and political
subdivisions 2,251 2,249
- -----------------------------------------------------------------------
Total debt securities 31,565 31,548
Equity securities 1,143 1,146
- -----------------------------------------------------------------------
Total $32,708 $32,694
=======================================================================
Sales of investment securities available for sale totalled $3.7 million in 1997,
while there were no such sales during 1996. $2.6 million of these securities
were called prior to maturity during 1997, while $1 million was called prior to
maturity during 1996.
Interest and dividends on investment securities available for sale was as
follows:
In thousands 1997 1996 1995
=================================================================
Taxable $ 1,999 $ 1,949 $ 675
Tax-exempt 9 - -
- -----------------------------------------------------------------
Total $ 2,008 $ 1,949 $ 675
=================================================================
Investment securities available for sale having an amortized cost of $27,467,000
were pledged to secure public funds at December 31, 1997.
<PAGE>
25
Note 5 Investment securities held to maturity
The book and market values as of December 31 of investment securities held to
maturity were as follows:
Gross Gross
Book Unrealized Unrealized Market
1997 In thousands Value Gains Losses Value
======================================================================
U.S. Treasury securities
and obligations of U.S.
Government agencies $16,835 $ 84 $ 101 $16,818
Obligations of state and
political subdivisions 2,536 16 9 2,543
Other securities:
Mortgage-backed 10,295 61 79 10,277
- ----------------------------------------------------------------------
Total $29,666 $ 161 $ 189 $29,638
======================================================================
Gross Gross
Book Unrealized Unrealized Market
1996 In thousands Value Gains Losses Value
======================================================================
U.S. Treasury securities
and obligations of U.S.
Government agencies $16,849 $ 131 $ 268 $ 16,712
Obligations of state and
political subdivisions 2,536 14 24 2,526
Other securities:
Mortgage-backed 10,481 13 215 10,279
- -----------------------------------------------------------------------
Total $29,866 $ 158 $ 507 $ 29,517
=======================================================================
At December 31, 1997, the Corporation held structured notes with a total
amortized cost of $2,750,000 and a related market value of $2,667,000,
reflecting gross unrealized depreciation of $83,000. Comparable amounts as of a
year earlier were $2,750,000, $2,660,000 and $90,000, respectively.
The book value and the market value of investment securities held to maturity
presented below as of December 31, 1997 are distributed by contractual maturity,
including mortgage-backed securities, which may have shorter estimated lives as
a result of prepayments of the underlying mortgages.
Book Market
In thousands Value Value
====================================================================
Due within one year
U.S. Treasury and obligations of
U.S. Government agencies $ 1,000 $ 999
Obligations of state and political
subdivisions 120 120
Due after one year but within five years:
U.S. Treasury securities and obligations
of U.S. Government agencies 5,688 5,668
Mortgage-backed securities 5,268 5,308
Obligations of state and political
subdivisions 2,416 2,423
Due after five years but within ten years:
U.S. Treasury securities and obligations
of U.S. Government agencies 9,648 9,651
Mortgage-backed securities 3,065 3,079
Due after ten years:
U.S. Treasury securities and obligations
of U.S. Government agencies 499 500
Mortgage-backed securities 1,962 1,890
- --------------------------------------------------------------------
Total $29,666 $29,638
====================================================================
There were no sales of securities held to maturity in 1997 or 1996, while $3
million of securities were called prior to maturity during 1997 and $2,988,000
of securities were called during 1996, resulting in net gains of $7,000 in 1996.
There were no related resulting gains or losses in 1997.
Interest and dividends on investment securities held to maturity was as follows:
In thousands 1997 1996 1995
================================================================
Taxable $ 1,719 $ 1,628 $ 2,594
Tax-exempt 116 116 113
- ----------------------------------------------------------------
Total $ 1,835 $ 1,744 $ 2,707
================================================================
Investment securities held to maturity having a book value of $18,725,000 were
pledged to secure public funds at December 31, 1997.
<PAGE>
26
Note 6 Loans
Loans, net of unearned discount and net deferred origination fees and costs at
December 31, were as follows:
In thousands 1997 1996
=================================================================
Commercial $ 18,988 $ 19,634
Real estate 37,521 37,448
Installment 750 443
- -----------------------------------------------------------------
Total loans 57,259 57,525
Less: Unearned income 312 397
- -----------------------------------------------------------------
Loans $ 56,947 $ 57,128
=================================================================
Loans guaranteed by the Small Business Administration totalling $4,560,000 were
pledged as collateral for borrowings under a note issued to the U.S. Treasury
Department at December 31, 1997.
Nonperforming loans include loans which are contractually past due 90 days or
more for which interest income is still being accrued and nonaccrual loans.
At December 31, nonperforming loans and troubled debt restructurings were as
follows:
In thousands 1997 1996
==================================================================
Nonaccrual loans $ 1,166 $ 1,025
Loans with interest or principal 90
days or more past due and still accruing 230 33
- ------------------------------------------------------------------
Total nonperforming loans 1,396 1,058
Troubled debt restructurings 1,261 -
- ------------------------------------------------------------------
Total nonperforming loans
and troubled debt restructurings $2,657 $1,058
==================================================================
The effect of nonaccrual loans on income before taxes is presented below.
In thousands 1997 1996 1995
==================================================================
Interest income foregone $ (67) $ (61) $ (52)
Interest income received 101 106 55
- ------------------------------------------------------------------
$ 34 $ 45 $ 3
==================================================================
Troubled debt restructurings includes two loans to one commercial borrower
totalling $1.3 million. A $1 million construction loan was originated in August,
1996 and subsequently increased by $200,000. Payments remained current through
June, 1997 when construction was completed and the loan was converted to a
permanent commercial mortgage, at which time principal paydowns were scheduled
to commence. Prior to becoming 90 days past due, the terms of the loan were
modified to continue interest only payments for a specified period of time. The
loan is secured by a leasehold mortgage on the financed property and the
borrower's principals have provided joint and several personal guarantees. In
addition, a $100,000 working capital loan secured by receivables was originated
in July, 1997.
The construction loan is currently performing in accordance with the modified
terms while the working capital loan is currently performing in accordance with
its original terms. Management believes that both of these loans are adequately
secured and fully collectible.
At December 31, 1997, there were no commitments to lend additional funds to
borrowers for loans that were on nonaccrual or contractually past due in excess
of 90 days and still accruing interest, or to borrowers whose loans have been
restructured. A majority of the Bank's loan portfolio is concentrated in first
mortgage loans to borrowers in northern New Jersey, particularly within the
Newark area. Its borrowers' abilities to repay their obligations are dependent
upon various factors including the borrowers' income, net worth, cash flows
generated by the underlying collateral, the value of the underlying collateral
and priority of the Bank's lien on the related property. Such factors are
dependent upon various economic conditions and individual circumstances beyond
the Bank's control. Accordingly, the Bank may be subject to risk of credit
losses.
<PAGE>
27
Note 7 Reserve for possible loan losses
Transactions in the reserve for possible loan losses are summarized as follows:
In thousands 1997 1996 1995
================================================================
Balance, January 1 $ 750 $ 650 $ 625
Provision for possible loan
losses 159 91 486
Recoveries of loans previously
charged off 74 107 98
- -----------------------------------------------------------------
983 848 1,209
Less: Charge-offs 158 98 559
- -----------------------------------------------------------------
Balance, December 31 $ 825 $ 750 $ 650
=================================================================
Note 8 Premises and equipment
A summary of premises and equipment at December 31 follows:
In thousands 1997 1996
- -----------------------------------------------------------------
Land $ 274 $ 274
Premises 1,035 1,035
Furniture and equipment 1,778 1,677
Building improvements 1,900 1,773
- ------------------------------------------------------------------
Total cost 4,987 4,759
Less: Accumulated depreciation
and amortization 1,795 1,428
- ------------------------------------------------------------------
Net book value $3,192 $3,331
- ------------------------------------------------------------------
Depreciation and amortization expense charged to operations amounted to
$367,000, $339,000, and $191,000 in 1997, 1996, and 1995, respectively.
Note 9 Deposits
Deposits at December 31 are presented below.
In thousands 1997 1996
==================================================================
Noninterest bearing
Demand $ 24,789 $ 13,699
Savings 469 469
Time 10,635 12,522
- ------------------------------------------------------------------
Total noninterest bearing deposits 35,893 26,690
- ------------------------------------------------------------------
Interest bearing
Savings 24,480 37,058
Time 59,344 52,106
- ------------------------------------------------------------------
Total interest bearing deposits 83,824 89,164
- ------------------------------------------------------------------
Total deposits $119,717 $115,854
==================================================================
Time deposits issued in amounts of $100,000 or more have the following
maturities at December 31:
In thousands 1997 1996
==================================================================
Three months or less $ 40,701 $ 25,967
Over three months but within six months 5,315 15,023
Over six months but within twelve months 2,956 2,557
Over twelve months 2,037 3,943
- ------------------------------------------------------------------
Total deposits $ 51,009 $ 47,490
==================================================================
Interest expense on certificates of deposits of $100,000 or more was $2,369,000,
$1,850,000 and $895,000 in 1997, 1996 and 1995, respectively.
Note 10 Accrued expenses and other liabilities
At December 31, 1996, accrued expenses and other liabilities included a noncash
item for $2,876,000 that was inadvertently submitted to the Federal Reserve Bank
for collection in December, 1996 and for which credit was received. The item was
subsequently repaid.
<PAGE>
28
Note 11 Short-term borrowings
Information regarding short-term borrowings at December 31, is presented below.
Average
Interest Average Maximum
Rate on Average Interest Balance
Decem- Decem- Balance Rate at any
ber 31 ber 31 During During Month-
Dollars in thousands Balance Balance the Year the Year end
==============================================================================
1997
Federal funds purchased and
securities sold under
repurchase agreements $ 800 6.75% $ 92 5.47% $ 800
Demand note issued
to the U.S. Treasury 3,413 5.27 3,717 5.30 8,000
- ------------------------------------------------------------------------------
Total $ 4,213 5.57% $ 3,809 5.32% $ 8,800
=============================================================================
1996
Federal funds purchased and
securities sold under
repurchase agreements $ - - % $ 755 5.51% $ 7,000
Demand note issued
to the U.S. Treasury 5,175 5.16 2,865 5.13 8,000
- ------------------------------------------------------------------------------
Total $ 5,175 5.16% $ 3,620 5.21% $15,000
==============================================================================
The demand note, which has no stated maturity, issued by the Bank to the U.S.
Treasury Department is payable with interest at 25 basis points less than the
weekly average of the daily effective Federal Funds rate and is collateralized
by various investment securities held at the Federal Reserve Bank of New York
with a book value of $4,620,000, along with loans guaranteed by the Small
Business Administration totalling $4,560,000.
Note 12 Long-term debt
Long-term debt at December 31 is summarized as follows:
In thousands 1997 1996
================================================================
FHLB convertible advance, 5.93% due
February 24, 2002 $2,000 $ -
5.25% capital note, due December 28, 2005 1,500 1,500
8.00% mandatory convertible debentures,
due July 1, 2003 249 249
- ----------------------------------------------------------------
Total $3,749 $1,749
================================================================
Interest is payable quarterly on the FHLB advance. The advance is callable on
February 20, 2000 and on every interest payment date thereafter. The borrowing
is secured by obligations of U.S. Government agencies.
Interest is payable semiannually on January 15 and July 15 on the convertible
debentures. The debentures convert into CNBC common stock upon maturity and are
convertible by the holder at any time on or before the maturity, unless
previously redeemed by the Corporation into CNBC common stock at a conversion
price of $18.00 per share, subject to adjustment upon the occurrence of certain
events, including, among other things, the issuance of common stock as a per
share price of less than $18.00 or the issuance of rights or options to purchase
shares of common stock at a price of less than $18.00 per share.
The debentures are subordinate to all other indebtedness of the Corporation
except for indebtedness which by its terms is equal and not senior in right of
payment to the debentures. The debentures become immediately payable upon the
bankruptcy, insolvency or receivership of the Corporation. In the event of
default as to principal or interest, the Corporation is required upon the
request of the holder, to pay the unpaid principal balance along with any
accrued interest by issuing an amount of common stock at the conversion price in
exchange for the indebtedness, subject to the holder owning not more than 9.9%
of the total number of common shares outstanding when added to the shares
already held by the holder. The unpaid balance of principal, if any, after
conversion upon maturity, or an interest payment default is then payable in cash
upon maturity of the debenture and prior to maturity would continue to accrue
interest at an annual rate of 8% payable semiannually.
On December 29, 1995, the Corporation issued a $1.5 million capital note to a
subsidiary of a major insurance company, due December 28, 2005. Interest is
payable semiannually on the capital note, on June 29 and December 29, with
principal payments commencing semiannually in June, 2001.
The note agreement includes restrictive covenants including the creation of
liens on Bank assets, the sale of such assets and certain limitations on
investments and dividend payments and requires the maintenance of certain
capital levels and earning performance, asset quality and reserve for possible
loan loss ratios.
<PAGE>
29
Note 13 Other operating income and expenses
The following table presents the major items of other operating income and
expenses:
In thousands 1997 1996 1995
================================================================
Other operating income
Income from loans purchased from
Resolution Trust Corporation prior
to loan closing $ - $ - $ 198
Agency fees on commercial loans 253 221 158
Other operating expenses
FDIC deposit insurance - 141 168
Stationery and supplies expense 88 141 115
Data processing 125 157 115
=================================================================
Income from loans purchased from the Resolution Trust Corporation ("RTC")
represents income earned from $1.3 million of funds which were committed to
loans acquired from the RTC in January, 1995 in connection with a branch
acquisition, as well as interest on the difference between the amount of loans
committed and the aforementioned $1.3 million. This income was recorded because
of the RTC's agreement to compensate the Bank on the entire loan commitment
balance, whether or not the loans were purchased. The amounts were recorded as
other operating income because there were no earning assets for which to record
interest income.
Note 14 Income taxes
The components of income tax expense are as follows:
In thousands 1997 1996 1995
=================================================================
Current
Federal $ 581 $ 476 $ 571
State 113 81 103
- -----------------------------------------------------------------
Total current income tax expense 694 557 674
- -----------------------------------------------------------------
Deferred
Federal (90) (45) (172)
State (22) (8) (31)
- -----------------------------------------------------------------
Total deferred income tax
(benefit) expense (112) (53) (203)
- -----------------------------------------------------------------
Total income tax expense $ 582 $ 504 $ 471
=================================================================
A reconciliation between income tax expense and the total expected federal
income tax computed by multiplying pre-tax accounting income by the statutory
federal income tax rate is as follows:
In thousands 1997 1996 1995
================================================================
Federal income tax at statutory rate $ 561 $ 493 $ 433
Increase (decrease) in income tax
expense resulting from:
State income taxes, net of federal
benefit 60 48 48
Tax-exempt income (43) (39) (34)
Life insurance (15) (10) (7)
Change in valuation allowance (7) - -
Other, net 26 12 31
- ----------------------------------------------------------------
Total income tax expense $ 582 $ 504 $ 471
================================================================
<PAGE>
30
The tax effects of temporary differences that give rise to deferred tax assets
and liabilities at December 31 are as follows:
In thousands 1997 1996
================================================================
Deferred tax assets
Unrealized loss on investment securities
available for sale $ 6 $ 44
Reserve for other real estate owned 12 -
Deferred compensation 60 31
Other 32 25
- ----------------------------------------------------------------
Total deferred tax assets 110 100
Less: Valuation allowance - 7
- ----------------------------------------------------------------
Deferred tax asset 110 93
- ----------------------------------------------------------------
Deferred tax liabilities
Reserve for possible loan losses 243 307
Premises and equipment 20 13
Investment securities held to maturity 3 3
- ----------------------------------------------------------------
Deferred tax liability 266 323
- ----------------------------------------------------------------
Net deferred tax liability $(156) $(230)
================================================================
The net deferred liability represents the anticipated federal and state tax
liability to be incurred in future years upon the utilization of the underlying
tax attributes comprising this balance. Management believes, based on current
estimates of future taxable earnings, that more likely than not there will be
sufficient taxable income in future years to realize the total deferred tax
asset. Accordingly, the valuation allowance, which amounted to $7,000 at
December 31, 1996 was eliminated in 1997.
Note 15 Benefit plans
Savings plan
The Bank maintains an employee savings plan under section 401(k) of the Internal
Revenue Code covering all employees with at least six months of service.
Participants are allowed to make contributions to the plan by salary reduction,
up to 15% of total compensation. The Bank provides matching contributions of 25%
of the first 4% of basic participant salaries along with a 1% discretionary
contribution, subject to a vesting schedule. Contribution expense amounted to
$49,000 in 1997, $55,000 in 1996, and $36,000 in 1995.
Bonus plan
The Bank awards profit sharing bonuses to its officers and employees based on
the achievement of certain performance objectives. Bonuses charged to operating
expense in 1997, 1996 and 1995 amounted to $119,000 $90,000, and $119,000,
respectively.
Nonqualified benefit plans
During 1997, the Bank established a supplemental executive retirement plan
("SERP"), which provides a post employment supplemental retirement benefit to
certain key executive officers. SERP expense was $26,000 in 1997. The Bank also
has a director retirement plan ("DRIP"). DRIP expense was $19,000 in 1997 and
$10,000 in 1996.
Benefits under both plans will be funded through a bank-owned life insurance
policy, the cash surrender value of which is included in "Other assets" and
totalled $1.3 million and $330,000 at December 31, 1997 and 1996, respectively.
In addition, expenses for both plans along with the expense related to carrying
the policy itself are offset by increases in the cash surrender value of the
policy. Such increases are included in "Other income" and totalled $72,000 in
1997 and $3,000 in 1996, while the related life insurance expense was $28,000 in
1997 and $7,000 in 1996.
Stock options
During 1997, the Corporation issued 5,700 stock options at an exercise price of
$20, which represented the fair market value of the stock on the date of the
grant. The Corporation did not issue any stock options in 1996 or 1995. Under
Accounting Principles Board Opinion No. 25, compensation cost for the stock
options is not recognized because the exercise price of the stock options
equaled the market price of the underlying stock on the date of the grant. Had
compensation expense been recorded for stock options granted as determined under
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 123, net income would have been reduced by $2,000 in 1997, which would not
have affected the reported basic or diluted earnings per share.
The fair value of the option grant is estimated on the date of the grant using
the Black-Scholes option-pricing model with the following assumptions: dividend
yield of 8.75%, expected volatility of 15%, risk-free interest rate of 6% and
estimated option life of three years. The fair value of the options was $1.08
per share. The options vest equally over three years.
<PAGE>
31
Note 16 Preferred stock
The Corporation is authorized to issue noncumulative perpetual preferred stock
in one or more series, with no par value. Shares of preferred stock have
preference over the Corporation's common stock with respect to the payment of
dividends. Different series of preferred stock may have different stated or
liquidation values as well as different rates. Dividends are paid annually.
Set forth below is a summary of the Corporation's preferred stock issued and
outstanding.
Date Dividend Stated Number December 31,
Issued Rate Value of Shares 1997 1996
====================================================================
Series A 12/96 6.00% $25,000 8 $200,000 $200,000
Series B 3/96 8.00 25,000 20 500,000 500,000
Series C 2/96 8.00 250 108 27,000 27,000
Series D 6/97 6.50 250 3,280 820,000 -
- --------------------------------------------------------------------
$1,547,000 $727,000
====================================================================
Note 17 Restrictions on subsidiary bank dividends
Subject to applicable law, the Board of Directors of the Bank and of the
Corporation may provide for the payment of dividends when it is determined that
dividend payments are appropriate, taking into account factors including net
income, capital requirements, financial condition, alternative investment
options, tax implications, prevailing economic conditions, industry practices,
and other factors deemed to be relevant at the time.
Because CNB is a national banking association, it is subject to regulatory
limitation on the amount of dividends it may pay to CNBC, CNB's sole
stockholder. Prior approval of the Office of the Comptroller of the Currency
("OCC") is required if the total dividends declared by the Bank in any calendar
year exceeds net profit, as defined, for that year combined with the retained
net profits from the preceding two calendar years.
Under this limitation, the Bank could declare dividends in 1998 without prior
OCC approval of up to $1,641,000 plus the current year's net profit up to the
date of the declaration, subject to the restrictive covenants under long-term
debt agreements included in Note 12.
Note 18 Net income per common share
The following table presents the computation of net income per common share.
In thousands, except per share data 1997 1996 1995
=================================================================
Net income $ 1,069 $ 945 $ 802
Dividends paid on preferred stock (46) (2) -
- -----------------------------------------------------------------
Net income applicable to basic common
shares 1,023 943 802
Interest expense on convertible
subordinated debentures, net of income
taxes 13 13 13
- -----------------------------------------------------------------
Net income applicable to diluted common
shares $ 1,036 $ 956 $ 815
=================================================================
Number of average common shares
Basic 114,141 113,498 111,141
- -----------------------------------------------------------------
Diluted:
Average common shares outstanding 114,141 113,498 111,141
Average common shares converted from
convertible subordinate debentures 13,850 13,850 13,850
- -----------------------------------------------------------------
127,991 127,348 124,991
=================================================================
Net income per common share
Basic $ 8.98 $ 8.31 $ 7.22
Diluted 8.11 7.51 6.51
=================================================================
The stock options outstanding are not included as common stock equivalents in
the diluted net income per share calculation because they are not dilutive.
Note 19 Related party transactions
Certain directors of the Corporation and its subsidiary, including organizations
in which they are officers or have significant ownership, were customers of, and
had other transactions with the Bank in the ordinary course of business during
1997 and 1996. Such transactions were on substantially the same terms, including
interest rates and collateral with respect to loans, as those prevailing at the
time of comparable transactions with others. Further, such transactions did not
involve more than the normal risk of collectibility and did not include any
unfavorable features.
<PAGE>
32
Total loans to the aforementioned individuals and organizations amounted to
$336,000 and $352,000 at December 31, 1997 and 1996, respectively. The highest
amount of such indebtedness during 1997 was $357,000 and in 1996 amounted to
$375,000. During 1997, $16,000 of new loans were made and paydowns totalled
$32,000.
Note 20 Fair value of financial instruments
The fair value of financial instruments is the amount at which an asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced liquidation. Fair value estimates are made at a specific
point in time based on the type of financial instrument and relevant market
information.
Because no quoted market price exists for a significant portion of the
Corporation's financial instruments, the fair values of such financial
instruments are derived based on the amount and timing of future cash flows,
estimated discount rates, as well as management's best judgment with respect to
current economic conditions. Many of these estimates involve uncertainties and
matters of significant judgment and cannot be determined with precision.
The fair value information provided is indicative of the estimated fair values
of those financial instruments and should not be interpreted as an estimate of
the fair market value of the Corporation taken as a whole. The disclosures do
not address the value of recognized and unrecognized nonfinancial assets and
liabilities or the value of future anticipated business. In addition, tax
implications related to the realization of the unrealized gains and losses could
have a substantial impact on these fair value estimates and have not been
incorporated into any of the estimates.
The following methods and assumptions were used to estimate the fair values of
significant financial instruments at December 31, 1997 and 1996.
Cash and short-term investments
These financial instruments have relatively short maturities or no defined
maturities but are payable on demand, with little or no credit risk. For these
instruments, the carrying amounts represent a reasonable estimate of fair value.
Investment securities
Investment securities are reported at their fair values based on quoted market
prices.
Loans
Fair values were estimated for performing loans by discounting the future cash
flows using market discount rates that reflect the credit and interest-rate risk
inherent in the loans. Fair value for significant nonperforming loans was based
on recent external appraisals of collateral securing such loans. If such
appraisals were not available, estimated cash flows were discounted employing a
rate incorporating the risk associated with such cash flows.
Deposit liabilities
The fair values of demand deposits, savings deposits and money market accounts
were the amounts payable on demand at December 31, 1997 and 1996. The fair value
of time deposits was based on the discounted value of contractual cash flows.
The discount rate was estimated utilizing the rates currently offered for
deposits of similar remaining maturities.
Short-term borrowings
For such short-term borrowings, the carrying amount was considered to be a
reasonable estimate of fair value.
Long-term debt
The fair value of long-term debt was estimated based on rates currently
available to the Corporation for debt with similar terms and remaining
maturities.
Commitments to extend credit and letters of credit
The estimated fair value of financial instruments with off-balance sheet risk is
not significant at December 31, 1997 and 1996.
<PAGE>
33
The following table presents the carrying amounts and fair values of financial
instruments at December 31:
1997 1996
- ---------------------------------------------------------------------------
Carrying Fair Carrying Fair
In thousands Value Value Value Value
===========================================================================
Financial assets
Cash and other short-term
investments $ 13,300 $ 13,300 $ 11,741 $ 11,741
Investment securities AFS 32,694 32,694 30,997 30,997
Investment securities HTM 29,666 29,638 29,866 29,517
Loans 56,122 58,607 56,378 57,368
Loans held for sale 807 807 291 291
Financial liabilities
Deposits $119,717 $117,965 $115,854 $115,804
Short-term borrowings 4,213 4,213 5,175 5,175
Long-term debt 3,749 3,726 1,749 1,634
===========================================================================
Note 21 Commitments and contingencies
In the normal course of business, the Corporation or its subsidiary may, from
time to time, be party to various legal proceedings relating to the conduct of
its business. In the opinion of management, the consolidated financial
statements will not be materially affected by the outcome of any pending legal
proceedings.
Note 22 Financial instruments with off-balance sheet risk
The Bank is 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 lines of credit, commitments to extend standby
letters of credit, and could involve, to varying degrees, elements of credit
risk in excess of the amounts recognized in the consolidated financial
statements.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual amounts of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on balance sheet instruments with credit
risk.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require the payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis, and the amount of collateral or other
security obtained is based on management's credit evaluation of the customer.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. These guarantees are
primarily issued to support borrowing arrangements and extend for up to one
year. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers.
Accordingly, collateral is generally required to support the commitment.
At December 31,1997 and 1996 the Bank had mortgage commitments of $7,187,000 and
$3,183,000, unused corporate lines of credit of $23,100,000 and $13,200,000, and
$257,000 and $1,543,000 of other loan commitments, respectively.
The aforementioned commitments and credit lines are made at both fixed and
floating rates of interest based on the Bank's prime lending rate.
<PAGE>
34
Note 23 Parent Company Information
Condensed financial statements of the parent company only are presented below.
Condensed Balance Sheet
December 31,
In thousands 1997 1996
================================================================
Assets
Cash and cash equivalents $ 21 $ 26
Investment securities held to maturity 773 -
Investment securities available for sale 100 -
Investment in subsidiary 10,627 9,726
Due from subsidiary 249 249
Other assets 20 45
- -----------------------------------------------------------------
Total assets $11,790 $10,046
=================================================================
Liabilities and stockholders' equity
Other liabilities $ 9 $ 10
Long-term debt 1,749 1,749
- -----------------------------------------------------------------
Total liabilities 1,758 1,759
Stockholders' equity 10,032 8,287
- -----------------------------------------------------------------
Total liabilities and stockholders' equity $11,790 $10,046
=================================================================
Condensed Statement of Income
Year Ended December 31,
In thousands 1997 1996 1995
=================================================================
Income
Interest income $ 29 $ - $ -
Dividends from subsidiary 271 194 141
Interest from subsidiary 20 20 20
- -----------------------------------------------------------------
Total income 320 214 161
- -----------------------------------------------------------------
Expenses
Interest expense 99 99 20
Other operating expenses 1 7 -
Income tax benefit (12) (34) -
- -----------------------------------------------------------------
Total expenses 88 72 20
- -----------------------------------------------------------------
Income before equity in undistributed
net income of subsidiary 232 142 141
Equity in undistributed income
of subsidiary 837 803 661
- -----------------------------------------------------------------
Net income $ 1,069 $ 945 $ 802
=================================================================
<PAGE>
35
Condensed Statement of Cash Flows
Year Ended December 31,
- -----------------------------------------------------------------
In thousands 1997 1996 1995
=================================================================
Operating activities
Net income $ 1,069 $ 945 $ 802
Adjustments to reconcile net income
to cash used in operating activities:
Equity in undistributed net income
of subsidiary (837) (803) (661)
Decrease (increase) in other assets 25 (34) (1)
Decrease in other liabilities (1) - -
- -----------------------------------------------------------------
Net cash from operating activities 256 108 140
- -----------------------------------------------------------------
Investing activities
Purchase of investment securities
available for sale (764) - -
Purchase of investment securities
held to maturity (100) - -
Capital contribution to subsidiary - (500) (1,700)
- ------------------------------------------------------------------
Net cash used in investing activities (864) (500) (1,700)
- ------------------------------------------------------------------
Financing activities
Proceeds from issuance of
long-term debt - - 1,500
Proceeds from issuance of common stock - 45 -
Proceeds from issuance of preferred
stock 820 527 200
Dividends paid (217) (156) (140)
- ------------------------------------------------------------------
Net cash from financing activities 603 416 1,560
- ------------------------------------------------------------------
(Decrease) increase in cash and
cash equivalents (5) 24 -
Cash and cash equivalents at
beginning of year 26 4 4
- ------------------------------------------------------------------
Cash and cash equivalents at
end of year $ 21 $ 28 $ 4
==================================================================
Note 24 Regulatory Capital Requirements
FDIC regulations require banks to maintain minimum levels of regulatory capital.
Under the regulations in effect at December 31, 1997, the Bank was required to
maintain (i) a minimum leverage ratio of Tier 1 capital to total average assets
of 4.0%, and (ii) minimum ratios of Tier I and total capital to risk-adjusted
assets of 4.0% and 8.0%, respectively.
Under its prompt corrective action regulations, the FDIC is required to take
certain supervisory actions (and may take additional discretionary actions) with
respect to an undercapitalized bank. Such actions could have a direct material
effect on such bank's financial statements. The regulations establish a
framework for the classification of banks into five categories:
well-capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. Generally, a bank is
considered well-capitalized if it has a leverage capital ratio of at least 5.0%,
a Tier 1 risk-based capital ratio of at least 6.0% and a total risk-based
capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative measures
of assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. Capital amounts and classifications are also
subject to qualitative judgments by the FDIC about capital components, risk
adjustments and other factors.
Management believes that, as of December 31, 1997, the Bank meets all capital
adequacy requirements to which it is subject. Further, the most recent FDIC
notification categorized the Bank as a well-capitalized institution under the
prompt corrective action regulations. There have been no conditions or events
since that notification that management believes have changed the Bank's capital
classification.
<PAGE>
36
The following is a summary of the Bank's actual capital amounts and ratios as of
December 31, 1997 and 1996, compared to the FDIC minimum capital adequacy
requirements and the FDIC requirements for classification as a well-capitalized
Bank:
In thousands FDIC Requirements
==============================================================================
Minimum Capital For Classification
Bank Actual Adequacy as Well-Capitalized
- ------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
December 31, 1997
Leverage (Tier 1)
capital $10,617 7.90% $5,375 4.00% $6,719 5.00%
Risk-based capital:
Tier 1 10,617 17.17 2,473 4.00 3,709 6.00
Total 11,639 18.83 4,846 8.00 6,182 10.00
December 31, 1996
Leverage (Tier 1)
capital 9,771 7.01 5,578 4.00 6,972 5.00
Risk-based capital:
Tier 1 9,771 16.65 2,347 4.00 3,521 6.00
Total 10,754 18.33 4,694 8.00 5,868 10.00
==============================================================================
Note 25 Summary of quarterly financial information (unaudited)
1997
- ------------------------------------------------------------------
Dollars in thousands, First Second Third Fourth
except per share data Quarter Quarter Quarter Quarter
==================================================================
Interest income $2,301 $2,432 $2,424 $2,414
Interest expense 1,005 1,126 1,120 1,079
- ------------------------------------------------------------------
Net interest income 1,296 1,306 1,304 1,335
Provision (credit) for
possible loan losses 27 23 (7) 116
Net gains (losses) on sales of
investment securities 21 19 (21) (1)
Other operating income 301 288 273 319
Other operating expenses 1,194 1,195 1,163 1,078
- -------------------------------------------------------------------
Income before income
tax expense 397 395 400 459
Income tax expense 144 143 145 150
- -------------------------------------------------------------------
Net income $ 253 $ 252 $ 255 $ 309
===================================================================
Net income per share
(basic) $ 1.83 $ 2.21 $ 2.22 $ 2.72
===================================================================
Net income per share
(diluted) $ 1.66 $ 1.99 $ 2.00 $ 2.46
===================================================================
1996
- -------------------------------------------------------------------
Dollars in thousands, First Second Third Fourth
except per share data Quarter Quarter Quarter Quarter
===================================================================
Interest income $2,057 $2,225 $2,346 $2,406
Interest expense 787 887 1,006 1,122
- -------------------------------------------------------------------
Net interest income 1,270 1,338 1,340 1,284
Provision for
possible loan losses 10 23 32 26
Net gains (losses) on sales of
investment securities 10 (1) (1) (1)
Other operating income 312 300 240 288
Other operating expenses 1,164 1,164 1,320 1,191
- -------------------------------------------------------------------
Income before income
tax expense 418 450 227 354
Income tax expense 146 157 82 119
- -------------------------------------------------------------------
Net income $ 272 $ 293 $ 145 $ 235
===================================================================
Net income per share
(basic) $ 2.37 $ 2.55 $ 1.25 $ 2.14
===================================================================
Net income per share
(diluted) $ 2.10 $ 2.27 $ 1.12 $ 2.02
===================================================================
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure There were no changes in or disagreements with accounts during 1997.
<PAGE>
37
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required is incorporated herein by by reference to the material
responsive to such item in the Corporation's Proxy Statement for the Annual
Meeting of Stockholders to be held on May 21, 1998.
Item 11. Executive Compensation
The information required is incorporated herein by by reference to the material
responsive to such item in the Corporation's Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required is incorporated herein by by reference to the material
responsive to such item in the Corporation's Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required is incorporated herein by by reference to the material
responsive to such item in the Corporation's Proxy Statement.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
The following exhibits are incorporated herein by reference or are annexed to
this Annual Report:
(a) The required financial statements and the related independent auditor's
report are included in Item 8.
(b) The required exhibits are included as follows:
(3)(a) The Corporation's Restated Articles of Incorporation
(incorporated herein by reference to Exhibit (3)(d) of the
Corporation's Current Report on Form 8-K dated July 28, 1992).
(3)(b) Amendments to the Corporation's Articles of Incorporation
establishing the Corporation's Non-cumulative Perpetual
Preferred Stock, Series A (incorporated herein by reference to
Exhibit (3)(b) of the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1995).
(3)(c) Amendments to the Corporation's Articles of Incorporation
establishing the Corporation's Non-cumulative Perpetual
Preferred Stock, Series B (incorporated herein by reference to
Exhibit (3)(c) of the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1995).
(3)(d) Amendments to the Corporation's Articles of Incorporation
establishing the Corporation's Non-cumulative Perpetual
Preferred Stock, Series C (incorporated herein by reference to
Exhibit (3(i) to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1996).
(3)(e) Amendments to the Corporation's Articles of Incorporation
establishing the Corporation's Non-cumulative Perpetual
Preferred Stock, Series D (incorporated herein by reference to
Exhibit filed with the Corporation's current report on Form
10-K dated July 10, 1997).
(3)(f) The amended By-Laws of the Corporation (incorporated herein by
reference to Exhibit (3)(c) of the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1991).
(4)(a) The Debenture Agreements between the Corporation and its
Noteholders (incorporated herein by reference to Exhibit
(4)(a) of the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1993).
(4)(b) Note Agreement dated December 28, 1995 by and between the
Corporation and the Prudential Foundation (incorporated herein
by reference to Exhibit (4)(b) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995).
(10)(a) The Employees' Profit Sharing Plan of City National Bank of
New Jersey (incorporated herein by reference to Exhibit (10)
of the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1988).
(10)(b) The Employment Agreement among the Corporation, the bank and
Louis E. Prezeau dated May 24, 1997 (incorporated herein by
reference to Exhibit 10 to the Corporation's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997).
<PAGE>
38
(10)(d) Lease and Option Agreement dated May 6, 1994 by and between
the Resolution Trust Corporation and City National Bank of New
Jersey (incorporated herein by reference to Exhibit (10)(d) to
the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1995).
(10)(p) Asset Purchase and Sale Agreement between the Bank and Carver
Federal Savings Bank dated as of January 26, 1998.
(11) Statement regarding computation of per share earnings. The
required information is included on page 24.
(12) Ratios have been computed using the average daily balances of
the respective asset, liability and stockholders' equity
accounts.
(13) Annual Report to security holders for the fiscal year ended
December 31, 1997.
(21) Subsidiaries of the registrant. The required information is
included on page 1.
(24) Power of Attorney is located on the signature page.
(27) Financial Data Schedule.
(c) No reports on Form 8-K were filed during the quarter ended December 31,
1997.
<PAGE>
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, City National Bancshares Corporation has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized:
CITY NATIONAL BANCSHARES CORPORATION
By: /s/ Louis E. Prezeau By: /s/ Edward R. Wright
---------------------- --------------------
Louis E. Prezeau Edward R. Wright
President and Chief Chief Financial Officer
Executive Officer and Principal Accounting Officer
Date: March 26, 1998 Date: March 26, 1998
Pursuant to the requirements 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. The undersigned hereby constitute
and appoint Louis E. Prezeau his true and lawful attorney in fact and agent,
with full power of substitution and resubstitution, to sign any and all
amendments to this report and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission granting unto said attorney in fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as he or she might or could in person, hereby ratifying and confirming all that
said attorney in fact and agent, may lawfully do or cause to be done by virtue
hereof.
Signature Title Date
/s/ Douglas E. Anderson Director March 26, 1998
- --------------------------
Douglas E. Anderson
/s/ Barbara Bell Coleman Director March 26, 1998
- --------------------------
Barbara Bell Coleman
/s/ Leon Ewing Director March 26, 1998
- --------------------------
Leon Ewing
/s/ Eugene Giscombe Director, March 26, 1998
- -------------------------- Chairperson of the Board
Eugene Giscombe
/s/ Norman Jeffries Director March 26, 1998
- --------------------------
Norman Jeffries
/s/ Louis E. Prezeau Director, March 26, 1998
- -------------------------- President and Chief
Louis E. Prezeau Executive Officer
/s/ Lemar C. Whigham Director March 26, 1998
- --------------------------
Lemar C. Whigham
EXECUTION COPY
ASSET PURCHASE AND SALE AGREEMENT
ROOSEVELT BRANCH OFFICE
DATED AS OF JANUARY 26, 1998
BETWEEN
CARVER FEDERAL SAVINGS BANK
AND
CITY NATIONAL BANK OF NEW JERSEY
<PAGE>
TABLE OF CONTENTS
Page No.
ARTICLE I
DEFINITIONS
ARTICLE II
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES
2.1. Purchase and Sale of Assets 7
2.2. Excluded Assets and Liabilities 8
2.3. Assignment and Assumption of Deposits 8
2.4. Assignment and Assumption of Other Liabilities 8
2.5. Adjustment for Income, Expenses, Pre-payments and Fees 8
2.6. Estimated Transfer Payment 9
2.7. Post-Closing Schedule 10
2.8. Final Settlement 11
2.9. Allocation of Purchase Price 11
2.10. Limited Warranty; Nonrecourse; Conveyance 12
2.11. Risk of Loss; Repairs 12
2.12. Removal of the Excluded Personal Property 13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1. Corporate Organization and Powers 14
3.2. Corporate Authority; No Violation 14
3.3. Consents and Approvals 15
3.4. Compliance With Law 15
3.5. Title to Assets 16
3.6. Contracts and the Lease 16
3.7. Assignment of Assumed Liabilities 17
3.8. Litigation 17
3.9. Environmental 18
3.10. Finders or Brokers 18
3.11. Financial Information 19
3.12. Taxes 19
3.13. State of the Leased Property 20
3.14. Employees 20
3.15. Deposit Insurance 20
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
4.1. Corporate Organization and Powers 21
4.2. Corporate Authority; No Violation 21
4.3. Consents and Approvals 22
4.4. Litigation 22
4.5. Finders or Brokers 22
4.6. Estimates, Projections and Other Predictions 22
ARTICLE V
COVENANTS OF THE PARTIES
5.1. Business Obligations 23
5.2. Cooperation and Further Assurances. 24
5.3. Legal and Regulatory Matters 24
5.4. Payment of Liabilities 25
5.5. Interest Reporting 25
5.6. Transfer Fees 25
5.7. Reports 25
5.8. Branch Account Report 26
5.9. General Notices to Depositors 26
5.10. Insurance 27
5.11. Use of Names, Trademarks and Service Marks 27
5.12. Additional Contracts 28
5.13. Updating Schedules 28
5.14. General Conversion Matters 28
5.15. Covenant Not to Compete 28
ARTICLE VI
EMPLOYEE MATTERS
6.1. Employee Matters 29
6.2. Notice of Closing 30
ARTICLE VII
CERTAIN TAX MATTERS
7.1. Certain Tax Matters 31
7.2. Bulk Sales Procedures and Sales Tax 32
ARTICLE VIII
OBLIGATIONS OF PARTIES ON THE CLOSING DATE
8.1. Closing Date/Closing 32
8.2. Obligations of Seller on the Closing Date 33
8.3. Obligations of Purchaser on the Closing Date 33
ARTICLE IX
CONDITIONS TO EACH PARTY'S OBLIGATIONS
9.1. Approval of Governmental Authorities 33
9.2. No Injunctions or Restraints 34
9.3. Illegality 34
ARTICLE X
CONDITIONS TO PURCHASER'S OBLIGATIONS
10.1. Representations and Warranties True; Obligations Performed 34
10.2. Opinion of Counsel 35
10.3. No Pending Proceedings or Governmental Actions 35
10.4. Consents 35
ARTICLE XI
CONDITIONS TO SELLER'S OBLIGATIONS
11.1. Representations and Warranties True; Obligations Performed 35
11.2. Opinion of Counsel 35
11.3. No Pending Proceedings or Governmental Actions 36
11.4. Consents 36
ARTICLE XII
INDEMNIFICATION
12.1. Seller to Indemnify 36
12.2. Purchaser to Indemnify 37
12.3. Procedure for Indemnification 38
12.4. Production of Witnesses 40
12.5. Survival 40
ARTICLE XIII
TERMINATION
13.1. Methods of Termination 40
13.2. Effect of Termination 41
ARTICLE XIV
GENERAL PROVISIONS
14.1. Entire Agreement; Modification; Waiver 42
14.2. Counterparts 42
14.3. Headings 42
14.4. Payment of Expenses 42
14.5. Governing Law 42
14.6. Addresses of Notice 42
14.7. Publicity 43
14.8. Severability 44
14.9. Enforcement of the Agreement 44
14.10. Binding Nature; Assignment 44
14.11. No Third Party Rights 44
EXHIBITS
EXHIBIT A: BRANCH OFFICE
EXHIBIT B: GENERAL CONVERSION MATTERS
EXHIBIT C: BILL OF SALE
EXHIBIT D: INSTRUMENT OF ASSUMPTION
EXHIBIT E: SELLER'S OPINION OF COUNSEL
EXHIBIT F: PURCHASER'S OPINION OF COUNSEL
EXHIBIT G: NEW YORK MASTER ASSIGNMENT AND ASSUMPTION OF LEASE
EXHIBIT H: LANDLORD CONSENT AND ESTOPPEL CERTIFICATE AND AGREEMENT
REGARDING LEASE
SCHEDULES
Schedule 2.1(b) - Loans
Schedule 2.1(c) - Leased Property
Schedule 2.1(d)-1 - Furniture, Fixture and Equipment
Schedule 2.1(d)-2 - Excluded Personal Property
Schedule 2.1(f) - Contracts
Schedule 2.1(i) - Leasehold Improvements
Schedule 2.2 - Excluded Assets
Schedule 2.3 - Deposits
Schedule 2.6(a) - Book Value Schedule
Schedule 2.9 - Allocation of Purchase Price
Schedule 3.3 - Seller's Consents and Approvals
Schedule 3.4 - Violation of Law
Schedule 3.5(b) - Encumbrances to the Leased Property
Schedule 3.6(b) - Major Contracts
Schedule 3.8 - Legal Actions
Schedule 3.9 - Exception to Environmental Warranties and Representations
Schedule 3.10 - Seller's Broker
Schedule 3.14 - Employees
Schedule 4.3 - Purchaser's Consents and Approvals
Schedule 4.4 - Purchaser's Legal Action
Schedule 4.5 - Purchaser's Broker
Schedule 5.1 - Business Exceptions
<PAGE>
ASSET PURCHASE AND SALE AGREEMENT
THIS ASSET PURCHASE AND SALE AGREEMENT (the "Agreement") is
made as of January 26, 1998, by and between Carver Federal Savings Bank (the
"Seller") and City National Bank of New Jersey (the "Purchaser").
R E C I T A L S
WHEREAS, Seller maintains a branch office listed in Exhibit A
(the "Branch Office");
WHEREAS, Seller desires to sell and Purchaser desires to
acquire and operate the Branch Office and the business conducted at the Branch
Office;
WHEREAS, Seller desires to assign to Purchaser and Purchaser
desires to assume from Seller certain liabilities relating to the Branch Office
and the business conducted at the Branch Office, including certain obligations
and liabilities relating to the deposits of the Branch Office and certain other
obligations of Seller;
NOW, THEREFORE, in consideration of the foregoing recitals and
the following terms, covenants, and conditions, the parties agree as follows:
ARTICLE I
DEFINITIONS
0.1. "ACH Accounts" is defined in the definition of "Deposits."
0.2. "ACH Items" is defined in the definition of "Deposits."
0.3. "Additional Contract" is defined in Section 5.12.
0.4. "Affiliates" is defined in Section 12.1.
0.5. "Assumed Liabilities" is defined in Section 2.4.
0.6. "Assets" is defined in Section 2.1.
0.7. "ATM" is defined in Section 2.1(a).
1.7.A "Benefit Plans" shall mean plans maintained by Seller to provide
health, accident, disability, or retirement benefits to its employees.
1.7 B "BIF" means the Bank Insurance Fund.
0.8. "Book Value Schedule" is defined in Section 2.6(a).
0.9. "Branch Account" is defined in Section 5.8.
0.10. "Branch Account Report" is defined in Section 5.8.
0.11. "Business Day" means any day (other than a Saturday or Sunday) on which
banking institutions shall generally be open for the transaction of business in
the State of New York and the State of New Jersey.
0.12. "Business Retirement Plan", "BRP", "Keogh Account" or "Keogh" means an
account created by a trust for the benefit of employees (some or all of whom are
owner-employees) that complies with the provisions of Section 401 of the Code.
0.13. "Cash" is defined in Section 2.1(a).
0.14. "Closing" is defined in Section 8.1(b).
0.15. "Closing Date" is defined in Section 8.1(a).
0.16. "Code" is defined in Section 2.9.
0.17. "Collection Accounts" is defined in the definition of "Deposits."
0.18. "Confidential Information" is defined in Section 5.2.
0.19. "Contracts" is defined in Section 2.1(f).
1.19A "Covenant Not to Compete" is defined in Section 5.15.
0.20. The term "Deposits" shall mean all deposits (as defined in Section 31(1)
of the Federal Deposit Insurance Act as amended ("FDIA"), 12 U.S.C. Section
1813(1)), including without limitation the aggregate balances of all savings
accounts (including certificates of deposit) domiciled at the Branch Office as
of the close of business on the Closing Date, including accounts accessible by
negotiable orders of withdrawal ("NOW") or other demand instruments; all deposit
accounts maintained by a customer for the stated purpose of the accumulation of
funds to be drawn upon at retirement ("Retirement Accounts"); all deposit
accounts domiciled at the Branch Office through which Seller accepts payments or
deposits for credit or deposit to another account domiciled at such Branch
Office (the "Collection Accounts"); all deposit accounts subject to arrangements
between the owner of the account and a third party which directly makes
automated clearing house debits and credits, including, but not limited to,
social security payments, Federal recurring payments, and other payments debited
and/or credited on a regularly scheduled basis to or from such accounts (such
payments being hereinafter referred to as the "ACH Items" and such accounts
being hereinafter referred to as the "ACH Accounts"); and all other accounts and
deposits, together with interest, if any, that is accrued but unposted as of the
close of business on the Closing Date provided that notwithstanding anything to
the contrary contained in this Agreement, Seller shall not assign, and Purchaser
shall not assume, any Deposits subject to or involved in any form of litigation,
any Deposits as to which assets of Seller have been pledged as security for
amounts in excess of the FDIC insured limits or any "Escheatable Deposits."
0.21. "Deposit Obligations" is defined in Section 2.3.
0.22. "Deposit Premium" is defined in Section 2.6(b).
0.23. "Disagreement" is defined in Section 2.7(b).
0.24. "Employees" means all persons employed by Seller at the Branch Office.
0.25. "Encumbrances" is defined in Section 3.5.
0.26. "Environmental Laws" means all applicable federal, state and local
laws and regulations and rules relating to pollution or the discharge of
Hazardous Substances into the environment.
0.27. "Escheatable Deposits" means Deposits held on the Closing Date at the
Branch Office which, in the absence of any claim by the depositor thereof, is or
will become subject to escheat, in the calendar year in which the Closing
occurs, to the State of New York or any other state pursuant to applicable
escheat and unclaimed property laws.
0.28. "Estimation Date" is defined in Section 2.6(a).
0.29. "Estimated Cash" is defined in Section 2.6(a).
0.30. "Estimated Deposits" is defined in Section 2.6(a).
0.31. "Estimated Loan Payment" is defined in Section 2.6(a).
0.32. "Estimated Pro-Rata Adjustment" is defined in Section 2.6(a).
0.33. "Estimated Transfer Amount" is defined in Section 2.6(b).
0.34. "Excluded Assets" is defined in Section 2.2(a).
0.35. "Excluded Liabilities" is defined in Section 2.2(b).
0.36. "FDIA" is defined in the definition of "Deposits."
0.37. "FDIC" means Federal Deposit Insurance Corporation.
0.38. "FDIC Assessments" is defined in Section 2.5.
0.39. "Final Settlement Date" is defined in Section 2.8.
0.40. "Final Transfer Amount" is defined in Section 2.8.
0.41. "FIRPTA Affidavit" is defined in Section 7.1(d).
0.42. "GAAP" is defined in Section 3.11(a).
0.43. "Government Entity" is defined in Section 3.3(a).
0.44. "Hazardous Substances" means the definition of hazardous substances set
forth in the Federal Comprehensive Environmental Response Compensation and
Liability Act, as amended.
0.45. "Indemnitee" is defined in Section 12.3(a).
0.46. "Indemnifying Party" is defined in Section 12.3(a).
0.47. "Interest Period" is defined in Section 2.8.
0.48. "IRA" means individual retirement account.
0.49. "IRS" means Internal Revenue Service.
0.50. "Keogh Account" or "Keogh" has the same meaning as "Business Retirement
Plan" or "BRP."
0.51. "Leased Property" is defined in Section 2.1(c).
0.52. "Leasehold Improvements" is in defined Section 2.1(g).
0.53. "Lease" is defined in Section 2.1(c).
0.54. "Legal Action" is defined in Section 3.8.
0.55. "Loans" is defined in Section 2.1(b).
0.56. "Losses" is defined in Section 12.1.
0.57. "Material Adverse Effect" means, as to Seller, a material adverse effect
on the Assets or on the business or operations conducted by Seller at the Branch
Office or on the ability of the Seller to consummate the transactions
contemplated by this Agreement in accordance with its terms thereof; and, as to
Purchaser, a material adverse effect on the business or operation of Purchaser
or the ability of Purchaser to consummate the transactions contemplated by this
Agreement in accordance with its terms.
0.58. "Material Part" is defined in Section 2.11(e).
0.59. "Material Violation" means a violation which, individually or in the
aggregate with all other such violations, would have a Material Adverse Effect
or constitute or give rise to a default under, result in the termination of or a
right of termination or cancellation under, accelerate the performance required
by, or result in the creation of any lien, pledge, security interest, charge or
other encumbrance upon any of the Assets, any of the assets of Purchaser or
assets of Seller relating to the Branch Office under any Purchaser or Seller
Agreement.
0.60. "Names" is defined in Section 5.11.
0.61. "NOW" is defined in the definition of "Deposits."
0.62. "Notice of Disagreement" is defined in Section 2.7(b).
0.63. "Other Liabilities" is defined in Section 2.4.
0.64. "Permits" is defined in Section 3.4(c).
0.65. "Personal Property" is defined in Section 2.1(d).
0.66. "Post-Closing Schedule" is defined in Section 2.7(a).
0.67. "Properties" is defined in Section 3.9.
0.68. "Pro-Rata Adjustment" is defined in Section 2.5.
0.69. "Pro-Rated Items" is defined in Section 2.5.
0.70. "Purchaser" means City National Bank of New Jersey.
0.71. "Purchaser Agreement" is defined in Section 4.2(b).
0.72. "Purchaser's Account" is defined in Section 2.6(b).
0.73. "Purchaser's Indemnified Parties" is defined in Section 12.1.
0.74. "Records" means all records and original documents in Seller's possession
which pertain to and are utilized by Seller to administer, reflect, monitor,
evidence or record information respecting the business or conduct of the Branch
Office and all such records and original documents respecting (i) the Contracts,
(ii) the Assets, (iii) the Deposits and (iv) the Employees (except confidential
employee records for which consents to release such records to Purchaser shall
not have been obtained from the relevant employee), including all such records
maintained on electronic or magnetic media in the electronic data base system of
Seller or to comply with any applicable federal or state law or governmental
regulation to which the Deposits are subject, including but not limited to
Federal Reserve Board Regulation E (12 C.F.R. ss.205), Federal Reserve Board
Regulation CC (12 C.F.R. ss.229) and any relevant escheat and unclaimed property
laws.
0.75. "Requisite Regulatory Approvals" is defined in Section 9.1.
0.76. "Retirement Accounts" is defined in the definition of "Deposits."
0.77. "Returned Items" is defined in Exhibit B.
0.78. "Review Period" is defined in Section 2.7(b).
0.79. "Safe Deposit Box Assets" is defined in Section 2.1(g).
0.80. "Seller" means Carver Federal Savings Bank.
0.81. "Seller Agreement" is defined in Section 3.2(b)(iii).
0.82. "Seller's Account" is defined in Section 2.8.
0.83. "Seller's Indemnified Parties" is defined in Section 12.2.
0.84. "SAIF" means the Savings Association Insurance Fund.
0.85. "Taxes" means all taxes, charges, fees, levies or other like assessments,
including, without limitation, income, gross receipts, excise, real and personal
and intangible property, sales, use, transfer (including transfer gains taxes),
withholding, license, payroll, recording, ad valorem and franchise taxes imposed
by the United States, or any state, local or foreign government or subdivision
or agency thereof; and such term shall include any interest, penalties or
additions to tax attributable to such assessments.
0.86. "Tax Return" shall mean any report, return or other information required
to be supplied to a taxing authority in connection with Taxes.
0.87. "Taxpayer Information" is defined in Exhibit B.
0.88. "Termination Date" is defined in Section 13.1(b).
0.89. "TIN" means taxpayer identification number.
0.90. "Third Party" is defined in Section 12.3(a).
0.91. "Third Party Claim" is defined in Section 12.3(a).
0.92. "Transfer Taxes" is defined in Section 7.1(b).
ARTICLE II
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES
0.93. Purchase and Sale of Assets .
On the Closing Date, Seller shall sell, transfer, assign, convey and
deliver to Purchaser, and Purchaser shall purchase and acquire from Seller, all
of Seller's right, title and interest in and to the following assets
(collectively, the "Assets") relating to the Branch Office as of the Closing
Date:
(a) Cash on Hand. All petty cash, vault cash, teller cash, automated
teller machine ("ATM") cash and any other cash at or held for the account of the
Branch Office (the "Cash") as of the close of business on the Closing Date.
(b) Loans. All savings account loans secured by an interest in Deposits
and loans made by and reflected on the books of the Branch Office in connection
with automatic loan reserves (i.e., overdraft protection relating to Deposits),
together with all interest thereon that shall accrue but not be received by
Seller on or prior to the Closing Date (the "Loans"). Attached hereto is
Schedule 2.1(b) which sets forth a summary of all Loans.
(c) Real Property. The leasehold interest in real property described in
Schedule 2.1(c) (the "Leased Property") and all of Seller's rights with respect
to the occupancy of the Leased Property (the "Lease").
(d) Personal Property. The personal property set forth on Schedule
2.1(d)-1, which is located at the Branch Office on the Closing Date and owned by
Seller (including without limitation furniture, fixtures and equipment) but
excluding the property set forth on Schedule 2.1(d)-2 ("Personal Property").
(e) Records. All Records, which shall be segregated by Seller.
(f) Contracts. The contract rights, licenses, permits, approvals,
authorizations and franchises set forth on Schedule 2.1(f), together with any
additional contract rights added to such Schedule pursuant to Section 5.12
hereof (the "Contracts").
(g) Safe Deposit Box Assets. All assets related to the safe deposit box
business located at the Branch Office as of the close of business on the Closing
Date, except those currently being held by Seller for delivery to the
Comptroller of the State of New York in accordance with the Abandoned Property
Law of the State of New York (the "Safe Deposit Box Assets").
(h) Intangibles. The core deposit intangibles associated with the
assumption of Deposits pursuant to Section 2.3 hereto.
(i) Leased Improvements. All leasehold improvements (to the extent not
otherwise included as Personal Property) located at the Branch Office on the
Closing Date set forth on Schedule 2.1(i) (the "Leasehold
Improvements").
0.94. Excluded Assets and Liabilities .
(a) It is understood and agreed that Purchaser is not acquiring from
Seller, and Seller shall retain ownership of all right, title and interest in
and to, any property or asset which is not being transferred pursuant to Section
2.1 hereof, including but not limited to (i) the existing name of Seller or any
derivation thereof and (ii) any logos, service marks, trademarks, advertising
material, slogans, or similar items used on or prior to the Closing Date by
Seller in connection with its business, and the assets and liabilities set forth
on Schedule 2.2 (collectively, the "Excluded Assets").
(b) Except as expressly set forth in this Agreement, Purchaser shall
not assume or be liable for any of the debts, obligations or liabilities of
Seller of any kind or nature whatsoever (whether or not accrued or fixed,
absolute or contingent, known or unknown), and Seller shall remain and be solely
and exclusively liable with regard to such debts, liabilities and obligations
(collectively, the "Excluded Liabilities").
0.95. Assignment and Assumption of Deposits .
Schedule 2.3., attached hereto, sets forth a summary of all the
Deposits at December 31, 1997 and at January 15, 1998. Within 5 Business Days of
the Closing Date, Seller shall provide Purchaser with a revised Schedule 2.3
which sets forth a summary of all the Deposits. At the Closing, Seller shall
assign to Purchaser, and Purchaser shall (a) accept and assume from Seller and
(b) pay, perform and discharge all obligations with respect to and be solely
liable for all Deposits domiciled at the Branch Office (the "Deposit
Obligations").
0.96. Assignment and Assumption of Other Liabilities .
Subject to the terms and conditions set forth in this Agreement, on the
Closing Date, Seller shall assign to Purchaser, and Purchaser shall (a) accept
and assume from Seller and (b) pay, perform and discharge all obligations with
respect to and be solely liable for the liabilities and obligations that arise
under the Contracts, which liabilities and obligations become due and payable
after the close of business on the Closing Date (the "Other Liabilities"). The
Deposit Obligations and the Other Liabilities shall collectively be referred to
as the "Assumed Liabilities."
0.97. Adjustment for Income, Expenses, Pre-payments and Fees .
(a) All items of income, operating expenses, prepayments and fees
relating to the Assets and Assumed Liabilities, whether accrued or prepaid prior
to the Closing Date (including without limitation, wages, salaries, vacation
pay, rents, equipment charges, safe deposit fees, utility payments, personal
property taxes, any fees paid or payable to Seller with respect to the Loans,
the IRA and Keogh Accounts, or the safe deposit boxes, and any fees, premiums or
assessments) imposed or collected by the FDIC with respect to Deposits,
including the assessments by the Financing Corporation (the "FDIC Assessments")
(collectively, the "Prorated Items"), shall be pro-rated between the parties as
of the Closing Date. Seller shall be responsible for (or entitled to receive, as
the case may be) all such items which are allocable to the period on or prior to
the Closing Date, and Purchaser shall be responsible for (or entitled to
receive, as the case may be) all such items which are allocable to the period
subsequent to the Closing Date. With regard to the proration of the FDIC
Assessment, the amount for which Purchaser is responsible shall include, that
portion of the FDIC Assessment payable by Seller on the payment date next
succeeding the Closing Date in respect to the portion of Seller's FDIC
Assessment attributable to the Deposit Obligation for the period subsequent to
the Closing Date; and such proration shall be based on the FDIC Assessment rates
payable by Seller. The aggregate net amount of all proration adjustments of
Prorated Items shall be referred to herein as the "Pro-Rata Adjustment." The
Pro-Rata Adjustment shall be included as part of the calculation of the
Estimated Transfer Amount and the Final Transfer Amount as provided for in this
Agreement. Purchaser shall have the opportunity to review any Prorated Items to
be allocated to Purchaser pursuant to this Section 2.5 and to suggest to Seller
any possible error or challenge to any such Prorated Items, provided that Seller
shall have no obligation to challenge or question any Prorated Items but shall
cooperate with Purchaser if Purchaser elects to so challenge or question any
Prorated Items.
(b) To the extent that any of the items of income, fees or expenses
described in paragraph (a) of this section are not discovered prior to the
preparation of the Post-Closing Schedule, the parties shall cooperate with one
another so that Purchaser or Seller, as the case may be, pays any such fee or
expense, or receives any such income, depending upon whether such fee, expense
or income relates to the period on or prior to the close of business on the
Closing Date.
(c) Unless Purchaser elects to undertake a transaction pursuant to
Section 5(d)(3) under the FDIA (for which no exit or entrance fees will be
assessed by the FDIC), Purchaser shall be responsible for fees incurred by both
Seller and Purchaser in connection with the transfer of any or all of the
Deposit Obligations between the SAIF and the BIF (the "Insurance Conversion
Fees").
(d) All prorations made pursuant to this section shall be based upon
the ratio of the number of days prior to and including the Closing Date related
to such item compared to the total number of days related to such item.
0.98. Estimated Transfer Payment .
(a) Five (5) Business Days prior to the Closing, Seller shall deliver
to Purchaser a schedule estimating the following, in each case (except as
otherwise set forth herein) as of the close of business on the Friday which is
at least seven (7) Business Days preceding the Closing Date (the "Estimation
Date"): (i) the aggregate balance of the Deposits (the "Estimated Deposits"),
(ii) the aggregate book value as of the close of business on the last day of the
month preceding the Closing Date, net of specific loan loss reserves, of the
Loans, plus (to the extent not reflected in such book value) all interest
thereon that shall accrue but not be received by Seller on or prior to the
Estimation Date (such book value, as so adjusted, the "Estimated Loan Payment"),
(iii) the aggregate amount of the Cash (the "Estimated Cash"), (iv) the Pro-Rata
Adjustment (the "Estimated Pro-Rata Adjustment") and (v) any Insurance
Conversion Fees. Within 2 Business Days prior to the Closing, Seller shall
deliver to Purchaser a true and complete schedule (the "Book Value Schedule")
setting forth the aggregate book value, net of accumulated depreciation,
estimated as of the Closing Date, of the Personal Property located at the Branch
Office and the Leasehold Improvements.
(b) In connection with the sale by Seller to Purchaser of the Assets
and the assumption by Purchaser of the Deposits as provided for herein, at the
Closing, Seller shall transfer to Purchaser in immediately available funds, by
wire transfer to an account designated in writing by Purchaser to Seller at
least two (2) Business Days prior to the Closing Date ("Purchaser's Account"),
an amount (the "Estimated Transfer Amount") equal to the Estimated Deposits,
plus or minus the Estimated Pro-Rata Adjustment, as applicable, minus the sum of
(i) an amount equal to three and 00/100 percent (3.00%) of the average aggregate
daily closing balance of the Deposits for the 20 Business Days prior to and
including the Closing Date (the "Deposit Premium"), (ii) the Estimated Loan
Payment, (iii) the Estimated Cash, (iv) an amount equal to Purchaser's liability
for Transfer Taxes pursuant to Section 7.1(b), (v) the aggregate book value (net
of accumulated depreciation) as of the Closing Date of the Personal Property
located at the Branch Office and the Leasehold Improvements and (vi) any
Insurance Conversion Fees.
0.99. Post-Closing Schedule .
(a) Within ten (10) Business Days after the Closing Date, Seller shall
deliver to Purchaser a schedule (the "Post-Closing Schedule") setting forth the
actual amount of (i) the aggregate balance of the Deposits as of the close of
business on the Closing Date, (ii) the aggregate book value, net of specific
loan loss reserves, as of the Closing Date of the Loans, plus (to the extent not
reflected in such book value) all interest thereon that shall accrue but not be
received by Seller on or prior to the Closing Date, (iii) the aggregate amount
of the Cash as of the close of business on the Closing Date, (iv) the Deposit
Premium and (v) the Pro-Rata Adjustment. Purchaser shall cooperate with Seller
in the preparation of the Post-Closing Schedule. Purchaser shall provide Seller
and its representatives and independent accountants with reasonable access to
the books, records, facilities and personnel of the Branch Office in a manner
which does not unduly disrupt or interfere with the operation of the Branch
Office so that Seller and its representatives and independent accountants may
prepare the Post-Closing Schedule.
(b) Within thirty (30) calendar days after delivery of the Post-Closing
Schedule to Purchaser (the "Review Period"), Purchaser may dispute all or any
portion of the Post-Closing Schedule by giving written notice (a "Notice of
Disagreement") to Seller setting forth in reasonable detail the basis for such
dispute (hereinafter called a "Disagreement"). The failure by Purchaser to
deliver a Notice of Disagreement during the Review Period shall constitute an
irrevocable acceptance by Purchaser of the Post-Closing Schedule in the form
delivered by Seller. If Purchaser delivers a Notice of Disagreement during the
Review Period, the parties shall promptly commence good faith negotiations with
a view to resolving such Disagreement. If Seller shall not dispute all or any
portion of the Notice of Disagreement by giving written notice to Purchaser
setting forth in reasonable detail the basis for such dispute within ten (10)
Business Days following the delivery of the Notice of Disagreement, Seller shall
be deemed to have irrevocably accepted the Post-Closing Schedule as modified by
the Notice of Disagreement.
(c) If Seller disputes all or any portion of the Notice of Disagreement
within the ten (10) Business Days following the delivery of the Notice of
Disagreement and the parties are not able to resolve any Disagreement within
thirty (30) calendar days after the delivery by Seller of its dispute of the
Notice of Disagreement, such Disagreement shall be referred to a nationally
recognized accounting firm for determination of the disputed amounts in
accordance with this Agreement. If Purchaser and Seller do not promptly agree on
the selection of a nationally recognized accounting firm, their respective
independent public accountants shall immediately select such accounting firm by
mutual agreement. The determination of such firm shall be final and binding upon
the parties, and the amount so determined shall be used to complete the final
Post-Closing Schedule. Such firm shall render its determination as soon as
practicable after referral of the Disagreement. The fees and expenses of such
firm shall be paid one-half by Purchaser and one-half by Seller. The parties
shall cooperate with each other and such firm with respect to the resolution of
any Disagreement, such cooperation to include reasonable access to books,
records, facilities and personnel. This provision shall constitute the exclusive
remedy of the parties with respect to determination of the final Post-Closing
Schedule.
0.100. Final Settlement .
On the Business Day immediately following the day on which the
Post-Closing Schedule is finally determined pursuant to the terms of Section 2.7
of this Agreement (the "Final Settlement Date"), the Estimated Transfer Amount
shall be recalculated using the amounts reflected in the final Post-Closing
Schedule (the "Final Transfer Amount"). If the Final Transfer Amount exceeds the
Estimated Transfer Amount, Seller shall pay the difference to Purchaser by wire
transfer in immediately available funds to Purchaser's Account. If the Estimated
Transfer Amount exceeds the Final Transfer Amount, Purchaser shall refund the
difference to Seller by wire transfer in immediately available funds to an
account designated in writing by Seller ("Seller's Account"). Any payment
pursuant to this section shall include interest on such amount for the number of
days from and including the Closing Date to, but excluding, the Final Settlement
Date (the "Interest Period") calculated at the Federal Funds Rate as published
in the "Money Rates" section of The Wall Street Journal as of the Closing Date.
0.101. Allocation of Purchase Price .
The consideration paid by Purchaser to Seller pursuant to this
Agreement shall be allocated among the Assets, including any intangible assets,
as Seller and Purchaser shall mutually agree prior to the Closing Date. The
allocation of the purchase price was bargained and negotiated for, and each
party agrees to report the transactions contemplated hereby for federal income
tax and all other tax purposes (including, without limitation, for purposes of
Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code")) in a
manner consistent with the allocation set forth on Schedule 2.9 determined
pursuant to this Section 2.9 and in accordance with all applicable rules and
regulations, and to take no position inconsistent with such allocation in any
administrative or judicial examination or other proceeding. Each of Purchaser
and Seller shall timely file the appropriate forms in accordance with the
requirements of Section 1060 of the Code and this section.
0.102. Limited Warranty; Nonrecourse; Conveyance
(a) EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THIS AGREEMENT, THE
CONVEYANCE OF ALL ASSETS, INCLUDING PERSONAL PROPERTY INTERESTS, PURCHASED BY
PURCHASER UNDER THIS AGREEMENT AND UNDER ANY CONVEYANCING DOCUMENT EXECUTED IN
CONNECTION HEREWITH SHALL BE MADE, AS NECESSARY, BY SELLER'S ASSIGNMENT OR BILL
OF SALE, IN "AS IS" AND "WHERE IS" CONDITION, WITHOUT RECOURSE, AND WITHOUT ANY
WARRANTIES WHATSOEVER WITH RESPECT TO SUCH ACQUIRED ASSETS, EXPRESS OR IMPLIED,
WITH RESPECT TO ENVIRONMENTAL CONDITION, ENFORCEABILITY, COLLECTABILITY,
DOCUMENTATION OR FREEDOM FROM LIENS OR ENCUMBRANCES (IN WHOLE OR IN PART),
CONDITION OF PROPERTY OR ANY OTHER MATTER.
(b) Purchaser shall prepare and deliver to Seller, and Seller shall
execute and deliver to Purchaser, such further instruments and documents of
conveyance (in form and substance satisfactory to Seller and Purchaser) as shall
be reasonably necessary to vest in Purchaser the full legal or equitable title
of Seller in and to the acquired Assets.
(c) On and after the Closing Date, Purchaser shall execute, acknowledge
and deliver all such acknowledgements and other instruments as Seller shall
reasonably request to effectively relieve and discharge Seller from any of the
Assumed Liabilities.
0.103. Risk of Loss; Repairs .
(a) If, on or before the Closing Date, the Leased Property is damaged
in Material Part by fire or other cause, and the landlord has the option under
the Lease and elects to restore the Leased Property, Seller shall promptly
notify Purchaser thereof in writing. In such event, Purchaser may elect to:
(i) Allow as a credit against the purchase price an amount
equal to the estimated cost of restoration (to the extent of the
damaged property interest owed by Seller) as determined by an
independent construction contracting firm satisfactory to both Seller
and Purchaser; or
(ii) Require Seller to assign at Closing to Purchaser, without
recourse to Seller, the insurance proceeds for the casualty and the
right to collect same (but only to the extent that Seller, pursuant to
the terms of the Lease, is entitled to such insurance proceeds payable
in connection with such fire or other cause), without any abatement to
the purchase price.
(b) If, on or before the Closing Date, any condemnation or eminent
domain proceedings are initiated which could result in the taking of any part of
the Leased Property, Seller shall promptly notify Purchaser of the initiation of
any such proceedings. Upon receipt of such notice, if a Material Part of the
Leased Property is to be taken, Purchaser may elect to:
(i) Consummate the purchase of the real property leasehold
interest in such Leased Property and receive an abatement to the
purchase price in an amount equal to the current book value of the real
property leasehold interest in such Leased Property, in which case
Seller shall receive any award made in connection with such
condemnation or eminent domain proceedings which is payable to Seller
pursuant to the Lease; or
(ii) Consummate the purchase of the real property leasehold
interest in such Leasehold Property, without abatement to the purchase
price, in which event Seller shall assign to Purchaser, without
recourse to Seller, all of Seller's right, title and interest in and to
any award made in connection with such condemnation or eminent domain
proceedings as provided in the Lease.
(c) Purchaser shall have ten (10) Business Days from the date of
receipt of Seller's written notice delivered pursuant to subsection 2.11(a) or
2.11(b) within which to make such election, and a failure to make an election
shall be deemed an election to consummate this transaction pursuant to
subsection 2.11(a)(i) or 2.11(b)(i) above, as applicable.
(d) If less than a Material Part of the Leased Property is damaged or
destroyed without fault of Purchaser or is taken by eminent domain, neither
Purchaser nor Seller shall be deprived of the right to enforce this Agreement,
but there shall be, to the extent of the destruction or taking, an abatement of
the consideration to be paid to Seller as set forth in this Section 2.11.
(e) A "Material Part" shall be deemed to mean (i) any taking or damage
which would leave remaining a balance of the Leased Property which, due either
to the area so taken or damaged or the location of the part so taken or damaged
in relation to the part not so taken or damaged, would not permit it to be used
effectively for its intended purpose and, under economic conditions, zoning laws
or building regulations then existing or prevailing, could not readily
accommodate a new or reconstructed building or buildings of a type not
materially different from the building or buildings existing on the date of such
taking or damage or (ii) any damage or taking that would require Purchaser to
incur costs or expenses exceeding twenty-five thousand dollars ($25,000) to
repair the branch or to compensate for such taking.
(f) If the Leased Property requires any capital improvements in excess
of one thousand dollars ($1,000) between the date of this Agreement and the
Closing Date, Seller shall give Purchaser notice of the proposed improvements
and the cost thereof. If Purchaser does not object to such proposal within seven
(7) Business Days, Seller shall have the right to make such capital improvements
and the cost of such capital improvements shall be added to the purchase price.
0.104. Removal of the Excluded Personal Property .
As soon as is reasonably practical after the Closing Date (but no later
than 15 days after the Closing Date), Seller will remove from the Branch Office
of the Excluded Personal Property listed in Schedule 2.1(d)-2.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser as follows:
0.105. Corporate Organization and Powers .
(a) Seller is a federally chartered savings bank, duly organized,
validly existing and in good standing under the laws of the United States of
America.
(b) Seller has the corporate power and authority to own, lease or
operate the Assets and to carry on the business of the Branch Office as
presently conducted and is duly qualified and in good standing to do business in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary, except where the
failure to be so qualified would not, individually or in the aggregate with all
other such failures, have a Material Adverse Effect.
(c) Seller's deposits are, subject to applicable monetary limits
established by law, insured by the SAIF of the FDIC, and all premiums and
assessments required in connection therewith have been paid when due by Seller.
0.106. Corporate Authority; No Violation .
(a) Seller has the corporate power and authority to execute and deliver
this Agreement and any documents, agreements or instruments to be executed by
Seller pursuant to this Agreement, and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and any documents, agreements or instruments to be executed by Seller pursuant
to this Agreement, and the consummation of the transactions contemplated hereby
and thereby, have been duly authorized by all necessary corporate action on the
part of Seller, and no further corporate authorization on the part of Seller is
necessary to approve this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Seller. Assuming the due authorization, execution and delivery of this Agreement
by Purchaser, and except as enforcement may be limited by general principles of
equity, whether applied in a court of law or a court of equity, and by
bankruptcy, insolvency and similar laws affecting creditors' rights and remedies
generally, (i) this Agreement and any related agreement constitute legal, valid
and binding obligations of Seller, enforceable against Seller in accordance with
their terms and (ii) the other documents, agreements and instruments to be
delivered by Seller to Purchaser pursuant to this Agreement, when executed and
delivered, will be duly executed and delivered by Seller and will constitute
legal, valid and binding obligations of Seller enforceable against Seller in
accordance with their terms.
(b) The execution and delivery by Seller of this Agreement or any
document, agreement or instrument to be executed by Seller pursuant to this
Agreement, the consummation by Seller of the transactions contemplated hereby or
thereby, and compliance by Seller with the terms or provisions hereof or
thereof, shall not result:
(i) in a violation of any provision of the Charter or Bylaws
of Seller,
(ii) in a Material Violation of any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction
applicable to Seller or any of its properties or assets (including,
without limitation, the Assets), or
(iii) in a Material Violation of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement, or other
instrument or obligation to which Seller is a party or by which Seller
or any of the Assets may be bound or affected (a "Seller Agreement").
0.107. Consents and Approvals .
Except as set forth on Schedule 3.3, Seller is not required to obtain
any consent, approval, order, authorization, registration, declaration from, or
to make any filing with, any court, agency, or governmental authority or
instrumentality (each a "Governmental Entity") or any other third party in
connection with (a) Seller's execution and delivery of this Agreement or any
document, agreement or instrument to be executed pursuant to this Agreement or
(b) the consummation by Seller of the transactions contemplated hereby or
thereby (including without limitation the transfer of the Assets to Purchaser).
0.108. Compliance With Law .
(a) With respect to the Assets and the business of the Seller related
to the Branch Office, Seller is in compliance in all material respects with the
provisions of all applicable federal, state and local statutes, regulations and
ordinances, and at the Closing Date, Seller will not be in default in any
material respect under any said statutes, regulations and ordinances.
(b) Except as set forth on Schedule 3.4, and except for regularly
scheduled examinations, audits and full and limited scope reviews conducted by
governmental authorities under applicable laws relating to federal savings banks
and their holding companies, no investigation or review by any governmental
authority concerning any possible conflicts or violations by Seller is pending
or to the knowledge of Seller threatened.
(c) Seller has all licenses, franchises, permits, certificates of
public convenience, orders and other authorizations ("Permits") of all federal,
state and local governments and governmental authorities necessary for the
lawful conduct of the business being conducted at the Branch Office, and at the
Closing Date all such Permits shall be valid and Seller shall be in good
standing thereunder, and none of such Permits shall be subject to any
suspension, modification or revocation or proceedings related thereto except
where the failure to have such Permits, or the invalidity thereof, would not,
individually or in the aggregate, have a Material Adverse Effect.
0.109. Title to Assets .
As of the Closing Date, Seller will have, and will deliver to Purchaser
at the Closing, and Purchaser will receive good, valid and, with respect to the
Leased Property, a valid leasehold interest in, all of the Assets, free and
clear of all mortgages, claims, charges, liens, encumbrances, easements,
limitations, restrictions, commitments, and security interests ("Encumbrances")
except for those Encumbrances:
(a) securing any Assumed Liability;
(b) disclosed on Schedule 3.5(b) or shown in any title reports,
opinions or insurance binders delivered or made available to Purchaser prior to
the execution of this Agreement (including any Encumbrances of the landlord's
interest in the property subject to the Lease);
(c) incurred in connection with the acquisition of property and
securing the purchase price therefor, in either case only if such liability
relating thereto is an Assumed Liability;
(d) for Taxes or assessments, special or otherwise, related to the
Leased Property not due and payable;
(e) easements, rights of way, restrictions, covenants of record, claims
and covenants shown of record, and other similar charges and encumbrances which,
if the rights granted under such instruments were exercised, would not
individually, or in the aggregate, materially impair or interfere with Seller's
present and continued use, operation of the Leased Property; and
(f) rights of parties in possession, matters which would be shown on an
accurate survey, and any other defect or exception to title, which in any case
does not materially impair or interfere with Seller's present and continued use,
operation, value or marketability of the Leased Property.
0.110. Contracts and the Lease .
(a) Seller is not a party to or bound by any agreements or arrangements
for the purchase or sale of any of the Assets, or for the grant of any right to
purchase any of the Assets, other than in the ordinary course of business.
(b) Schedule 3.6(b) sets forth each Contract for transactions:
(i) with an aggregate value of one thousand dollars ($1,000)
or more during the past three (3) months or five thousand dollars
($5,000) or more during the past 12 months;
(ii) with a remaining term of more than one (1) year; or
(iii) that has or may have a material effect on the Assets
or on the business or operations conducted at the Branch Office; or
(iv) that is not terminable upon ninety (90) calendar days
written notice, or less.
(c) Upon the Closing, each of the Contracts set forth on Schedule
2.1(f) and Schedule 3.6(b):
(i) will constitute the legal, valid and binding obligation
of Seller, and to the knowledge of Seller, each of the other parties
thereto,
(ii) will be enforceable in accordance with its terms, and
(iii) will not be subject to any material defaults or existing
acts, events or conditions which, with notice or lapse of time, or
both, will result in a material default under any of such Contract.
Seller has made available to Purchaser true, complete and correct
copies of each Contract set forth on Schedules 2.1(f) and 3.6(b), and all
attachments, amendments and addenda thereto, excluding those Contacts added
pursuant to Section 5.12.
(d) Seller has not received any written notice of (i) non-compliance
with any restriction encumbering the Leased Property, or (ii) any zoning
violations adversely affecting the value or use of the Leased Property.
(e) Seller has delivered to Purchaser true, complete and correct copies
of the Lease, together with all amendments, modifications and other changes.
(f) The consent of the lessor to the Purchaser's assumption of the
Lease shall have been received pursuant to a Consent and Estoppel Certificate
substantially in the form of Exhibit H. All sums due and owing by Seller
pursuant to the Lease, through the Closing Date, have or will be paid prior to
the Closing Date except with respect to possible year-end adjustments by the
Landlord under the Lease to Seller's estimated pro-rata shared maintenance
charges and real estate taxes.
(g) Seller has not subleased any of its interests in the Leased
Property.
0.111. Assignment of Assumed Liabilities .
As of the Closing Date, each of the Assumed Liabilities will be
properly assigned to Purchaser, there are no material defaults by Seller under
any of such Assumed Liabilities.
0.112. Litigation .
Schedule 3.8 sets forth each action, suit, proceeding, inquiry or
investigation, at law or in equity, before any court, arbitrator, mediator or
any governmental body, agency or official, pending, or, to Seller's knowledge,
threatened, against Seller relating to any of the Assets, Assumed Liabilities,
or the business or operation of the Branch Office ("Legal Action").
Except as set forth on Schedule 3.8, there is no action, suit, or
proceeding, at law or in equity, before any court or any governmental body,
agency or official, wherein an unfavorable decision, ruling or finding would
adversely affect (a) the validity or enforceability of this Agreement or any
document necessary to consummate the transactions contemplated herein, (b) the
consummation of the transactions contemplated hereby, (c) any approval, consent
or permission required to be obtained by Seller hereunder, (d) the ability of
Seller to perform its obligations under this Agreement or (e) the business or
operations of the Branch Office.
0.113. Environmental .
Except as set forth on Schedule 3.9, and except for breaches of the
warranties or representations set forth below that, individually or in the
aggregate, would not have a Material Adverse Effect, Seller represents and
warrants concerning the Leased Property that:
(a) To the best of Seller's knowledge and without having made any
investigation, including without limitation, reviewing any environmental
studies, assessments, reports, investigations or other documents the Leased
Property is and has been, for so long as Seller has been in possession of the
Leased Property, in substantial compliance with all Environmental Laws,
(b) To the best of Seller's knowledge, for long as Seller has held the
Lease Property, there has been no storage, disposal, arrangement for disposal,
presence, release of Hazardous Substances, from, in, upon or below the Lease
Property.
(c) Seller has not engaged in any activity that involves or involved
the generation, use, manufacture, treatment, transportation, storage in tanks or
otherwise, or disposal of Hazardous Substances on or from the Leased Property.
(d) Seller has not received any written communication from any person
or entity that alleges a violation of Environmental Laws concerning, or that
Seller may be responsible for any Loss (as defined in this Agreement) under
Environmental Laws with respect to the Lease Property.
(e) Seller has no knowledge of and has not received any written notice
of any claim, action, demand, or investigation from any person or entity
alleging or describing a potential Loss under Environmental Laws based on or
resulting from (a) the presence, release or threatened release of any Hazardous
Substance from, in, upon or below the Lease Property or (b) the violation or
alleged violation of any Environmental Laws concerning the Leased Property, and
(f) Seller has made available to Purchaser copies of all environmental
studies, reports, investigations and other documents relating to the Leased
Property of which Seller has possession and it is legally permitted to make
available.
0.114. Finders or Brokers .
Except as disclosed on Schedule 3.10, Seller has not paid or agreed to
pay any fee or commission to any agent, broker, finder or other person for or on
account of services rendered as a broker or finder in connection with this
Agreement or the transactions covered and contemplated hereby.
0.115. Financial Information .
(a) The books of account of the Branch Office fairly and accurately
reflect the respective Assets and Assumed Liabilities of the Branch Office, in
accordance with generally accepted accounting principles ("GAAP") including,
without limitation, the establishment of appropriate loan loss reserves which
are consistent with prudent banking practice.
(b) The books of account of the Branch Office (i) are maintained by
Seller substantially in accordance with applicable legal and accounting
requirements and (ii) reflect only actual transactions.
(c) Within 10 Business Days after the date of the Agreement, Seller
shall deliver to Purchaser copies of the books of account of the Branch Office
which are true, correct and complete in all materials respects as of the date or
dates set forth therein.
0.116. Taxes .
Except with respect to Seller's estimated pro-rata share of real estate
taxes under the Lease, as referenced in Section 3.6(d) above:
(a) All Taxes which are due or payable by Seller relating to the Assets
(except those Taxes which are Purchaser's responsibility under a different
covenant of this Agreement) have been paid in full or properly accrued and
adequately provided for by reserves shown in the books and records of Seller, or
will be so paid or accrued and provided for in the books and records of the
Seller.
(b) All Tax Returns required to be filed with respect to the Assets
have been filed with the appropriate federal, state or local taxing authority
and each such Tax Return is true, complete and correct in all material respects.
(c) All Taxes shown to be due on such Tax Returns, and all Taxes
arising from or attributable to the Assets required to be withheld by or with
respect to the Seller have been paid or, if applicable, withheld and paid to the
appropriate taxing authority, other than those Taxes the failure of which to be
paid would not result in a lien on the Assets or become a liability of
Purchaser.
(d) No notice of deficiency or assessment of Taxes has been received
from any taxing authority with respect to the Assets.
(e) There are no ongoing audits or examinations of any of the Tax
Returns relating to or attributable to the Assets, other than with respect to
Taxes that would not result in a lien on the Assets or become a liability of
Purchaser.
(f) No consents or waivers to extend the statutory period of
limitations applicable to the assessment of any Taxes with respect to the Assets
has been granted, other than with respect to Taxes that would not result in a
lien on the Assets or become a liability of Purchaser.
0.117. State of the Leased Property .
The following are true statements with respect to the Leased Property:
(a) Schedule 2.1(c) contains a list, that is complete and accurate in
all material respects, which sets forth as of a recent date identified on said
schedule, the address of the Leased Property and the Lease with respect to the
Leased Property and all amendments thereto;
(b) To the best of Seller's knowledge the improvements and building
systems are in good operating condition and repair, subject to ordinary wear and
tear and routine maintenance needs; and
(c) To the best of Seller's knowledge the present use, operation and
physical condition of the Leased Property are in material compliance with all
applicable laws, ordinances and regulations.
0.118. Employees .
(a) There are no claims (statutory or otherwise), demands, proceedings
or other actions pending or, to Seller's actual knowledge, threatened against
Seller by (a) any of the present or former employees at the Branch Office or (b)
any person who sought to become employed at the Branch Office.
(b) None of the Employees is a member of any labor union or is
otherwise subject to collective bargaining.
(c) Set forth on Schedule 3.14 is a list of Employees, including their
job descriptions and compensation arrangements.
0.119. Deposit Insurance .
The Deposits are insured by SAIF up to the maximum extent permitted by
law, and Seller has filed and will file all reports and paid all fees, premiums
and assessments required under FDIA.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
0.120. Corporate Organization and Powers .
(a) Purchaser is a national bank, duly organized, validly existing and
in good standing under the laws of United States of America.
(b) Subject to receipt of the Requisite Regulatory Approvals, Purchaser
has the corporate power and authority to own, lease or operate the Assets and to
carry on the business of the Branch Office as presently conducted and is duly
qualified and in good standing to do business in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes such
qualification necessary, except where the failure to be so qualified would not,
individually or in the aggregate with all other such failures, have a Material
Adverse Effect.
(c) Purchaser's deposits are, subject to applicable monetary limits
established by law, insured by the Bank Insurance Fund of the FDIC, and all
premiums and assessments required in connection therewith have been paid when
due by Purchaser.
0.121. Corporate Authority; No Violation .
(a) Purchaser has the corporate power and authority to execute and
deliver this Agreement and any documents, agreements or instruments to be
executed by Purchaser pursuant to this Agreement, and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and any documents, agreements or instruments to be executed by
Purchaser pursuant to this Agreement, and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action on the part of Purchaser, and no further corporate
authorization on the part of Purchaser is necessary to approve this Agreement or
to consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Purchaser. Assuming the due authorization, execution
and delivery of this Agreement by Seller, and except as enforcement may be
limited by general principles of equity, whether applied in a court of law or a
court of equity, and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally, (i) this Agreement constitutes a
legal, valid and binding obligation of Purchaser, enforceable against Purchaser
in accordance with its terms and (ii) the other documents, agreements and
instruments to be delivered by Purchaser to Seller pursuant to this Agreement,
when executed and delivered, will be duly executed and delivered by Purchaser
and will constitute legal, valid and binding obligations of Purchaser.
(b) The execution and delivery by Purchaser of this Agreement or any
document, agreement or instrument to be executed by Purchaser pursuant to this
Agreement, and upon receipt of the Requisite Regulatory Approvals, the
consummation by Purchaser of the transactions contemplated hereby or thereby,
and compliance by Purchaser with the terms or provisions hereof or thereof,
shall not result:
(i) in a violation of any provision of the Charter or Bylaws
of Purchaser,
(ii) in a Material Violation of any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction
applicable to Purchaser or any of its properties or assets (including,
without limitation, the Assets), or
(iii) in a Material Violation of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement, or other
instrument or obligation to which Purchaser is a party or by which
Purchaser or any of the Assets may be bound or affected (a "Purchaser
Agreement").
0.122. Consents and Approvals .
Except as set forth on Schedule 4.3, Purchaser is not required to
obtain any consent, approval, order, authorization, registration, declaration
from, or to make any filing with, any Governmental Entity or any other third
party in connection with (a) Purchaser's execution and delivery of this
Agreement or any document, agreement or instrument to be executed pursuant to
this Agreement or (b) the consummation by Purchaser of the transactions
contemplated hereby or thereby.
0.123. Litigation .
Except as set forth on Schedule 4.4, there is no action, suit, or
proceeding, at law or in equity, before any court or any governmental body,
agency or official, wherein an unfavorable decision, ruling or finding would
adversely affect (a) the validity or enforceability of this Agreement or any
document necessary to consummate the transactions contemplated herein, (b) the
consummation of the transactions contemplated hereby, (c) any approval, consent
or permission required to be obtained by Purchaser hereunder, (d) the ability of
Purchaser to perform its obligations under this Agreement or (e) the business or
operations of the Branch Office.
0.124. Finders or Brokers .
Except as set forth on Schedule 4.5, Purchaser has not paid or agreed
to pay any fee or commission to any agent, broker, finder or other person for or
on account of services rendered as a broker or finder in connection with this
Agreement or the transactions covered and contemplated hereby.
0.125. Estimates, Projections and Other Predictions .
It is understood that any cost estimates, projections or other
predictions which have been provided to Purchaser are not and shall not be
deemed to be representations or warranties of Seller. Purchaser acknowledges
that there are uncertainties inherent in attempting to make such estimates,
projections and other predictions, that Purchaser is familiar with such
uncertainties, that Purchaser is taking full responsibility for making its own
evaluation of the adequacy and accuracy of all estimates, projections and other
predictions so furnished to it, and that Purchaser shall have no claim against
anyone with respect thereto.
ARTICLE V
COVENANTS OF THE PARTIES
0.126. Business Obligations .
(a) Except as set forth on Schedule 5.1(a), as otherwise provided in
this Agreement, or as required by applicable law, between the date of this
Agreement and the Closing Date:
Seller shall:
(i) conduct the business of the Branch Office and the
operations of Seller relating thereto in the ordinary course of
business, consistent with Seller's past practice and applicable law,
and consistent with prudent banking practice,
(ii) maintain its books and records in accordance with GAAP,
and
(iii) use its reasonable efforts to preserve its present
business organization and relationships.
(b) Except as set forth on Schedule 5.1(b), as otherwise provided in
this Agreement or as required by applicable law, prior to the Closing Date,
Seller shall not:
(i) enter into or terminate any material contract or
agreement, or make any change in any of its material contracts,
including contracts related to the operations and maintenance of the
Branch Office, except with the prior consent of Purchaser, which shall
not unreasonably be withheld;
(ii) directly contact any customer of the Branch Office for the
purpose of soliciting any of the Deposits;
(iii) increase in any manner the compensation or fringe
benefits of any of the Employees, except for general salary increases
in the ordinary course of business consistent with past practice; and
(iv) fail to maintain the Branch Office in repair, order and
condition no worse than on the date of this Agreement or fail to
maintain insurance until the Closing Date upon the Branch Office with
respect to the conduct of its business in amount and kind as now in
existence and, if not available at rates presently paid by it, in such
amount and kind as would be appropriate in the exercise of good
business judgment;
0.127. Cooperation and Further Assurances.
The Seller and the Purchaser shall cooperate with each other and use
their respective best efforts to consummate the transactions contemplated
herein, and each shall take all reasonable actions necessary to accomplish such
transactions, including but not limited to the provision of any required notices
to depositors in respect of the Deposits. After the Closing Date, Seller and
Purchaser shall continue to provide reasonable assistance each to the other to
effectuate an orderly transfer to the Purchaser of the Deposits, Assets and
Liabilities, and in so assisting one another, shall at any reasonable time and
from time to time upon the request of the other execute and deliver such further
documents, certificates, assignments, receipts, endorsements and instruments of
transfer as Purchaser or Seller (as the case may be) may reasonably require to
consummate the transactions contemplated hereby.
0.128. Legal and Regulatory Matters .
With respect to the making of filings to any Governmental Entity or
third party:
(a) Seller and Purchaser shall cooperate with each other and use their
best efforts to promptly prepare and file all necessary documentation; to effect
all applications, notices, petitions and filings; and to promptly obtain all
permits, consents, approvals, waivers and authorizations of all third parties
and Governmental Entities which are necessary or advisable to consummate the
transactions contemplated by this Agreement.
(b) Within ten (10) calendar days after the execution of this
Agreement, Seller and Purchaser shall each file all the applications for the
regulatory approvals, consents, permits and authorizations which such party is
required to obtain in connection with the consummation of the transactions
contemplated by this Agreement.
(c) Subject to the applicable laws relating to the exchange of
information, Seller and Purchaser shall consult with each other and exchange
information in order to obtain all the permits, consents, approvals and
authorizations that are necessary or advisable to consummate the transactions
contemplated by this Agreement from all third parties and Governmental Entities.
(d) Seller and Purchaser will keep the other party apprised of the
status of all applications and filings.
(e) Except for any confidential portions thereof, the party responsible
for making a filing shall promptly (i) provide a copy of the filing, and any
supplement, amendment or item of additional information in connection with the
filing, to the other party and (ii) deliver a copy of each material notice,
order, opinion and other item of correspondence received by it from any
Governmental Entity to the other party.
(f) Purchaser and Seller shall promptly advise each other of any
communication received from a Governmental Entity which causes such party to
believe that there is a reasonable likelihood that a Requisite Regulatory
Approval will not be obtained or that the receipt of such approval will be
materially delayed.
0.129. Payment of Liabilities .
From and after the Closing Date, Purchaser shall pay all properly drawn
checks, drafts and non-negotiable withdrawal orders timely presented to it
(including without limitation those presented by mail, over the counter, or
through clearings) by depositors whose deposits or accounts on which such items
are drawn are Deposits. Payment of said items shall be made without regard to
whether the items are drawn on the check or draft forms provided by Seller or by
Purchaser. Further, Purchaser shall, in all other respects, discharge the duties
and obligations of Seller with respect to the balances due and owing to the
depositors whose accounts are assumed by Purchaser. The obligations set forth in
this section shall be in addition to the Purchaser's obligations under Sections
2.3 and 2.4.
0.130. Interest Reporting .
From January 1, 1998 through the Closing Date, Seller shall report all
interest credited to, interest withheld from, and early withdrawal penalties
charged to the Deposits. After the Closing Date and through the end of the
calendar year in which the Closing occurs, Purchaser shall report all interest
credited to, interest withheld from, and early withdrawal penalties charged to
the Deposits. Said reports shall be made to the holders of the Deposits and to
the applicable federal and state regulatory agencies.
0.131. Transfer Fees .
(a) Seller and Purchaser shall equally bear all fees (except attorneys'
fees and expenses), if any, incurred in connection with the obtaining of third
party consents for transfer of the Assets from Seller to Purchaser and the
assumption by Purchaser of the liabilities of Seller specified herein.
(b) Notwithstanding the foregoing, if the lessor of the Leased Property
requires either: (i) an increase not in excess of $50 per month in the amount
payable under the Lease or (ii) immaterial changes in the terms of the Lease as
a condition to its consent to the assumption of the Lease by Purchaser,
Purchaser shall be solely responsible to the lessor with respect to any such
changes. Seller shall not negotiate or agree to (i) any increase in excess of
$50 per month in the amount payable under the Lease or (ii) in the material
terms of the Lease without the consent of Purchaser, which consent shall not be
unreasonably withheld.
0.132. Reports .
(a) Subsequent to the Closing Date, Purchaser shall make all the
reports that are required to be made in the ordinary course of business to any
Governmental Entity or otherwise with respect to the Branch Office, including
without limitation, federal, state and local income tax reporting of Retirement
Accounts, 1099 information returns and other required tax forms, and cash
transaction reports. Notwithstanding the foregoing, Purchaser's obligations with
respect to said reports shall only apply to the extent that any such reports
relate to matters occurring after the Closing Date.
(b) Seller shall have the obligation to make all such reports with
respect to matters occurring on the date of this Agreement through the Closing
Date.
(c) All reports shall be made to the holders of accounts and to the
applicable federal, state and local regulatory agencies.
0.133. Branch Account Report .
As soon as practicable after the date of this Agreement, Seller shall
furnish Purchaser with a report on electronic media of the Deposits as of
December 31, 1997 (the "Branch Account Report") which shall be correct in all
material respects. To the extent such information is maintained by Seller on its
computer systems, the Branch Account Report shall enumerate for each account
constituting a Deposit ("Branch Account"): (a) the taxpayer identification
number of the owner of the Branch Account, (b) the type of account, (c) the date
the Branch Account was opened, (d) the current interest rate paid on the Branch
Account, if any, (e) the balance of the Branch Account, (f) the term and
maturity of any Branch Account that is a certificate of deposit or similar time
deposit and (g) with respect to all ACH Accounts and ACH Items, all information
reasonably necessary to identify the owner of such account and the third party
which directly makes automated clearing house debits and credits to such
account.
0.134. General Notices to Depositors .
(a) Seller shall provide Purchaser with an intermediate customer list
of the accounts that are to be assumed by Purchaser pursuant to this Agreement.
The customer list shall contain information that is accurate as of the month-end
prior to the giving of the notice referred to in Section 5.9(b) of this
Agreement.
(b) Within five (5) Business Days following the receipt of all of the
Requisite Regulatory Approvals (other than the expiration of all statutory
waiting periods relating thereto), Seller shall notify the holders of the
Deposits that are to be assumed under this Agreement that Purchaser will assume
the liability for the Deposits, subject to satisfaction of the conditions to
closing contained herein. The notifications shall be based on the list referred
to in Section 5.9(a) of this Agreement and a listing maintained at the Branch
Office of the new accounts opened since the date of such list. Seller shall
provide Purchaser with the documentation of such lists up to the date of
Seller's mailing. Prior to the Closing, Purchaser shall send notifications to
the appropriate holders setting out the details of its administration of the
assumed accounts. Each party shall obtain approval of its notification letter(s)
from the other party, and said approval shall not be unreasonably withheld. Each
party shall bear the cost of its own mailing.
(c) Within five (5) Business Days following the receipt of all of the
Requisite Regulatory Approvals (other than the expiration of all statutory
waiting periods relating thereto), Seller shall provide a notice to the owners
of each of the safe deposit boxes at the Branch Office stating that Seller shall
assign to Purchaser the safe deposit agreements between Seller and each of such
parties on the Closing Date. The notice shall be made by a letter that is
mutually acceptable to Purchaser and Seller. Seller and Purchaser shall
cooperate with one another in order to transfer the Safe Deposit Box Assets from
Seller to Purchaser. As soon as practicable after the date of this Agreement,
Seller shall deliver copies of all safe deposit box lease forms currently used
in connection with the Safe Deposit Box Assets to Purchaser.
(d) At least thirty (30) calendar days before the Closing Date, Seller
shall prominently and continuously display a sign in the Branch Office stating
that the Branch Office will be closed on the Saturday following the Closing Date
and will not reopen until the following Monday (unless such Monday is a bank
holiday, in which case the sign will indicate that the Branch Office will reopen
the following Tuesday). The contents and form of the sign shall be subject to
Purchaser's prior approval, which approval shall not be unreasonably withheld.
At a mutually agreeable time on the Closing Date, Seller shall provide Purchaser
and its agents access to the Branch Office in order for Purchaser to take such
steps as are necessary to enable Purchaser to reopen the Branch Office on the
date described above as a functioning branch office of Purchaser.
0.135. Insurance .
Following execution of this Agreement and until the Closing Date,
Seller shall maintain in full force and effect insurance policies relating to
the Branch Office and the Personal Property as described in this Section 5.10.
Seller represents and warrants to Purchaser that (a) such insurance will be
customary in type and amount for Assets of the nature just described, (b) such
insurance will be sufficient to replace (less any deductible amount) the Branch
Office or any of the Personal Property which are damaged, destroyed or lost on
or prior to the Closing Date and (c) such insurance will be "occurrence"
insurance, meaning that Seller or such lessors, as the case may be, will have
the enforceable right to submit and pursue claims and receive proceeds under
such insurance after the Closing Date with respect to events occurring prior to
Closing Date.
0.136. Use of Names, Trademarks and Service Marks .
(a) No interest in or right to use any logo, name, trademark or service
mark presently or previously used by Seller is being conveyed pursuant to this
Agreement.
(b) Purchaser agrees that from and after the Closing Date neither it
nor any of its affiliates (including the Branch Office) will use the name
"Carver Federal Savings Bank" or any similar name indicating affiliation after
the Closing with Seller or any of its affiliates, in connection with any
business or activity engaged in by Purchaser or any of its affiliates.
(c) Promptly after the Closing Date, Seller shall commence the removal
of the trade names, names, service marks, logos, insignia, slogans, emblems,
symbols, designs, and other identifying characteristics ("Names"), from all
premises, equipment, signs, interior decor items, fixtures and furnishings, and
from all printed materials and related business literature associated with the
Branch Office and the Personal Property acquired. The costs associated with such
removal shall be at the sole expense of Seller and shall be completed not later
than thirty (30) calendar days after the Closing Date.
0.137. Additional Contracts .
(a) From the date of this Agreement until the Closing Date, the parties
shall take the following actions for any contract or group of related contracts
which are related to the operations of the Branch Office or the other operations
that are the subject of this Agreement, and which are expected to result in
payments of more than $5,000 in any year or $1,000 in the case of contracts
which are not cancelable on sixty (60) calendar days or less notice without cost
or penalty (an "Additional Contract").
(b) Prior to entering into an Additional Contract, Seller shall provide
written notice to Purchaser of its intention to enter into the Additional
Contract and shall afford Purchaser reasonable access to the documents relating
thereto.
(c) By 12:00 p.m (New York City time) of the fifth Business Day
following notice by Seller, Purchaser shall state to Seller its decision as to
whether or not to accept such Additional Contract. The failure by Purchaser to
respond prior to 12:00 p.m. (New York City time) on such fifth Business Day
shall be deemed an acceptance of such Additional Contract.
(d) Any Additional Contracts accepted or deemed accepted by Purchaser
under this section, and any contract entered into by Seller subsequent to the
date hereof for which Seller is not required to notify Purchaser pursuant to the
terms of this section, shall be added to Schedule 2.1(f) and become part of the
Contracts to be assumed by Purchaser.
0.138. Updating Schedules .
On the Closing Date, Seller shall deliver to Purchaser updated versions
of all Schedules hereto with the latest information available to Seller. Within
ten (10) calendar days after the Closing Date, Seller shall deliver to Purchaser
final versions of all appropriate Schedules and reports covering all
transactions through the close of business on the Closing Date.
0.139. General Conversion Matters .
Seller and Purchaser agree to the terms, covenants and conditions
related to the conversion of the Branch Office set forth in Exhibit B as though
such terms, covenants and conditions were set forth fully herein.
0.140. Covenant Not to Compete .
(a) For a period of eighteen (18) months following the Closing Date,
Seller shall not solicit any deposit business of the Branch Office, or establish
or maintain a branch office or other physical facility for the purpose of
accepting deposits within a 5 mile radius of the Branch Office, or directly
contact any customer of the Branch Office as of the Closing Date for the purpose
of soliciting any deposit.
(b) For eighteen (18) months following the Closing Date, Seller shall
not directly contact any customer of the Branch Office as of the Closing Date
for the purpose of soliciting any deposit or conducting general solicitations
specifically targeted to such customers.
(c) For eighteen (18) months following the Closing Date, Seller shall
not directly contact any Employee of the Branch Office as of the Closing Date
for the purpose of re-hiring any Employee.
(d) Notwithstanding the foregoing, Seller may (i) acquire any thrift or
depositary institution, or the assets and/or liabilities thereof, which conducts
business in the geographic area covered by the Covenant Not to Compete, (ii)
conduct general solicitations and mailings that are not specifically targeted to
such customers and (iii) conduct solicitations and mailings to people who are
depositors at a branch of Seller other than the Branch Office (regardless of
whether they are also customers of the Branch Office). Moreover, and
notwithstanding the foregoing, after March 31, 1999, Seller may sell, transfer
or convey all or substantially all its assets, or the shareholder of Seller may
sell, transfer or convey all or substantially all of the outstanding shares of
stock of Seller, to an unrelated third party, and said unrelated third party
shall not be bound by any provision of this Section 5.15.
(e) The obligations of Seller created by this Section 5.15 are referred
to herein as the "Covenant Not To Compete."
ARTICLE VI
EMPLOYEE MATTERS
0.141. Employee Matters .
(a) Purchaser shall extend an offer of employment to each Employee
listed on Schedule 3.14.
(b) Seller shall use its reasonable efforts to deliver to Purchaser
with copies of the general employee benefit information, staff lists that
include title and hire date, all records relating to withholding and payment of
income and unemployment taxes (federal, state and local) and FICA taxes
(including, without limitation, Forms W-4, Forms I-9, Employee's Withholding
Allowance Certificate) with respect to wages paid by Seller during the 1997
calendar year, and other employee records with respect to Employees.
(c) Nothing in this Agreement shall be deemed to restrict the right of
the Purchaser to deal with the Employees as employees at will in the same manner
as it would be free to deal with such Employees in the absence of this
Agreement.
(d) Seller has no pension, profit-sharing, savings, bonus, incentive,
insurance, welfare or other employee benefit plan or policy (including, without
limitation, any such plan within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended) in which any Employee
participates, pursuant to which the Purchaser may incur liability, or have
liability attributed to it, under federal, state, or local law as a result of
the transactions contemplated by this Agreement.
(e) With respect to Benefit Plans which provide medical, dental,
health, accident or disability benefits or life insurance to the Employees,
Seller shall be responsible for all claims under such Benefit Plans which relate
to events occurring on or prior to the Closing Date and Purchaser shall not have
any obligations under such Benefit Plans.
(f) As of the Closing Date, Seller shall cause the accrual of benefits
on behalf of the Employees in each Benefit Plan to cease and no additional
benefits to be accrued thereunder for such Employees, and from and after the
Closing Date, Seller shall not have any obligation to make any contributions to
any Benefit Plan with respect to the Employees. Purchaser shall not have any
obligations under such Benefit Plans.
(g) Seller shall not discuss with the Employees the terms of their
prospective employment with Purchaser, without prior consent of Purchaser.
(h) Seller is providing COBRA coverage to all Employees who have timely
elected COBRA coverage and shall provide COBRA coverage to all Employees who in
the future elect COBRA coverage on account of a qualifying event which occurred
on or prior to the Closing Date within the time specified by COBRA. Purchaser
agrees to do all things necessary such that the Seller shall have no liability
to provide COBRA coverage to any Employee on account of a qualifying event which
occurs after the Closing Date.
(i) During the period of time beginning on the date of receipt of all
of the Requisite Regulatory Approvals and continuing to the Closing Date, Seller
shall permit Purchaser to provide training and orientation to those Employees
who have agreed to accept employment with Purchaser subsequent to the Closing
Date. Purchaser shall reimburse Seller for the salary of any such Employee with
respect to the period during which such Employee is absent from the Branch
Office for the purpose of such training and orientation.
0.142. Notice of Closing .
Except as: (i) consented to by Seller, which consent shall not be
unreasonably withheld, or (ii) required in connection with the obtaining of the
Requisite Regulatory Approvals, prior to the Closing Date Purchaser shall not
give any notice or notification of the closing of the Branch Office, or be
responsible for any such notice or notification or the communication of any such
information to any person.
ARTICLE VII
CERTAIN TAX MATTERS
0.143. Certain Tax Matters .
(a) Except as otherwise provided in this section hereof (relating to
Transfer Taxes), Seller shall be responsible for the payment of all Taxes
relating to the Assets for all taxable periods that end prior to the close of
business on the Closing Date. Responsibility for Taxes relating to the Assets
for all taxable periods which include (but do not end on) the Closing Date shall
be allocated between Purchaser and Seller in accordance with the method of
Section 164(d) of the Code, as amended. The party which has the primary
obligation to do so under applicable law shall file any Tax Return that is
required to be filed in respect of Taxes described in this section, and that
party shall pay the Taxes shown on such Tax Return and notify the other party in
writing of the other party's share of Taxes for which it is responsible, if any,
of the Taxes shown on such Tax Return and how such Taxes and share were
calculated, which the other party shall reimburse by wire transfer of
immediately available funds no later than ten (10) calendar days after receipt
of such notice.
(b) Purchaser shall pay all transfer, recording, sales, use (including
all bulk sales taxes) and other similar taxes and fees (collectively, the
"Transfer Taxes") arising out of or in connection with the transactions effected
pursuant to this Agreement, other than such Taxes as are calculated with
reference to the income or gain of the Seller. The party which has the primary
obligation to do so under applicable law shall file any Tax Return that is
required to be filed in respect of Taxes described in this section, and
Purchaser shall pay the Taxes shown on such Tax Return and notify Seller in
writing of Seller's share of Taxes for which Seller is responsible, if any, of
the Taxes shown on such Tax Return and how such Taxes and share were calculated,
which Seller shall reimburse by wire transfer of immediately available funds no
later than ten (10) calendar days after receipt of such notice.
(c) Seller and the Purchaser shall provide each other with such
assistance as reasonably may be requested by either of them in connection with
(i) the preparation of any Tax Return, or (ii) any audit or other examination by
any taxing authority, or any judicial or administrative proceedings relating to
liability for Taxes. The party requesting assistance hereunder shall reimburse
the other party for reasonable out-of-pocket expenses incurred in providing such
assistance, provided, however, that, for purposes of receiving reimbursement, no
independent contractors, such as accountants or attorneys, shall be consulted
without the written consent of the party requesting assistance, which consent
shall not be unreasonably withheld.
(d) Seller shall deliver to the Purchaser at the Closing a true,
correct and complete affidavit which meets the requirements of Treasury
Regulation Section 1.1445-2(b)(2) and which attests to Seller's non-foreign
status (the "FIRPTA Affidavit"). If Purchaser receives the FIRPTA Affidavit at
the Closing, Purchaser shall not withhold any of the consideration paid to
Seller under this agreement pursuant to Section 1445 of the Code (and
regulations thereunder).
0.144. Bulk Sales Procedures and Sales Tax .
Seller and Purchaser hereby waive compliance with the bulk sale
notification provisions contained in Section 1141(C) Article 28 of the New York
State Sales and Use Tax Law applicable to the transactions contemplated by this
Agreement. Seller (and its successors and assigns) shall indemnify and hold
harmless Purchaser from and against any sales or use tax liability of Seller
asserted against Purchaser as a result of non-compliance with such bulk sales
tax notification provision, other than liability for sales or use tax imposed
upon the sale of the Assets pursuant to this Agreement, the payment of which
shall be made by Purchaser and Seller as provided in Section 7.1(b).
ARTICLE VIII
OBLIGATIONS OF PARTIES ON THE CLOSING DATE
0.145. Closing Date/Closing .
(a) Except as otherwise hereinafter provided, the closing date (the
"Closing Date") shall be the second Friday upon which all conditions set forth
in this Agreement are satisfied or waived or such other date as may be mutually
agreeable to the parties hereto. The parties agree that they shall use
reasonable best efforts, and take all necessary actions to do so, in order to
close the transactions contemplated hereby on or prior to March 27, 1998.
(b) The delivery of the instruments of assignment and transfer to be
delivered by Seller and payment by Seller of the amount set forth under this
Agreement, delivery of the instruments of assumption to be delivered by
Purchaser, and the other transactions herein contemplated to take place
concurrently with such deliveries, assumptions, and payments (the "Closing"),
shall take place on the Closing Date, at 10:00 A.M. (New York City time), at the
offices of Thacher Proffitt & Wood, counsel to Seller, Two World Trade Center,
New York, New York (or at such other time and place as are agreed to by the
parties), and all such deliveries, assumptions, and payments shall be effective
as of the close of business on the Closing Date.
(c) At the Closing, any funds to be paid on the Closing Date shall be
paid by wire transfer of immediately available funds on the Closing Date as
early as possible and, in any event, before 1:00 p.m. (New York City time) on
the Closing Date, and, no effect shall be given to any assignment or assumption
by Seller or Purchaser contained in this Agreement until Seller's wire transfer
of funds is actually received on the Closing Date.
(d) Any deliveries, assignments, or transfers required under this
Agreement, other than the foregoing, shall be made at the time and date
specified in this Agreement (and where no time is specified, on or before the
close of business on the date specified) and in the manner and place specified
in this Agreement (or, where not specified, in the manner and place as may be
reasonably requested in writing by the party that is to receive such delivery,
assignment or transfer).
(e) The payment of the Final Transfer Amount, to the extent based on
any of the items to be reflected on the Post-Closing Schedule, shall be
determined as of the close of business on the Closing Date.
0.146. Obligations of Seller on the Closing Date .
On the Closing Date, Seller shall:
(a) deliver to Purchaser the Records referred to in Section 2.1(e),
to the extent that any such Records are not located at the Branch Office;
(b) execute, acknowledge and deliver to Purchaser (i) a Bill of Sale
substantially similar in form and substance to Exhibit C attached hereto and
made a part hereof and (ii) all such endorsements, assignments, bills of sale,
and other instruments of conveyance, assignment and transfer as shall be
reasonably necessary or advisable to consummate the sale and transfer to
Purchaser of the assets to be sold hereunder and, as appropriate, in recordable
form; and
(c) execute, acknowledge and deliver to Purchaser a New York Master
Assignment and Assumption of Lease substantially similar in form to Exhibit G
attached hereto.
0.147. Obligations of Purchaser on the Closing Date .
On the Closing Date, Purchaser shall
(a) execute, acknowledge and deliver to Seller an Instrument of
Assumption of Assumed Liabilities substantially similar in form and substance to
Exhibit D attached hereto and made a part hereof, and all such other instruments
as shall be reasonably necessary or advisable to consummate the sale and
transfer of assets to Purchaser and the assumption of Assumed Liabilities by
Purchaser; and
(b) execute, acknowledge and deliver to Seller a New York Master
Assignment and Assumption of Lease substantially similar in form to Exhibit G
attached hereto.
ARTICLE IX
CONDITIONS TO EACH PARTY'S OBLIGATIONS
The obligations of the parties under this Agreement are subject to the
satisfaction, on or before the Closing Date, of the following conditions:
0.148. Approval of Governmental Authorities .
All regulatory approvals required to consummate the transactions
contemplated hereby were obtained and remain in full force and effect, and all
applicable statutory waiting periods expired (all such approvals and the
expiration of all such waiting periods being referred to herein as the
"Requisite Regulatory Approvals").
0.149. No Injunctions or Restraints .
There is no order, injunction or decree issued by a court or agency of
competent jurisdiction or other legal restraint or prohibition (an "Injunction")
preventing the consummation of the transactions contemplated by this Agreement
in effect.
0.150. Illegality .
There is no statute, rule, regulation, order, injunction or decree
enacted, entered, promulgated or enforced by any Governmental Entity which
prohibits, restricts or makes illegal consummation of the transactions
contemplated by this Agreement.
ARTICLE X
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser under this Agreement are subject to the
satisfaction or waiver, on or before the Closing Date, of the following
conditions:
0.151. Representations and Warranties True; Obligations Performed .
(a) The representations and warranties made by Seller in this Agreement
shall be true and correct, in all material respects as of the date of this
Agreement (except to the extent such representations and warranties speak as of
an earlier date) all of the representations and warranties made by Seller in
this Agreement shall be true and correct in all material respects as of the
Closing Date at and as though such representations and warranties were made as
of the Closing Date, provided, however, that neither party shall be relieved of
any obligation hereunder as a result of such party's own error, misstatement or
omission, and provided, however, that nothing contained in this section 10.1(a)
shall be deemed to preclude, or otherwise limit, the right of Purchaser to be
indemnified for any breach of a representation or warranty by Seller in
accordance with the provisions of Article XII hereof.
(b) Seller shall have performed and complied in all material respects
with all obligations, covenants and agreements required by this Agreement to be
performed or complied with by it on or prior to the Closing Date.
(c) Seller shall have delivered to Purchaser a certificate of an
executive officer of Seller, dated the Closing Date, certifying to the
fulfillment of the foregoing conditions.
0.152. Opinion of Counsel .
Purchaser shall have received an opinion of counsel for Seller, dated
the Closing Date, with respect to the matters set forth on Exhibit E attached
hereto.
0.153. No Pending Proceedings or Governmental Actions .
There shall be no actions, suits or proceedings pending which, if
adversely decided, would have a Material Adverse Effect, and there shall be no
pending proceeding, initiated by any Governmental Entity, seeking an Injunction.
0.154. Consents .
All of the consents contemplated by Schedule 3.3 and Section 3.6(f)
(other than those contemplated by Section 9.1) shall have been obtained by
Seller, except for such third party consents the failure of which to obtain
would not have a Material Adverse Effect.
ARTICLE XI
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller under this Agreement to be performed at the
Closing shall be subject to the satisfaction or waiver, on or before the Closing
Date, of the following conditions:
0.155. Representations and Warranties True; Obligations Performed .
(a) The representations and warranties made by Purchaser in this
Agreement shall be true and correct, in all material respects, as of the date of
this Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Closing Date as though such
representations and warranties were made at and as of such date.
(b) Purchaser shall have performed and complied in all material
respects with all obligations and agreements required by this Agreement to be
performed or complied with by it prior to or at the Closing Date.
(c) Purchaser shall have delivered to Seller a certificate of an
executive officer of Purchaser, dated the Closing Date, certifying to the
fulfillment of the foregoing conditions.
0.156. Opinion of Counsel .
Seller shall have received an opinion of counsel for Purchaser, dated
the Closing Date, with respect to the matters set forth on Exhibit F attached
hereto.
0.157. No Pending Proceedings or Governmental Actions .
There shall be no actions, suits or proceedings pending which, if
adversely decided, would have a Material Adverse Effect and there shall be no
pending proceeding, initiated by any Governmental Entity, seeking an Injunction.
0.158. Consents .
All of the consents contemplated by Schedule 4.3 (other than those
contemplated by Section 9.1) were obtained by Purchaser, except for such third
party consents the failure of which to obtain would not have a Material Adverse
Effect.
ARTICLE XII
INDEMNIFICATION
0.159. Seller to Indemnify .
Seller agrees to indemnify, hold harmless and defend Purchaser, and
Purchaser's directors, officers, subsidiaries, successors and assigns, and
"Affiliates," as such term is defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended (collectively, the "Purchaser's Indemnified
Parties"), on an after tax basis, from and against any and all claims, losses,
liabilities, costs and expenses, including legal fees and expenses, damages,
expenditures, proceedings, judgments, awards, demands and obligations to third
parties ("Losses") of any kind whatsoever which may at any time be incurred by,
imposed upon, or asserted or awarded against Purchaser's Indemnified Parties
that:
(a) arise out of or result from the breach or inaccuracy of any
representation or warranty made by Seller in this Agreement (which shall include
the Exhibits and Schedules attached hereto) or any certificate delivered to
Purchaser hereunder,
(b) arise out of or resulting from any breach or failure to comply with
any covenant made by Seller in this Agreement,
(c) arise out of or resulting from or based upon any Excluded Asset and
any asset other than the Assets or any Excluded Liability,
(d) are a claim, liability, obligation or penalty related to the
Deposits transferred pursuant to this Agreement arising out of or relating to
Seller's preparation or submission (or failure to prepare or submit) of the
information, returns or reports required by applicable laws with respect to
periods prior to the Closing Date, except, to the extent that such claim,
liability or obligation is caused by Purchaser's negligence,
(e) are a claim, liability, obligation, Tax contract or commitment
arising out of or relating to any of the Assets, the Branch Office, or Seller or
its business or operations, except to the extent specifically assumed by
Purchaser hereunder,
(f) are a claim or liability asserted, by any former employee of Seller
relating to any condition which existed in the Branch Office during the time
that Seller operated such Branch Office and Seller employed such employee,
(g) are a claim or liability arising out of Seller's failure to
properly record accrued interest on the Deposits prior to the Closing Date, or
(h) are based upon any action taken or omitted to be taken by Seller
prior to the close of business on the Closing Date or (except to the extent
specifically otherwise provided herein) resulting from or arising in connection
with any transaction or event occurring prior to the Closing.
0.160. Purchaser to Indemnify .
Purchaser agrees to indemnify, hold harmless and defend Seller, and
Seller's directors, officers, subsidiaries, successors and assigns, and
Affiliates (collectively, the "Seller's Indemnified Parties"), on an after tax
basis, from and against any and all Losses of any kind whatsoever which may at
any time be incurred by, imposed upon, or asserted or awarded against the
Seller's Indemnified Parties that:
(a) arise out of or result from the breach or inaccuracy of any
representation or warranty made by Purchaser in this Agreement (which shall
include the Exhibits and Schedules attached hereto) or any certificate delivered
to Seller hereunder,
(b) arise out of or result from any breach or failure to comply with
any covenant made by Purchaser in this Agreement,
(c) are sustained or incurred by the Seller's Indemnified Parties by
reason of any failure of the Purchaser to pay, perform or otherwise discharge
the Assumed Liabilities,
(d) are based upon any action taken or omitted to be taken by Purchaser
subsequent to the Closing or (except to the extent specifically otherwise
provided herein) resulting from or arising in connection with any transaction or
event occurring subsequent to the Closing,
(e) after the Closing Date, arise out of or result from the breach or
default by Purchaser of any of the obligations of the tenant under the Lease,
including without limitation, the obligations to indemnify and hold the landlord
harmless with respect to environmental liabilities pursuant to paragraph 65 of
the Lease, or
(f) are for Transfer Taxes.
0.161. Procedure for Indemnification .
(a) if a party entitled to be indemnified under this Agreement (an
"Indemnitee") receives notice of the assertion by an unaffiliated third party (a
"Third Party") of any claim or potential liability or of the commencement by any
such person of any action or proceeding (a "Third Party Claim") with respect to
which another party hereto (an "Indemnifying Party") is obligated to provide
indemnification, the Indemnitee shall give the Indemnifying Party prompt notice
thereof after becoming aware of such Third Party Claim. Such notice shall
describe the Third Party Claim in reasonable detail and shall indicate the
amount (estimated if necessary) of the Loss that has been or may be sustained by
the Indemnitee. Such notice shall be a condition precedent to any liability of
the Indemnifying Party for any Third Party Claim under the provisions for
indemnification contained in this Agreement; provided, however, that the failure
of the Indemnitee to give prompt notice to the Indemnifying Party of such Third
Party Claim shall adversely affect the Indemnitee's rights to indemnification
hereunder solely to the extent that such failure prejudices the Indemnifying
Party in the defense of such Third Party Claim.
(b) The Indemnifying Party may elect to compromise or defend, at such
Indemnifying Party's own expense and by such Indemnifying Party's own counsel,
any Third Party Claim. If the Indemnifying Party elects to compromise or defend
such Third Party Claim, it shall, within thirty (30) calendar days after
receiving notice of the Third Party Claim, notify the Indemnitee of its intent
to do so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such Third Party Claim. If the
Indemnifying Party elects not to compromise or defend against the Third Party
Claim, or fails to notify the Indemnitee of its election as herein provided, or
otherwise abandons the defense of such Third Party Claim, (i) the Indemnitee may
pay (without prejudice of any of its rights as against the Indemnifying Party),
compromise or defend such Third Party Claim and (ii) the costs and expenses of
the Indemnitee incurred in connection therewith shall be indemnifiable by the
Indemnifying Party pursuant to the terms of this Agreement.
(c) In addition, in connection with any Third Party Claim in which the
Indemnitee shall reasonably conclude, based upon an opinion of its counsel, that
(i) there is a conflict of interest between the Indemnifying Party and the
Indemnitee in the conduct of the defense of such Third Party Claim or (ii) there
are specific defenses available to the Indemnitee which are different from or
additional to those available to the Indemnifying Party and which could be
materially adverse to the Indemnifying Party, then the Indemnitee shall have the
right to retain separate counsel in connection with such Third Party Claim. In
such an event, the Indemnifying Party shall pay the reasonable fees and
disbursements of counsel to each of the Indemnifying Party and the Indemnitee.
(d) Notwithstanding the foregoing, neither the Indemnifying Party nor
the Indemnitee may settle or compromise any claim (unless the sole relief
payable to a Third Party in respect of such Third Party Claim is monetary
damages that are paid in full by the party settling or compromising such claim)
over the objection of the other, provided, however, that consent to settlement
or compromise shall not be unreasonably withheld.
(e) In any event, except as otherwise provided herein, the Indemnitee
and the Indemnifying Party may each participate, at its own expense, in the
defense of such Third Party Claim.
(f) If the Indemnifying Party chooses to defend any claim, the
Indemnitee shall make available to the Indemnifying Party any personnel or any
books, records or other documents within its control that are reasonably
necessary or appropriate for such defense, subject to the receipt of appropriate
confidentiality agreements.
(g) Notwithstanding anything to the contrary stated hereinabove in this
section, in the event prompt action is required with respect to the defense of a
Third Party Claim, the Indemnitee shall, subject to the terms and conditions of
this Article, have the right to assume the defense of such Third Party Claim;
provided, however, that in the event that the Indemnifying Party subsequently
elects to assume the defense of such Third Party Claim, then the provisions set
forth hereinabove shall be applicable and the Indemnifying Party shall, subject
to the terms and conditions of this Article, reimburse the Indemnitee for any
costs and expenses incurred by the Indemnitee prior to the date the Indemnifying
Party assumes control of such Third Party Claim.
(h) Notwithstanding the foregoing, if an offer of settlement or
compromise is received by or communicated to the Indemnifying Party with respect
to a Third Party Claim and the Indemnifying Party notifies the Indemnitee in
writing of the Indemnifying Party's willingness to settle or compromise such
Third Party Claim on the basis set forth in such notice and the Indemnitee
declines to accept such settlement or compromise, the Indemnitee may continue to
contest such Third Party Claim, free of any participation by the Indemnifying
Party, at the Indemnitee's sole expense. The obligation of the Indemnifying
Party to the Indemnitee with respect to such Third Party Claim shall be equal to
the lesser of (i) the amount of the offer of settlement or compromise which the
Indemnitee declined to accept plus the costs and expenses of the Indemnitee
prior to the date the Indemnifying Party notifies the Indemnitee of the
Indemnifying Party's willingness to settle or compromise such Third Party Claim
or (ii) the amount the Indemnitee is obligated to pay as a result of the
Indemnitee's continuing to contest such Third Party Claim including costs and
expenses with respect thereto; and the Indemnifying Party shall be entitled to
recover (by set-off or otherwise) from the Indemnitee any additional expenses
incurred by the Indemnifying Party as a result of the Indemnitee's decision to
continue to contest such Third Party Claim.
(i) Any claim on account of a Loss which does not involve a Third Party
Claim shall be asserted by a written notice given by the party claiming
indemnity to the party from which indemnity is claimed. The recipient of such
notice shall have a period for sixty (60) calendar days within which to respond
thereto. If such recipient does not respond within such 60-day period, such
recipient shall be deemed to have accepted responsibility to make payment,
subject to the provisions hereof, and shall have no further right to contest the
validity of such claim. If the recipient does respond within such 60-day period
and rejects such claim in whole or in part, the party claiming indemnity shall
be free to pursue such remedies as may be available to such party by applicable
law.
(j) If the amount of any Loss shall, at any time subsequent to payment
of indemnification pursuant to this Agreement, be reduced by receipt of
insurance proceeds by the Indemnitee in respect of such Loss, the amount of such
reduction less any expenses incurred in connection therewith shall promptly be
repaid by the Indemnitee to the Indemnifying Party.
(k) Notwithstanding anything to the contrary contained in this
Agreement, no claim shall be made against Seller for indemnification under
Section 12.1(a) with respect to any Loss which any of Purchaser's Indemnified
Parties may suffer, incur or sustain unless the aggregate of all such Losses
described in Section 12.1(a) shall exceed $15,000 (the "Indemnification
Amount"), and Seller shall only be required to pay or be liable for any such
Losses described in Section 12.1(a) to the extent that their aggregate amount
exceeds the Indemnification Amount, and then only with respect to Losses
incurred in excess of such amount, provided, however, that the Indemnification
Amount limitation contained in this Section 12.3(k) shall not apply to, and
Purchaser's Indemnified Parties shall be entitled to dollar-for-dollar recovery
with respect to, Losses suffered, incurred or sustained which arise out of,
result from or are attributable to breaches of the representations contained in
Sections 3.10, 3.12 or 3.15 hereof.
0.162. Production of Witnesses .
Following the Closing, each party shall use its best efforts to make
available to the other party, upon written request, its employees and agents as
witnesses to the extent that any such person may be reasonably required in
connection with any legal, administrative or other proceedings in which the
requesting party may from time to time be involved.
0.163. Survival .
No rights to indemnification with respect to breaches of the
representations and warranties of the parties contained in this Agreement shall
be asserted by any party unless notice thereof is given on or before the date
such representation or warranty no longer survives as provided in this Section
12.5. The representations and warranties of Seller, on the one hand, and of
Purchaser, on the other hand, contained in this Agreement or in any certificate
or instrument delivered pursuant to this Agreement shall survive the Closing
Date and shall expire on the first anniversary of the Closing Date.
ARTICLE XIII
TERMINATION
0.164. Methods of Termination .
This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:
(a) by mutual written consent of Seller and Purchaser;
(b) by either Seller or Purchaser, upon written notice to the other, if
the transactions contemplated by this Agreement are not consummated on or before
March 27, 1998 (the "Termination Date"), unless the failure of such occurrence
is due to the failure of the party seeking to terminate this Agreement to
perform or to observe the agreements set forth herein at or before the Closing;
(c) by either Seller or Purchaser, upon written notice to the other, if
there is a material breach of an obligation of the other party hereunder and
such breach is not remedied within thirty (30) calendar days after receipt by
such breaching party of notice in writing from the non-breaching party,
specifying the nature of such breach and requesting that it be remedied;
(d) by either Seller or Purchaser, upon written notice to the other, if
any court or governmental authority of competent jurisdiction issues a final
unappealable order prohibiting consummation of any material transaction
contemplated hereby; or
(e) by either Seller or Purchaser, upon written notice to the other,
following the expiration of thirty (30) calendar days after any Governmental
Entity shall have denied or refused to grant the approvals or consents required
to be obtained pursuant to this Agreement, unless within said thirty (30) day
period Purchaser and Seller agree to submit or resubmit an application to, or
appeal the decision of, the regulatory authority which denied or refused to
grant approval thereof.
0.165. Effect of Termination .
In the event of the termination and abandonment of this Agreement
pursuant to Section 13.1 hereof, this Agreement shall become void and have no
effect, without any liability on the part of any party to this Agreement or its
Affiliates, directors, officers or stockholders, other than the provisions of
this Section 13.2, Section 14.4 and the confidentiality provisions of Section
5.2(a), provided however,
(i) a termination of this Agreement shall not defeat or impair the right of any
party to pursue such relief as may otherwise be available to it on account of
any willful breach of this Agreement or any of the representations, warranties,
covenants or agreements contained in this Agreement;
(ii) in recognition of the efforts, expenses and other opportunities foregone by
the Seller while structuring the transactions contemplated by this Agreement,
the parties agree that Purchaser shall pay to Seller a fee of 1% (one percent)
of the Deposits at December 31, 1997 in cash on demand if the Closing does not
occur by March 27, 1998 for any reason unless (A) the Closing would have
occurred but for the failure to occur of a condition to Purchaser's obligations
hereunder set forth in Article X or (B) the Requisite Regulatory Approvals are
not obtained; and (iii) in recognition of the expenses incurred by Purchaser,
the parties agree that Seller shall pay to Purchaser 1/2% (one half of one
percent of the Deposits at December 31,1 997) in cash on demand if the Closing
does not occur because of a termination by Seller.
ARTICLE XIV
GENERAL PROVISIONS
0.166. Entire Agreement; Modification; Waiver .
This Agreement, including all Exhibits and Schedules hereto,
constitutes the entire agreement of the parties pertaining to the subject matter
contained herein and this Agreement supersedes all prior or contemporaneous
agreements, representations and understandings of the parties. No supplement,
modification or amendment to, or waiver of this Agreement shall be binding
unless executed in writing by Seller and Purchaser. No waiver of any provision
of this Agreement shall be deemed or shall constitute a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver.
0.167. Counterparts .
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
0.168. Headings .
The headings of the Sections, Articles, Exhibits and Schedules of this
Agreement are inserted for convenience only and shall not constitute a part of
this Agreement.
0.169. Payment of Expenses .
Except as otherwise provided in this Agreement, whether or not the
transactions contemplated hereby are consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such costs and expenses, except for
legal fees and expenses, which shall be paid by Purchaser provided, however,
that Purchaser's liability for Seller's legal fees and expenses in connection
with the purchase and sale of the Assets shall in no event exceed $30,000.
0.170. Governing Law .
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without giving effect to the principles of
conflict of laws thereof.
0.171. Addresses of Notice
All notices, requests, demands and other communications provided for
under this Agreement and under the related documents shall be in writing
(including telegraphic communication) and mailed (by registered or certified
mail, return receipt requested, or delivered by Federal Express or other similar
express overnight delivery service), or telegraphed, telecopied or delivered to
the applicable party at the addresses indicated below.
If to Purchaser:
City National Bank of New Jersey
900 Broad Street
Newark, New Jersey 07102
Attention: Louis E. Prezeau, President and Chief Executive
Officer
Telecopier: (201) 624-1879
With a copy to: Lee Albanese, Esq.
St. John & Wayne L.L.C.
2 Penn Plaza
Newark, New Jersey 07102
Telecopier: (973) 491-3403
If to Seller:
Carver Federal Savings Bank
75 West 125th Street
New York, New York 10027
Attention: Walter T. Bond, Vice President
Telecopier: (212) 426-6159
With a copy to: Kofi Appenteng, Esq.
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Telecopier: (212) 912-7751
or, to each party, at such other address that party designates in a written
notice to the other party in accordance with this section. All such notices,
requests, demands or other communications shall be deemed delivered (i) if sent
by messenger, upon personal delivery to the party to whom the notice is
directed, (ii) if sent by telecopier, upon electronic or telephonic confirmation
of receipt from the receiving telecopier machine, (iii) if sent by reputable
overnight courier, one (1) Business Day after delivery to such courier, or (iv)
if sent by mail, three (3) Business Days following deposit in the United States
mail, postage prepaid, certified mail, return receipt requested.
0.172. Publicity .
Except as may be required by law or by the rules or regulations of any
governmental authority or securities exchange prior to the Closing Date, neither
party shall, directly or indirectly, make or cause to be made any public
announcement or disclosure, or issue any notice, relating to any of the
transactions contemplated by this Agreement, unless approved by the other in
advance. Both parties will limit the distribution of information relative to
this transaction to those persons who must be aware of the Agreement for the
performance of their duties.
0.173. Severability .
If any paragraph, section, sentence, clause, phrase, word or covenant
contained in this Agreement shall become illegal, null or void, or against
public policy, for any reason, or shall be held by any court of competent
jurisdiction to be illegal, null or void, or against public policy, the
remaining paragraphs, sections, sentences, clauses, phrases, words and covenants
contained in this Agreement shall not be affected.
0.174. Enforcement of the Agreement .
The parties agree that irreparable damage would occur in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
0.175. Binding Nature; Assignment .
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their permitted successors and assigns. Neither party shall
assign or otherwise transfer any rights or obligations under this Agreement
without the express written consent of the other party; provided, however, that
either party may assign its rights or obligations under this Agreement to any
Affiliate of such party; provided, further, that no such assignment shall
relieve the assigning party of its obligations hereunder.
0.176. No Third Party Rights .
This Agreement is not intended, nor shall it be construed, to create
any express or implied third party beneficiary rights in any person, including
present or former employees of Seller, the Employees, or any beneficiaries or
dependents thereof.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SELLER:
CARVER FEDERAL SAVINGS BANK
By:
PURCHASER:
CITY NATIONAL BANK OF NEW JERSEY
By:
<PAGE>
300366-1
EXHIBIT A
BRANCH OFFICE
Roosevelt Office
302 Nassau Road
Roosevelt, New York 11575
<PAGE>
300366-1
ASSET PURCHASE AND SALE AGREEMENT
EXHIBIT B
5.14 General Conversion Matters.
(a) Taxpayer Information. Seller shall deliver to Purchaser within
three (3) Business Days after the Closing Date (a) TINs (or record of
appropriate exemption) for all holders of Accounts and (b) all other information
in Seller's possession or reasonably available to Seller required by applicable
law to be provided to the IRS with respect to the Assets and Deposits and the
holders thereof (collectively, the "Taxpayer Information"). In addition,
"Taxpayer Information" should be included in all test tapes as well.
(b) Data Processing Tapes and File Packages.
(i) No later than thirty (30) calendar days following the
execution of this Agreement, Seller will provide Purchaser with written
layouts for all files and tape records of all account types at the
Branch Office, initial data processing test file packages, and related
product and marketing information.
(ii) On the day immediately prior to the Closing Date, Seller
will provide Purchaser with magnetic tapes for the conversion of the
data processing for the Deposits.
(iii) Data processing conversion will occur on the calendar
day following the Closing Date.
(iv) Seller and Purchaser shall cooperate with one another in
order to ensure the orderly transfer of all data processing
information. If Seller uses third party data processing services to
support Seller's pre-closing or closing activities, Seller shall be
responsible for ensuring that all such third party processing services
are provided for the benefit of Purchaser. If Purchaser expects to use
third party data processing services to support post-closing
activities, Purchaser shall be responsible for ensuring that all such
third party processing services are provided, and Seller shall
cooperate with Purchaser to ensure that the services are provided by
the third parties.
(v) Within ninety (90) calendar days following the Closing
Date, to the extent that Seller has such items and information in its
possession, Seller shall deliver to Purchaser information with respect
to the Deposits for the three (3) annual periods ending December 31 of
the previous three (3) years and the period elapsed of the current year
through the Closing Date. Such information shall be delivered in the
format (whether tape or microfiche) on which such information is
maintained by Seller, and such information shall include, with respect
to each Deposit account, as applicable and to the extent Seller has
such information in its possession, customer name, account number,
taxpayer identification number, deposit type, account opening date,
average collected balance, current balance, branch code, interest
method and frequency, maturity date, last rollover date, term, and next
interest payment due date.
(c) Missing Taxpayer Identification Numbers. At or prior to the Closing
Date, Seller shall provide Purchaser with a list of all Deposits with respect to
which notice was received from the Internal Revenue Service stating that the
taxpayer identification number is missing or incorrect. Said list shall also set
forth the date on which the notice was received by Seller.
(d) Assumption of IRA Deposits. With respect to Deposits which are
IRAs, Seller will use its reasonable efforts and will cooperate with Purchaser,
both before and after the Closing, in taking whatever actions are reasonably
necessary to accomplish the appointment of Purchaser as successor
trustee/custodian, such appointment to be effective as of the Closing Date,
including but not limited to sending to the depositors thereof appropriate
notices, cooperating with Purchaser in soliciting consents from such depositors
to the extent required, and filing any appropriate applications with applicable
regulatory authorities. Upon appointment as successor trustee/custodian by
Seller and, after the Closing Date, Purchaser shall succeed to the rights,
obligations, properties, assets, investments, deposits, agreements and trusts of
Seller under such IRAs, all to the same extent as though Purchaser had
originally assumed such appointments; provided that Purchaser shall have no
liability for any action or failure to act by Seller with respect to IRAs that
occurred on or prior to the Closing Date.
(e) Retirement Accounts. Seller shall provide Purchaser with the
trust documents for the Retirement Accounts assumed by Purchaser under Article
II of this Agreement.
(f) Assumption of Keogh Deposits. With respect to Purchaser's proposed
assumption of Retirement Accounts which are Keogh Accounts, Seller shall
cooperate with Purchaser to invite depositors to direct a transfer of each such
depositor's Keogh Account and the related Retirement Account to Purchaser, as
trustee thereof, with Purchaser to succeed as trustee under the Seller's current
form of Keogh Plan with respect to each Keogh Account. Notwithstanding the
foregoing, (i) Purchaser shall have no liability for any action or failure to
act by Seller with respect to Keogh Accounts that occurred on or prior to the
Closing Date and (ii) Purchaser will not assume any Retirement Accounts which
are Keogh Accounts (and such Retirement Accounts will not be considered in
calculating the payments to be made pursuant to Article II) unless Purchaser has
received the documents necessary for such assumption or transfer at or before
the Closing. With respect to depositors who do not appoint a successor trustee,
Seller will use its reasonable efforts after Closing in order to enable
Purchaser to retain such Keogh Accounts at the Branch Office.
(g) ATM Access Cards. As of the close of business on the Closing Date,
all ATM access cards issued by Seller to customers of the Branch Office shall be
void. In connection with the notices to depositors described in Section 5.9 of
this Agreement, at least thirty (30) calendar days prior to the Closing Date,
Seller shall notify Branch Office customers in writing of such cancellation of
the ATM access cards. At least sixty (60) calendar days prior to the Closing
Date, Seller agrees to provide the necessary data tapes required to accommodate
the processing of ATM cards. The ATM access card data will be provided by Seller
in the format that is maintained by Seller. Purchaser may issue, but it may not
activate, ATM access cards to depositors prior to the Closing Date. Except as
otherwise permitted in this Agreement, Seller shall take such other actions as
are necessary to limit the Branch Office customers' access to funds transferred
to Purchaser after the Closing Date.
(h) Schedule of Holds and Stop Payments. At the Closing, Seller will
deliver to Purchaser a schedule of holds and stop payments placed on particular
accounts or individual checks at the Branch Office and the terms of such holds.
Such schedule should also be included in the test data.
(i) Certain Items Credited For Deposit. After the Closing Date, any
items (other than those issued by the federal, state or local government or any
related entity) that were credited for deposit to an account at the Branch
Office prior to the Closing Date and are returned unpaid and any checks issued
by the federal, state, or local government or any related entity that were
credited for deposit to an account at the Branch Office prior to the Closing
Date and are returned unpaid ("Returned Items") will be handled in the following
manner:
(i) If Purchaser's bank account is charged for the Returned
Item and there are sufficient funds in the account to which such
Returned Item was credited or any other accounts on deposit at the
Branch Office or at any other branch office of Purchaser standing in
the name of the party liable for such item, Purchaser will, to the
extent legally permissible, debit any or all of such accounts an amount
equal in the aggregate to the Returned Item. If Purchaser's bank
account is charged for the Returned Item and there are not sufficient
funds in the account, Purchaser shall attempt to obtain reimbursement
from the account to which, or from the party to whom, the Returned Item
was credited; and
(ii) If Seller's bank account is charged for the Returned Item
and there are sufficient funds in the account to which such Returned
Item was credited or any other accounts on deposit at the Branch Office
or at any other branch office of Purchaser standing in the name of the
party liable for such item, Purchaser shall, to the extent legally
permissible, debit any or all of such accounts an amount equal in the
aggregate to such Returned Item and shall repay that amount to Seller.
If those accounts do not contain funds sufficient to reimburse Seller
fully or Purchaser is otherwise unable to debit such accounts,
Purchaser shall immediately repay to Seller the amount of the Returned
Item and Seller shall assign the Returned Item to Purchaser for
collection.
(j) New Checks. As soon as possible and no later than thirty (30)
calendar days following the Closing Date, Purchaser shall provide holders of
checking accounts at the Branch Office with new checks MICR encoded with
Purchaser's routing and transit numbers and Purchaser's customer identification
number at its sole cost and expense. For a period of ninety (90) calendar days
following the Closing Date, Seller shall immediately pass through to Purchaser
checks received by it drawn on such accounts. Purchaser accepts full
responsibility to either pay the items or return them in accordance with the
customer agreement and the applicable state uniform commercial code. During the
ninety (90) day or shorter period described, Seller shall give Purchaser a daily
accounting of debits for its clearing account. On a daily basis, upon review of
such debits, Purchaser shall reimburse Seller by wire transfer in immediately
available funds to Seller's Account; provided, however, after thirty (30)
calendar days following the Closing, Seller shall settle by wire transfer in
immediately available funds on a weekly basis.
(k) Remittance of Payments. For ninety (90) calendar days following
the Closing Date,
(i) Seller shall remit to Purchaser all payments received by
Seller at its other offices after the Closing Date which relate to the
Branch Office with respect to Loans or amounts intended for deposit to
the accounts which are part of the Deposits or otherwise relating to
the Deposits or Loans, and after such ninety (90) calendar day period
Seller shall return such items;
(ii) Purchaser shall remit to Seller all payments received by
Purchaser at the Branch Office or its other offices after the Closing
Date which relate to Seller's other offices, and after such ninety (90)
calendar day period Purchaser shall return such items; and
(iii) With respect to checks or drafts drawn against accounts
which are Deposits, Seller shall cooperate with Purchaser and take all
reasonable steps requested by Purchaser to ensure that each such item
that is coded for presentment to Seller or to any bank for the account
of Seller is delivered to Purchaser in accordance with applicable law
and Clearing House rules or agreement, and after such ninety (90)
calendar day period Seller shall return such items marked "Account
Closed".
(l) Check Sorting. For ninety (90) calendar days following the Closing
Date, on a daily basis Seller shall out sort all checks drawn on an account
maintained at the Branch Office and prepare them to be couriered to Purchaser at
a location designated by Purchaser by the close of business on the day they are
received; provided that Seller shall also transmit to Purchaser, as instructed
by Purchaser, copies of all items payable in the amount of $2,500 or more.
Purchaser shall arrange and pay for all couriers that are necessary for check
processing activity during this period. Purchaser shall settle for the gross
dollar amount of out sorted checks drawn on an account maintained at the Branch
Office by wire transfer in immediately available funds to Seller's Account on
the day that Purchaser receives the daily accounting of debits from Seller;
provided, however, that after thirty (30) calendar days following the Closing
Date, Purchaser shall settle on a weekly basis by wire transfer in immediately
available funds. All rejected checks written on an account maintained at the
Branch Office which is transferred to Purchaser pursuant to this Agreement are
to be the responsibility of Purchaser. After the ninety (90) calendar day
period, Seller may return such items marked "Account Closed".
(m) ACH Items. ACH items will be handled in the following manner:
(i) Beginning at least thirty (30) calendar days prior to the
Closing Date, Seller will deliver each day to Purchaser a modem
transmission or paper report of all ACH Items and recurring
debit/credit arrangements in standard ACH format.
(ii) At least thirty (30) calendar days prior to the Closing
Date, Seller will deliver to Purchaser, (A) copies of any ACH
origination forms for social security payments and recurring
debit/credit arrangements being assumed by Purchaser which are in
Seller's possession hereunder, and (B) all other records and
information in Seller's possession necessary for Purchaser to
administer such arrangements.
(iii) As soon as possible after the Closing Date, Seller and
Purchaser will use their reasonable efforts to transfer all ACH
arrangements to Purchaser. Purchaser shall continue such ACH
arrangements and such recurring debit arrangements as are originated
and administered by third parties and for which Purchaser need act only
as processor.
(iv) Beginning on the Closing Date and for one hundred and
twenty (120) calendar days after the Closing Date, Seller shall use
commercially reasonable efforts to, prior to 12:00 p.m. (New York City
time) on each Business Day, (A) telecopy or deliver to Purchaser at
such address as Purchaser may from time to time designate, a summary of
ACH Items activity affecting the Deposits at the Branch Office during
the prior Business Day, and (B) remit by wire transfer to Purchaser all
ACH Items funds then known by Seller which are intended for deposit
accounts at the Branch Office being transferred to Purchaser on such
Business Day. One hundred and twenty (120) calendar days after the
Closing Date, Seller will return all such ACH Items to the paying party
and Purchaser shall assume no responsibility with respect to such ACH
Items.
(n) Reclamations. Purchaser will make every effort to recover funds on
reclamations received for federal recurring payments and ACH transfers. If
collection efforts are unsuccessful, Seller shall be responsible for reimbursing
Purchaser for those transactions that were processed prior to and through the
Closing Date.
<PAGE>
300366-1
EXHIBIT C
BILL OF SALE
BILL OF SALE (this "Bill of Sale"), made and effective as of
[____________], from Carver Federal Savings Bank ("Seller"), to City National
Bank of New Jersey ("Purchaser").
WHEREAS, pursuant to the Asset Purchase and Sale Agreement,
dated as of [____________] (the "Agreement"), by and between Seller and
Purchaser, Purchaser has agreed to purchase from Seller all of its right, title
and interest in and to certain assets.
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged by Seller, Seller does hereby sell, convey, assign, transfer
and deliver to Purchaser, and its successors and assigns, all of Seller's right,
title and interest in and to the Assets (such capitalized term and, except as
otherwise defined herein, all other capitalized terms used herein shall have the
meaning ascribed to such terms in the Agreement) as of the date hereof.
In accordance with the Agreement, the Assets shall not
include, and Purchaser is not acquiring from Seller, any of the Excluded Assets,
and Seller shall retain ownership of all right, title and interest in and to the
Excluded Assets.
Seller covenants and agrees with Purchaser that Seller will
from time to time execute, acknowledge and deliver such other and further
instruments and will take such other action as may be necessary or desirable to
carry out more effectively the transfer of assets provided for herein.
Nothing in this instrument, express or implied, is intended or
shall be construed to confer upon, or give to, any person other than Purchaser
and its successors and assigns, any remedy or claim under or by reason of this
instrument or any agreements, covenants or terms hereof, and all the agreements,
covenants and terms contained in this instrument shall be for the sole and
exclusive benefit of Purchaser and its successors and permitted assigns.
This Bill of Sale shall inure to the benefit of Purchaser and
its successors and permitted assigns and be binding upon and enforceable against
Seller and its successors and permitted assigns.
This Bill of Sale shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
conflict of laws principles thereof.
This Bill of Sale is given pursuant to the Agreement, and,
except as herein otherwise provided, the transfer of the property hereunder is
made subject to the terms and provisions of the Agreement.
<PAGE>
IN WITNESS WHEREOF, this Bill of Sale has been duly executed
and delivered by the duly authorized office of Seller as of the date first
written above.
Carver Federal Savings Bank
By:
Name:
Title:
AGREED AND ACCEPTED:
City National Bank of New Jersey
By:
Name:
Title:
<PAGE>
300366-1
EXHIBIT D
INSTRUMENT OF ASSUMPTION
INSTRUMENT OF ASSUMPTION ( this "Instrument of Assumption")
made as of [____________], by City National Bank of New Jersey ("Purchaser"), in
favor of Carver Federal Savings Bank ("Seller"), pursuant to the Asset Purchase
and Sale Agreement dated as of [____________] (the "Agreement"), by and between
Purchaser and Seller.
In partial consideration of the sale, conveyance, assignment,
transfer and delivery by Seller to Purchaser, pursuant to the Agreement, of all
of Seller's right, title and interest in and to the Assets (such capitalized
term and, except as otherwise defined herein, all other capitalized terms used
herein shall have the meaning ascribed to such terms in the Agreement), (i)
Seller does hereby assign to Purchaser, and Purchaser does hereby assume from
Seller, the Deposits, and Purchaser does hereby agree to pay, honor, perform and
discharge all obligations with respect to, and shall be solely and exclusively
liable for, the Deposits and (ii) Seller does hereby assign to Purchaser, and
Purchaser does hereby assume from Seller, the Other Liabilities, and Purchaser
does hereby agree to pay, honor, perform and discharge all obligations with
respect to, and shall be solely and exclusively liable for, the Other
Liabilities. The Deposits and the Other Liabilities are collectively referred to
herein as the "Assumed Liabilities."
In accordance with the Agreement, the Assumed Liabilities
shall not include and Purchaser is not assuming and shall not be deemed to have
assumed any of, the Excluded Liabilities, and, accordingly, Purchaser has not
agreed to assume or pay, and shall not assume or be deemed to have assumed, any
liability or obligation, direct or indirect, absolute or contingent, of Seller
or any other person or entity, the assumption of which is not expressly provided
for in the Agreement.
The assumption by Purchaser of the Assumed Liabilities shall
not be construed to defeat, impair or limit in any way any rights or remedies of
Purchaser to contest or dispute the validity or amount thereof.
For the consideration aforesaid, Purchaser, for itself and its
successors and assigns, has covenanted, and by this Instrument of Assumption
does covenant, with Seller and its successors and assigns that Purchaser and its
successors and assigns will from time to time do, execute and deliver, or will
cause to be done, executed and delivered, all such further acts and instruments
which Seller may reasonably request in order to more fully effectuate the
assumption of liabilities provided for herein.
This Instrument of Assumption will be enforceable against the
successors and assigns of Purchaser and will inure to the benefit of the
successors and assigns of Seller.
This Instrument of Assumption shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the conflict of laws principles thereof.
This Instrument of Assumption is given pursuant to the
Agreement, and, except as herein otherwise provided, the assumption of the
Assumed Liabilities hereunder is made subject to the terms and provisions of the
Agreement.
IN WITNESS WHEREOF, this Instrument of Assumption has been
duly executed and delivered by the duly authorized officer of Purchaser as of
the date first set forth above.
City National Bank of New Jersey
By:
Name:
Title:
AGREED AND ACCEPTED:
Carver Federal Savings Bank
By:
Name:
Title:
<PAGE>
300366-1
EXHIBIT E
177.The Bank is a stock form savings bank duly organized,
validly existing and in good standing under the laws of the
United States and has all requisite corporate authority to own
or lease its properties and to conduct its banking business as
now conducted.
178.The Bank has all requisite corporate power and corporate
authority to execute and deliver the Agreement and to perform
the provisions and conditions thereof.
179.The Agreement, and the transactions contemplated thereby,
have been duly authorized by the Bank.
180.The Agreement has been duly executed and delivered by the
Bank and the Agreement constitutes the valid and binding
obligation of the Bank enforceable in accordance with its
terms.
181.The execution, delivery and performance of the Agreement
does not and will not conflict with, result in a breach of, or
entitle any party (with due notice or lapse of time or both)
to terminate, accelerate or call a default with respect to,
any material agreement or instrument of which we have actual
knowledge, to which the Bank is a party or by which the Bank
is bound.
182.The Bank is not a party to, or subject to or bound by, any
charter, bylaw, indenture, mortgage, lien, lease, agreement or
instrument, or any order, judgment, injunction or decree of
any court or governmental authority that is known to us that
may restrict or interfere with the performance of the
Agreement or the consummation of the transactions contemplated
thereby.
183.There is no action, suit or proceeding pending, or to our
knowledge, threatened against or affecting the Bank before any
court or arbitrator or any governmental body, agency or
official that would materially adversely affect the ability of
the Bank to perform its obligations under the Agreement or
that in any manner questions the validity of the Agreement,
and there are no facts known to us that might result in or
form the basis for any such action, suit or proceeding.
184.To the best of our knowledge, after reasonable
investigation, all acts and proceedings required by law or the
Agreement to be undertaken by the Bank at or prior to the date
hereof to authorize and complete the transactions covered and
contemplated by the Agreement have been duly and validly
taken.
<PAGE>
EXHIBIT F
OPINIONS TO BE DELIVERED BY PURCHASER'S COUNSEL
185.The Bank is a national bank duly organized,
validly existing and in good standing under the laws of the
United States and has all requisite corporate authority to own
or lease its properties and to conduct its banking business as
now conducted.
186.The Bank has all requisite corporate power and corporate
authority to execute and deliver the Agreement and to perform
the provisions and conditions thereof.
187.The Agreement, and the transactions contemplated thereby,
have been duly authorized by the Bank.
188.The Agreement has been duly executed and delivered by the
Bank, and the Agreement constitutes the valid and binding
obligation of the Bank enforceable in accordance with its
terms.
189.The execution, delivery and performance of the Agreement
does not and will not conflict with, result in a breach of, or
entitle any party (with due notice or lapse of time or both)
to terminate, accelerate or call a default with respect to,
any material agreement or instrument of which we have actual
knowledge, to which the Bank is party or by which the Bank is
bound.
190.The Bank is not a party to, or subject to or bound by, any
charter, bylaw, indenture, mortgage, lien, lease, agreement or
instrument, or any order, judgment, injunction or decree of
any court or governmental authority that is known to us that
may restrict or interfere with the performance of the
Agreement or the consummation of the transactions contemplated
thereby.
191.There is no action, suit or proceeding pending or, to our
knowledge, threatened against or affecting the Bank before any
court or arbitrator or any governmental body, agency or
official that would materially adversely affect the ability of
the Bank to perform its obligations under the Agreement or
that in any manner questions the validity of the Agreement,
and there are no facts known to us that might result in or
form the basis for any such action, suit or proceeding.
192.To the best of our knowledge, after reasonable
investigation, all acts and proceedings required by law or the
Agreement to be undertaken by the Bank at or prior to the date
hereof to authorize and complete the transactions covered and
contemplated by the Agreement have been duly and validly
taken.
<PAGE>
300366-1
EXHIBIT G
NEW YORK MASTER ASSIGNMENT
AND ASSUMPTION OF LEASE
FOR AND IN CONSIDERATION of the mutual covenants set forth in that
certain Asset Purchase and Sale Agreement, dated as of January 22, 1998 (the
"Asset Purchase Agreement"), between CARVER FEDERAL SAVINGS BANK ("Assignor"),
having an address at 75 West 125th Street, New York, New York 10027 and CITY
NATIONAL BANK OF NEW JERSEY ("Assignee"), having an address at 900 Broad Street,
Newark, New Jersey 07102, and other good and valuable consideration, Assignor
hereby transfers, assigns and sets over to Assignee all of Assignor's right,
title and interest as the tenant, in and under that certain lease described on
Exhibit A hereto and made a part hereof, and the leasehold estate created
thereby including, without limitation, all options and rights contained in said
lease (the "Lease");
TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns,
forever, subject to the terms, covenants, conditions and provisions of both the
Lease and the Asset Purchase Agreement.
Assignor hereby reaffirms the representations and warranties made by
Assignor in the Asset Purchase Agreement. All remedies of Assignee pursuant to
this New York Master Assignment and Assumption of Lease are subject to the terms
and conditions of the Asset Purchase Agreement.
Assignee hereby accepts said assignment and hereby assumes and agrees
to perform and comply with all of the covenants, duties and obligations of
Assignor as tenant under the Lease to be performed after the date hereof,
including, without limitation, the obligation to pay the rent specified therein.
Each of the parties hereto agrees to execute such further documents as
may be reasonably requested by the other party hereto to carry out more fully
the intent hereof.
This New York Master Assignment and Assumption of Lease may be executed
in one or more counterparts, each of which shall be deemed an original and all
of which shall be deemed an original and all of which together shall constitute
one and the same instrument.
This New York Master Assignment and Assumption of Lease shall inure to
the benefit of the parties hereto and their respective successors and assigns.
All capitalized terms not otherwise defined in this New York Master
Assignment and Assumption of Lease shall have the meanings specified in the
Asset Purchase Agreement.
<PAGE>
THIS NEW YORK MASTER ASSIGNMENT AND ASSUMPTION OF LEASE AND (UNLESS
OTHERWISE PROVIDED) ALL AMENDMENTS HEREOF AND WAIVERS AND CONSENTS HEREUNDER
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.
IN WITNESS WHEREOF, the parties hereto executed this New York Master
Assignment and Assumption of Lease as of the day and year first above written.
ASSIGNOR:
CARVER FEDERAL SAVINGS BANK
By:
Name:
Title:
ASSIGNEE:
CITY NATIONAL BANK OF NEW JERSEY
By:
Name:
Title:
<PAGE>
300366-1
EXHIBIT H
LANDLORD CONSENT AND ESTOPPEL CERTIFICATE AND
AGREEMENT REGARDING LEASE
Date:
Address to the Bank
As the present landlord under the lease for the building known as 302 Nassau
Road, Roosevelt, New York, between Carver Federal Savings Bank (the "Tenant")
and Nathan L. Serota dated July 1, 1995 (the "Lease"), the undersigned (the
"Landlord") hereby represents and warrants to you that as the date hereof:
(i) the Lease, is in full force and effect, is binding and enforceable
against Landlord in accordance with its terms, and has not been
modified, amended, supplemented or changed in any manner whatsoever and
that the Lease constitutes the entire agreement between the parties; a
true and correct copy of the Lease is attached hereto;
(ii) the current basic or fixed monthly rent under the Lease is ; in
addition to the monthly basic or fixed rent, the following charges and
amounts currently are payable under the Lease:
;
(iii) the Tenant under the Lease is not in default under any of the terms,
covenants or conditions of the Lease on the part of the Tenant to be
observed or performed, and to Landlord's knowledge, no event has
occurred which with the passage of time or the giving of notice, or
both, would constitute a default by the Tenant under the Lease;
(iv) neither the undersigned nor, to Landlord's knowledge, the Tenant under
the Lease has commenced any action or has given or received any notice
for the purpose of terminating the Lease; and
(v) all rents, additional, rents and other sums due and payable
under the Lease have been paid in full through .
Execution of this letter by the undersigned constitutes Landlord's irrevocable
consent to the assignment of the Lease to City National Bank of New Jersey
("City National") pursuant to the terms of the Asset Purchase and Sale Agreement
(the "Agreement") between the Tenant and City National, dated _______________.
Landlord understands that City National shall rely herein in connection with
this Agreement.
(i) The commencement date of the term of the Lease was July 1, 1995, and
the expiration date is June 30, 2005.
(ii) No security deposit will be required of City National, as tenant of the
Lease by assignment.
(iii) The Landlord under the Lease is not in default under any of the terms,
covenants as conditions of the Lease.
Very truly yours,
Landlord:
By:
Its:
Date:
<PAGE>
300366-1
List of Schedules
Schedule 2.1(b) - Loans
Schedule 2.1(c) - Leased Property
Schedule 2.1(d)-1 - Furniture, Fixture and Equipment
Schedule 2.1(d)-2 - Excluded Personal Property
Schedule 2.1(f) - Contracts
Schedule 2.1(i) - Leasehold Improvements
Schedule 2.2 - Excluded Assets
Schedule 2.3 - Deposits
Schedule 2.6(a) - Book Value Schedule
Schedule 2.9 - Allocation of Purchase Price
Schedule 3.3 - Seller's Consents and Approvals
Schedule 3.4 - Violation of Law
Schedule 3.5(b) - Encumbrances to the Leased Property
Schedule 3.6(b) - Major Contracts
Schedule 3.8 - Legal Actions
Schedule 3.9 - Exception to Environmental Warranties and Representations
Schedule 3.10 - Seller's Broker
Schedule 3.14 - Employees
Schedule 4.3 - Purchaser's Consents and Approvals
Schedule 4.4 - Purchaser's Legal Action
Schedule 4.5 - Purchaser's Broker
Schedule 5.1 - Business Exceptions
<PAGE>
300366-1
SELLER'S SCHEDULE
Reference is made to the Asset Purchase and Sale Agreement (the "Agreement")
between Carver Federal Savings Bank ("Seller") and City National Bank of New
Jersey ("Purchaser"). Terms used herein and not otherwise defined shall have the
respective meanings ascribed to such terms in the Agreement.
These Schedules relate to certain matters concerning the transactions
contemplated by the Agreement. These Schedules are qualified in their entirety
by reference to specific provisions of the Agreement, and is to intended to
constitute, and shall not be construed as constituting, representations or
warranties of the Seller except as and to the extent provided in the Agreement.
Inclusion of information herein shall not be construed as an admission that such
information is material to, or would have a material adverse effect on, the
Assets or the business or operations conducted by Seller at the Branch Office.
Matters reflected in these Schedules are not necessarily limited to matters
required by the Agreement to be reflected in these Schedules. Such additional
matters are set forth for informational purposes and do not necessarily include
other matters of a similar nature.
Any matter disclosed pursuant to one provision, subprovision, section or
subsection hereof is deemed disclosed for all purposes of these Schedules to the
extent the Agreement requires such disclosure.
Headings have been inserted on the sections of these Schedules for convenience
of reference only and shall to no extent have the effect of amending or changing
the express description of the Sections as set forth in the Agreement.
The information contained herein is in all events subject to the confidentiality
provisions set forth in the Agreement.
SCHEDULE 4.3
Approval of the Office of the Comptroller of the Currency
and the New York State Department of Banking
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