FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
Commission file number 0-17494
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Dime Financial Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Connecticut 06-1237470
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
95 Barnes Road, Wallingford, Connecticut 06492
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 269-8881
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
---------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant was $163,986,469 on February 28, 1998. On that date,
5,247,567 shares of Common Stock, par value $1.00 per share, were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in
this Annual Report on Form 10-K as indicated herein.
Part of 10-K into which
Document incorporated
-------- -----------------------
Annual Report to Shareholders for the fiscal I, II and IV
year ended December 31, 1997 (the "Annual
Report")
Proxy Statement to Shareholders dated III
March 20, 1998 (filed pursuant to
Regulation 14A) (the "Proxy Statement")
TABLE OF CONTENTS
Page
----
PART I
Item 1 - Business 1
Item 2 - Properties 9
Item 3 - Legal Proceedings 10
Item 4 - Submission of Matters to a Vote of Security Holders 10
Executive Officers of the Registrant 10
PART II
Item 5 - Market for Registrant's Common Equity and Related
Shareholders Matters 11
Item 6 - Selected Financial Data 11
Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 7a - Quantitative and Qualitative Disclosures About Market Risk 11
Item 8 - Financial Statements and Supplementary Data 11
Item 9 - Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 11
PART III
Item 10 - Directors and Executive Officers of the Registrant 12
Item 11 - Executive Compensation 12
Item 12 - Security Ownership of Certain Beneficial Owners and
Management 12
Item 13 - Certain Relationships and Related Transactions 12
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 12
PART I
Item 1 - Business
The principal executive offices of Dime Financial Corporation (the
"Company") and its wholly-owned subsidiary, The Dime Savings Bank of
Wallingford ("Dime"), are located at 95 Barnes Road, Wallingford,
Connecticut 06492. The telephone number of the Company and Dime is (203)
269-8881.
Other information required by this item appears on page 1 of the
Company's 1997 Annual Report to Shareholders (the "1997 Annual Report")
under the caption "To Our Shareholders"; on the inside front cover under the
caption "Financial Highlights" and on pages 4 through 16 under the caption
"Management's Discussion and Analysis of Operations." Such information is
incorporated herein by reference and made a part hereof. In addition,
certain other information required by this item is set out below.
Recent Event
On March 31, 1998, the Company entered into a definitive merger
agreement (the "Merger Agreement") with HUBCO, Inc. ("HUBCO"). Under the
terms of the Merger Agreement each share of the Company's Common Stock will
be exchanged for shares of HUBCO common stock with a value of $38.25,
provided that the median closing price for HUBCO common stock during a 10-
day pricing period ending on the day the parties receive final regulatory
approval, is between $36.43 and $41.12. If the median closing HUBCO stock
price during this period is greater than $41.12, the exchange ratio will be
0.93 and if it is less than $36.43, the exchange ratio will be 1.05. The
Company has certain rights to terminate the agreement if the median closing
price of HUBCO common stock during the pricing period is less than $31.43
per share unless HUBCO agrees to deliver shares of HUBCO common stock having
a value of $33.00 in exchange for each share of the Company's Common Stock.
In connection with the execution of the Merger Agreement, the Company has
issued an option to HUBCO which would enable HUBCO to purchase up to
1,040,000 shares of the Company's Common Stock under certain circumstances.
The transaction is expected to be treated as a tax-free exchange to holders
of the Company's Common Stock and to be accounted for as a pooling of
interests. The transaction is subject to federal and state regulatory
approvals, approval by the shareholders of the Company and other conditions
specified in the Merger Agreement. If the approvals are granted, the
transaction is expected to close in the third quarter of 1998.
Interest Rates and Interest Differentials
The information required by this item appears in the 1997 Annual
Report on page 10 under the caption "Average Balances and Interest Rates."
Such information is incorporated herein by reference and made a part hereof.
Rate / Volume Analysis
The information required by this item appears in the 1997 Annual
Report on pages 10 through 11 under the caption, "Average Balances and
Interest Rates." The rate/volume table appears on page 11. Such
information is incorporated herein by reference and made a part hereof.
Non-performing Assets
The information required by this item appears in the 1997 Annual
Report on pages 4 through 5 under the caption, "Asset Quality." Such
information is incorporated herein by reference and made a part hereof.
Problem Loans and Allowance for Loan Losses
Additional information required by this item appears in the 1997
Annual Report on page 6 under the caption, "Allowance for Loan Losses and
Provisions to the Allowance for Loan Losses." Such information is
incorporated herein by reference and made a part hereof.
Loans which were in non-accrual status at December 31, 1997 are
included within the presentation on page 5 in the table under the caption,
"Asset Quality," of the 1997 Annual Report. In addition to the disclosure
on pages 4 through 5 of the 1997 Annual Report, management has internally
classified $1.8 million of loans as substandard at December 31, 1997. Loans
classified as substandard are inadequately protected by the current sound
worth and paying capacity of the obligor or of the collateral pledged, if
any, and must have a well-defined weakness or weaknesses that jeopardize the
liquidation of the debt. These loans are still performing. Management does
not have serious doubt as to their collectibility and believes that the
amounts allocated to these loans in the allowance for loan losses are
adequate.
The Company's allowance for loan losses as allocated between loan
types for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 are
set forth in the following table.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------
1997 1996 1995
------------------------- ------------------------- --------------------------
Loans in Loans in Loans in
Category as Category as Category as
Amount of Percentage of Amount of Percentage of Amount of Percentage of
(Dollars in Thousands) Reserve Total Loans Reserve Total Loans Reserve Total Loans
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Reserve allocated to:
Mortgage loans:
Residential real estate $ 5,406 78.9% $ 5,742 79.8% $ 3,323 78.3%
Commercial real estate 2,651 7.0 3,162 8.4 6,693 9.6
Builders' & land 18 0.2 19 0.1 84 0.3
Commercial loans 445 2.8 461 0.7 754 1.0
Consumer loans 669 11.1 767 11.0 870 10.8
Unallocated allowance 3,163 2,778 1,055
------- ------- -------
Total $12,352 100.0% $12,929 100.0% $12,779 100.0%
=============================================================================
<CAPTION>
December 31,
-----------------------------------------------------
1994 1993
------------------------- -------------------------
Loans in Loans in
Category as Category as
Amount of Percentage of Amount of Percentage of
(Dollars in Thousands) Reserve Total Loans Reserve Total Loans
-----------------------------------------------------
<S> <C> <C> <C> <C>
Reserve allocated to:
Mortgage loans:
Residential real estate $2,198 77.2% $ 1,969 72.3%
Commercial real estate 5,237 11.2 7,594 14.9
Builders' & land 195 0.8 281 1.0
Commercial loans 1,136 1.4 3,234 2.6
Consumer loans 560 9.4 984 9.2
------------------------------------------------
Total $9,326 100.0% $14,062 100.0%
================================================
</TABLE>
Investment Securities
Additional information required by this item appears in the 1997
Annual Report on pages 23 through 24 under the caption "Note 4: Investment
and Mortgage-backed Securities". Such information is incorporated herein by
reference and made a part hereof. The carrying values of investment
securities were as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1997 1996 1995
--------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Investment Securities Available for Sale:
U.S. treasury securities $ - $ - $ 4,029
U.S. government agency obligations 5,404 11,815 -
Other bonds and notes - - 4,097
Asset-backed securities 10,673 14,406 -
Equity securities 1,528 12 12
--------------------------------
Total Available for Sale $ 17,605 $ 26,233 $ 8,138
================================
Mortgage-backed Securities Available for Sale:
Mortgage-backed securities $ 48,651 $ 23,861 $ 47,912
REMIC's/CMO's 332,090 134,867 47,278
--------------------------------
Total Mortgage-backed Securities Available for Sale $380,741 $158,728 $ 95,190
================================
Investment Securities Held to Maturity:
U.S. treasury securities $ 3,477 $ 3,452 $ 1,013
U.S. government agency obligations 131,560 116,805 46,885
--------------------------------
Total Held to Maturity $135,037 $120,257 $ 47,898
================================
</TABLE>
Loans
Additional information required by this item appears in the 1997
Annual Report on pages 11 and 12 under the caption "Lending Activities" and
on pages 24 through 25 under the caption "Note 5: Loans Receivable." This
information is incorporated herein by reference and made a part hereof. The
following table sets forth the contractual maturities of the loan portfolio
at December 31, 1997:
<TABLE>
<CAPTION>
Due after
Due in one one before Due after
year or less five years five years
---------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Adjustable rate loans:
Mortgage Loans:
Residential real estate - owner occupied $ 159 $ 1,159 $106,648
Residential real estate - non-owner occupied 66 762 26,204
Commercial real estate 146 2,182 20,137
Builders and Land - - 594
Consumer loans 2,281 2,852 10,686
Commercial loans 86 437 2,991
-----------------------------------
Total adjustable rate loans 2,738 7,392 167,260
-----------------------------------
Fixed rate loans:
Mortgage Loans:
Residential real estate - owner occupied 761 7,392 151,797
Residential real estate - non-owner occupied - 44 364
Commercial real estate 525 229 2,970
Consumer loans 4,102 6,390 15,399
Commercial loans 2,582 3,860 345
-----------------------------------
Total fixed rate loans 7,970 17,915 170,875
-----------------------------------
Total loans $10,708 $25,307 $338,135
===================================
</TABLE>
Deposits
The information required by this item appears in the 1997 Annual
Report on pages 13 and 14 under the caption "Deposits and Other Borrowings"
and on page 26 under the caption, "Note 8: Deposits." Such information is
incorporated herein by reference and made a part hereof.
Competition
In attracting deposits, Dime faces strong competition from savings
banks, savings and loan associations, commercial banks, credit unions,
insurance companies and investment firms located in its primary market area.
The banking business in Connecticut is highly competitive. In March 1990
the Connecticut General Assembly adopted legislation that permits full
interstate banking in Connecticut by allowing business combinations among
commercial banks, bank holding companies and thrift institutions located in
Connecticut and other states with reciprocal interstate banking laws. This
legislation also permits bank holding companies from other states to
establish non banking offices including loan production offices in
Connecticut on a limited basis.
In recent years, market demands, economic pressures, fluctuating
interest rates and increased customer awareness of product and service
differences among financial institutions have forced such institutions to
diversify their services to become more cost effective. Such actions may
increase the cost of funds to Dime in the future. Dime faces strong
competition in attracting deposits and in making real estate and other
loans. Dime's most direct competition for deposits comes from other thrift
institutions, commercial banks, credit unions and money market funds.
Dime competes for deposits by offering depositors a wide variety of
deposit programs, convenient branch locations and hours, tax-deferred
retirement programs and other services. In an effort to provide funding
flexibility and diversification, Dime explored other avenues of funding
during the latter part of 1996 and throughout 1997. Alternatives such as the
sale of retail brokered certificates of deposit and solicited municipal
deposits provided such diversification. Dime introduced retail brokered
certificates of deposit in 1996. At December 31, 1997, Dime had sold $31.7
million in retail brokered certificates of deposit, compared with $3.0
million at December 31, 1996. Solicited municipal deposits totalled $21.5
million at December 31, 1997. Dime had no solicited municipal deposits at
December 31, 1996.
The competition faced by Dime for real estate loans comes principally
from mortgage brokers and mortgage banking companies, other savings banks,
savings and loan associations, commercial banks, finance companies,
insurance companies and other institutional lenders. Dime competes for loan
originations primarily through the interest rates and loan fees it charges
and the efficiency and quality of service it provides borrowers, real estate
brokers and builders. Factors which affect competition and lending include,
among others, the general availability of lendable funds and credit, general
and local economic conditions, current interest rate levels, volatility in
the mortgage markets and other factors. At the present time, it is the
general practice of Dime to limit the majority of its lending activities to
within the State of Connecticut. While Dime is not engaged in interstate
banking, Dime owns mortgages secured by real property located outside of
Connecticut.
Employees
As of February 28, 1997, Dime employed 133 full-time and 36 part-time
employees, including 41 officers. During 1995 and 1996, the Company
instituted a restructuring plan which significantly reduced the Company's
workforce through lay-offs and through attrition. Additional information
regarding this item is located on page 27 of the 1997 Annual Report under
the caption "Note 10: Restructure Expense, net." Such information is
incorporated herein by reference and made a part hereof.
The principal officers of Dime also serve as officers of the Company
but receive no additional compensation from the Company. The Company has no
other employees.
REGULATION AND SUPERVISION
As a Connecticut-chartered capital stock savings bank whose deposits
are insured by the Federal Deposit Insurance Corporation, Dime is subject to
extensive regulation and supervision by both the Connecticut Banking
Commissioner (the "Commissioner") and the FDIC. Dime further is subject to
various regulatory requirements of the Federal Reserve Board applicable to
FDIC-insured financial institutions. The Company also is subject to certain
regulations of the Federal Reserve Board and the Commissioner. This
governmental regulation is primarily intended to protect depositors, not
shareholders.
Connecticut Regulation
The Commissioner regulates Dime's internal organization as well as its
deposit, lending and investment activities. The approval of the
Commissioner is required, among other things, for the establishment of
branch offices and business combination transactions. The Commissioner
conducts periodic examinations of Dime. Many of the areas regulated by the
Commissioner are subject to similar regulation by the FDIC.
The Connecticut Interstate Banking Act, as amended, permits
Connecticut banks to engage in stock acquisitions of, and mergers with,
depository institutions in other states with reciprocal legislation.
All of the other New England states, and a majority of the other states,
have enacted reciprocal legislation. Several interstate mergers and
acquisitions involving Connecticut bank holding companies or banks with
offices in the service areas of Dime and bank holding companies or banks
headquartered in other states have been completed.
Connecticut banking laws grant banks broad lending authority. Subject
to certain limited exceptions, however, total secured and unsecured loans
made to any one obligor pursuant to this statutory authority may not exceed
25 percent of a bank's capital, surplus, undivided profits and loss
reserves.
Dime is prohibited by Connecticut banking law from paying dividends
except from its net profits, which is defined as the remainder of all
earnings from current operations. The total of all dividends declared by
Dime in any calendar year may not, unless specifically approved by the
Commissioner, exceed the total of its net profits of that year combined with
its retained net profits of the preceding two years.
Under Connecticut banking law, no person may acquire the beneficial
ownership of more than 10 percent, or after acquiring 10 percent, increase
ownership to 25 percent or more, of any class of voting securities of a bank
chartered by the State of Connecticut or having its principal office in
Connecticut or a bank holding company thereof without the prior notification
and approval by the Commissioner.
Any state-chartered bank meeting statutory requirements may, with the
approval of the Commissioner, establish and operate branches in any town or
towns within the state.
FDIC Regulation
Dime's deposit accounts are insured by the FDIC to a maximum of
$100,000 for each insured depositor. As a state chartered FDIC-insured
bank, Dime is subject to extensive supervision and examination by the FDIC
and also is subject to FDIC regulations regarding many aspects of its
business, including types of deposit instruments offered and permissible
methods for acquisition of funds. The FDIC periodically makes its own
examination of insured institutions. Pursuant to the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), the FDIC has
implemented a system of risk-related deposit insurance assessments.
Beginning on January 1, 1993, insurance premiums of all banks varied
depending upon the capital level and supervisory rating of the institution.
FDIC risk-based capital requirements became fully effective at the end
of 1992. Under these requirements, FDIC-insured institutions are required
to maintain minimum levels of "capital" based upon an institution's total
"risk-weighted assets." For purposes of these requirements, "capital" is
comprised of both Tier 1 capital and Tier 2 capital. Tier 1 capital
consists primarily of common stock, additional paid in capital, retained
earnings and limited amounts of perpetual preferred stock. Tier 2 capital
consists primarily of loan loss reserves and certain preferred stock,
subordinated debt, and convertible securities. In determining total
capital, the amount of Tier 2 capital may not exceed the amount of Tier 1
capital. A bank's total "risk-weighted assets" are determined by assigning
the bank's assets and off balance sheet items (e.g., letters of credit) to
one of four risk categories based upon their relative credit risk. Under the
regulations, the greater the risk associated with an asset, the greater the
amount of such asset that will be subject to the capital requirements. An
FDIC-insured bank is required to maintain minimum ratios of Tier 1 and total
risk-based capital to risk-weighted assets of 4.0% and 8.0%, respectively.
At December 31, 1997, the Tier 1 and total risk-based capital ratios for
Dime were 20.62% and 21.89%, respectively. Management believes that Dime
will remain in full compliance with applicable risk-based capital
requirements.
A leverage capital ratio requirement adopted by the FDIC became
effective in 1991. Under this requirement, FDIC insured institutions are
required to maintain a ratio of common equity minus intangible assets to
total assets of at least 3% for the most highly rated institutions and 4% to
5% for most institutions. At December 31, 1997 the leverage capital ratio
of Dime was 8.17%. Refer to pages 28 and 29 of the 1997 Annual Report under
the caption "Note 13: Regulatory Matters."
In addition, FDICIA categorizes banks based on capital levels and
triggers certain mandatory and discretionary federal banking agency
responses for institutions that fall below certain capital levels. These
categories are "well-capitalized," "adequately capitalized," "under-
capitalized," "significantly undercapitalized," and "critically
undercapitalized." A bank is categorized as "well capitalized" if it
maintains a leverage ratio of at least 5%, a total risk-based capital ratio
of at least 10%, and a Tier 1 risk-based capital ratio of at least 6%.
Based on its regulatory capital ratios at December 31, 1997, Dime is well
capitalized as defined in FDIC regulations. Refer to pages 28 and 29 of the
1997 Annual Report under the caption "Note 13: Regulatory Matters."
FDICIA also restricts the ability of FDIC-insured state banks, such as
Dime, to acquire and retain equity investments. Generally, state banks only
may hold equity securities to the extent permitted for national banks.
However, FDICIA also permits certain state banks to acquire or retain equity
investments in an amount up to 100 percent of Tier 1 capital in either (1)
common or preferred stock listed on a national securities exchange, or (2)
shares of a registered investment company. To be eligible for this
exception, Dime was required to file, and has filed, a one-time notice of
its intention to acquire and retain such securities. In March of 1993, Dime
received conditional approval from the FDIC to continue to hold or acquire
listed and/or registered equity securities up to the fullest extent
permitted by FDICIA.
Pursuant to FDICIA, and regulations promulgated by the FDIC
thereunder, an insured state bank must obtain the FDIC's prior consent
before directly, or indirectly through a majority-owned subsidiary, engaging
"as principal" in any activity that is not permissible for a national bank
unless one of the exceptions contained in the regulation applies. The
regulations set out application procedures for requesting the FDIC's
consent; provide a phase-out period for activities which are not approved by
the FDIC; and set out conditions that may be imposed in the FDIC's
discretion when approving applications. To date, these requirements have
not had a material impact on the business of Dime.
FDIC insurance of deposits may be terminated by the FDIC, after notice
and hearing, upon a finding by the FDIC that the insured institution has
engaged in unsafe or unsound practices, or is in an unsafe or unsound
condition to continue operations, or has violated any applicable law,
regulation, rule or order of, or conditions imposed by, the FDIC. Dime does
not know of any practice, condition or violation that might lead to
termination of its deposit insurance.
Federal Reserve System Regulation
Under the regulations of the Federal Reserve Board, depository
institutions such as Dime are required to maintain reserves for their
transaction accounts and non-personal time deposits. These regulations
generally require the maintenance of reserves of 3 percent against
transaction accounts totaling $43.1 million or less after an exemption of
$4.7 million and 10 percent of the amount of such accounts in excess of such
amount.
The Federal Reserve Board has established capital adequacy guidelines
for bank holding companies that are similar to the FDIC capital requirements
described above. As of December 31, 1997, the Company's Tier 1 and total
risk-based capital ratios were 20.63% and 21.90%, respectively, and the
Company's leverage capital ratio was 8.17%. Management believes that the
Company will remain in full compliance with applicable Federal Reserve Board
capital requirements. Refer to page 15 of the Annual Report under the
caption, "Liquidity Sources and Uses of Funds and Capital Resources."
The Company is subject to regulation by the Federal Reserve Board as a
registered bank holding company. The Federal Bank Holding Company Act of
1956, as amended (the "BHCA"), under which the Company is registered, limits
the types of companies which the Company and its subsidiaries may acquire or
organize and the activities in which they may engage. In general, a bank
holding company and its subsidiaries are prohibited from engaging in or
acquiring direct control of any company engaged in non-banking activities
unless such activities are so closely related to banking or managing or
controlling banks as to be a proper incident thereto. The Company has not
determined which, if any, of these or other permissible non-banking
activities it might seek to engage in.
Under the BHCA, a bank holding company is required to obtain the prior
approval of the Board of Governors of the Federal Reserve System to acquire,
with certain exceptions, more than 5% of the outstanding voting stock of any
bank or bank holding company, to acquire all or substantially all of the
assets of a bank or to merge or consolidate with another bank holding
company.
As described above, the Connecticut Interstate Banking Act
specifically permits Connecticut bank holding companies and banks to acquire
or be acquired by banks or bank holding companies in other states with
reciprocal merger and acquisition laws. Federal antitrust laws place
limitations on the acquisition of banks and other businesses.
Under the BHCA, the Company and Dime are prohibited from engaging in
certain tying arrangements in connection with any extension of credit or
provision of any property or services. Dime is subject to certain
restrictions imposed by the Federal Reserve Act and FDICIA on making any
investments in the stock or other securities of the Company and the taking
of such stock or securities as collateral for loans to any borrower.
Dime also is subject to certain restrictions imposed by the Federal
Reserve Act on the amount of loans it can make to the Company. Such loans
must be collateralized as provided by the Federal Reserve Act. The amount
of such loans may not exceed (when aggregated with certain other
transactions between Dime and the Company) 10 percent of the capital stock
and surplus of such bank.
The Company is required under the BHCA to file annually with the
Federal Reserve Board reports of operations, and it and Dime are subject to
examination by the Federal Reserve Board. In addition, the Company, as a
bank holding company, is registered with the Connecticut Banking
Commissioner under the Connecticut Bank Holding Company Act.
Effect of Government Policy
Banking is a business that depends on interest rate differentials.
One of the most significant factors affecting the earnings of Dime is the
difference between the interest rate paid by Dime on its deposits and other
borrowings, on the one hand, and, the interest rates received by Dime on
loans extended to its customers and securities held in its portfolio on the
other hand. The value and yields of its assets and the rate paid on its
liabilities are sensitive to changes in prevailing market rates of interest.
Thus, the earnings and growth of Dime will be influenced by general economic
conditions, the monetary and fiscal policies of the federal government, and
policies of regulatory agencies, particularly the Federal Reserve Board,
which implements national monetary policy. The nature and impact of any
future changes in monetary policies cannot be predicted.
The present bank regulatory scheme is undergoing significant change,
both as it affects the banking industry itself and as it affects competition
between banks and non-banking financial institutions. There has been
significant change in the regulation and operation of savings associations,
in the bank merger and acquisition area, in the products and services banks
can offer, and in the non-banking activities in which bank holding companies
can engage. In part as a result of these changes, banks are now actively
competing with other types of depository institutions and with non-bank
financial institutions, such as money market funds, brokerage firms,
insurance companies and other financial service enterprises. It is not
possible at this time to assess what impact these changes will have on the
Company and Dime.
Moreover, certain legislative and regulatory proposals that could
affect the Company, Dime and the banking business in general are pending, or
may be introduced, before the United States Congress, the Connecticut
General Assembly and various governmental agencies. These proposals include
measures that may further alter the structure, regulation and competitive
relationship of financial institutions and that may subject the Company and
Dime to increased regulation, disclosure and reporting requirements. In
addition, the various banking regulatory agencies frequently propose rules
and regulations to implement and enforce already existing legislation. It
cannot be predicted whether or in what form any legislation or regulations
will be enacted or the extent to which the business of the Company and Dime
will be affected thereby.
Item 2 - Properties
Including its administrative office located at 95 Barnes Road,
Wallingford, Connecticut, Dime has eleven banking branches located
throughout New Haven County. The following table sets forth certain
information regarding Dime's banking offices.
<TABLE>
<CAPTION>
Date Owned or Lease
Office Location Opened Leased Expiration Date
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Barnes Park 95 Barnes Road 1986 Owned Not Applicable
Wallingford, CT
Cheshire 595 Highland Ave. 1979 Owned Not Applicable
Cheshire, CT
Eastside 841 East Center St. 1975 Owned Not Applicable
Wallingford, CT
Main Street 2 North Main St. 1871 Owned Not Applicable
Wallingford, CT
Montowese 47 Middletown Ave. 1966 Owned Not Applicable
North Haven, CT
Northford 859 Forest Road 1986 Leased (a) 12/31/00
Northford, CT
Turnpike 7 North Turnpike Road 1973 Owned Not Applicable
Wallingford, CT
Washington Ave. 90 Washington Ave. 1981 Owned Not Applicable
North Haven, CT
Mount Carmel 3300 Whitney Ave. 1987 Leased (b) 11/30/00
Mt. Carmel, CT
Harbor Brook 100 Hanover St. 1975 Leased (c) 7/31/99
Meriden, CT
East Side 733 East Main Street 1983 Owned Not Applicable
Meriden, CT
- --------------------
<Fa> Dime's lease payment is currently $1,700 per month.
<Fb> Dime's lease payment is currently $5,000 per month.
<Fc> Dime's lease payment is currently $2,174 per month, plus applicable
taxes and insurance, utilities and maintenance charges.
</TABLE>
Item 3 - Legal Proceedings
There are no pending legal proceedings to which the Company or Dime is
a party, other than ordinary routine litigation in the normal course of
business. None of the proceedings is material to the Company or Dime.
Item 4 - Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's stockholders
during the period between October 1, 1997 and December 31, 1997.
Executive Officers of the Registrant
The following table presents information regarding all executive
officers of the Company, including positions with the Company and such
person's length of service.
<TABLE>
<CAPTION>
Length of
Executive Officer Age Positions with the Company Service (a)
- ------------------------------------------------------------------------
<S> <C> <S> <C>
Richard H. Dionne 53 President, Chief Executive 1/30/95
Officer and Director of the
Company
Albert E. Fiacre, Jr. 48 Executive Vice President and 3/6/95
Chief Financial Officer
Timothy R. Stanton 41 Senior Vice President of 4/3/95
Retail Operations
Frank P. LaMonaca 40 Senior Vice President and 7/31/95
Senior Lending and Credit
Officer
- --------------------
<Fa> Length of service indicates date hired. All executive officers have
been executive officers of the Company since their respective dates
of hire. Prior to joining the Company, Mr. Fiacre was Executive Vice
President and Treasurer of Society for Savings, Hartford,
Connecticut, Mr. Stanton was Vice President at Shawmut Bank,
Hartford, Connecticut and, Mr. LaMonaca was Senior Vice President at
Lafayette American Bank and Trust Company, Hamden, Connecticut
</TABLE>
All executive officers of the Company are elected annually by the
Company's Board of Directors and serve at the pleasure of the Board of
Directors.
PART II
Item 5 - Market for Registrant's Common Equity and Related Shareholders
Matters
A portion of the information required by this item appears on page 36
of the Annual Report under the caption "Corporate Information"; on pages 28
through 29 of the Annual Report under the caption "Notes to Consolidated
Financial Statements, Note 12 - Shareholders' Equity and Note 13: -
Regulatory Matters"; and in Item 1 of this report under the subheadings
"Connecticut Regulation", "FDIC Regulation", and "Federal Reserve System
Regulation." Such information is incorporated herein by reference and made
a part hereof.
In addition to the above, the following is noted:
For the foreseeable future, the sole source of amounts available to
the Company for the declaration of dividends will be dividends declared and
paid by Dime on Dime common stock. Any amounts received by the Company will
be used to pay the operating expenses of the Company and for other
activities in which it may engage before any dividends can be paid on
Company Common Stock. It is anticipated that the only operating expenses of
the Company will be administrative expenses, which in large part will be
allocated to and reimbursed by Dime. Under the Certificate of Incorporation
of the Company, the Company has the authority to issue preferred stock with
dividend rights superior to Common Stock that may adversely affect the
amount or frequency of Company Common Stock dividends, although the Company
has no plans at this time to issue such preferred stock.
On March 31, 1998, the Company entered into the Merger Agreement with
HUBCO. Under the terms of the Merger Agreement, shares of the Company's
Common Stock will be exchanged for HUBCO common stock at a specified
exchange ratio. Under the Merger Agreement, until the effective time, the
Company may only declare, set aside or pay dividends on its Common Stock in
a quarterly amount equal to $0.12 per share, with the dividend payment dates
to be coordinated with HUBCO. See "Item 1-Business Recent Event", above for
a discussion of the Merger Agreement.
Item 6 - Selected Financial Data
The information required by this item, appears on page 2 of the Annual
Report under the caption "Selected Financial Data." Such information is
incorporated herein by reference and made a part hereof.
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this item appears on pages 4 through 16 of
the Annual Report under the caption "Management's Discussion and Analysis of
Operations." Such information is incorporated herein by reference and made
a part hereof.
On March 31, 1998, the Company entered into the Merger Agreement with
HUBCO. See "Item 1-Business-Recent Event" for a discussion of the Merger
Agreement. Such description is incorporated herein by reference and made a
part hereof.
Item 7a - Quantitative and Qualitative Disclosures About Market Risk
The information required by this item appears on pages 7 through 9 of
the Annual Report under the caption "Asset/Liability Management and Market
Risk". Such information is incorporated herein by reference and made a part
hereof.
Item 8 - Financial Statements and Supplementary Data
The Company's financial statements, and notes thereto, and
supplementary data are included in the Annual Report on pages 17 through 34
and on page 3 under the caption "Selected Quarterly Financial Data." Such
information is incorporated herein by reference and made a part hereof.
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no disagreements between the Company and its
independent public accountants on accounting and financial disclosure
matters during the fiscal year ended December 31, 1997 for which a Form 8-K
was required to be filed.
PART III
Item 10 - Directors and Executive Officers of the Registrant
The information required by this item appears in the Proxy Statement
under caption "Proposal 1 - Election of a Class of Directors," and in Part I
of this Report under the caption "Executive Officers of the Registrant," and
is incorporated herein by reference and made a part hereof.
Item 11 - Executive Compensation
The information required by this item appears in the Proxy Statement
on pages 7 through 12 under the caption "Compensation and Related Matters."
Such information is incorporated herein by reference and made a part hereof.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The information required by this item appears in the Proxy Statement
on page 2 under the caption "Principal Shareholders of the Company," and on
pages 3 through 6 under the caption "Proposal 1 - Election of a Class of
Directors." The information is furnished as of February 10, 1998, on which
date 5,232,467 shares were outstanding. Such information is incorporated
herein by reference and made a part hereof.
Item 13 - Certain Relationships and Related Transactions
The information required by this item appears in the Proxy Statement
on pages 12 and 13 under the caption "Transactions With Management and
Others." Such information is incorporated herein by reference and made a
part hereof.
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report and appear
on the pages indicated. Those items preceded by *** are included in
the Annual Report and are incorporated herein by reference:
<TABLE>
<CAPTION>
(1) Financial Statements: Page in
Annual Report
-------------
<C> <S> <C>
*** Independent Auditors' Report 35
*** Consolidated Statements of Condition as of
December 31, 1997 and 1996 17
*** Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995 18
*** Consolidated Statements of Changes in Shareholders'
Equity for the Years Ended December 31, 1997, 1996 and 1995 19
*** Consolidated Statements of Cash Flow for the Years
Ended December 31, 1997, 1996 and 1995 20
*** Notes to Consolidated Financial Statements 21-34
</TABLE>
(2) Financial Statement Schedules:
All Schedules to the Consolidated Financial Statements required by
Article 9 of Regulation S-X are not required under the related
instructions or are inapplicable and therefore have been omitted.
(3) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
2 Agreement and Plan of Merger, dated as of March 31, 1998,
among HUBCO, Inc., Lafayette American Bank, the Company and
The Dime Savings Bank of Wallingford.
3.1 Certificate of Incorporation of the Company (Incorporated
by reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-4 (No. 33-23054) filed on July 8,
1988); Amendment to Certificate of Incorporation
(Incorporated by reference to Exhibit 3.1 of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990).
3.2 Bylaws of the Company (Incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on
Form S-4 (No. 33-23054) filed on July 8, 1988)
4 Instruments Defining Rights of Security Holders Included
In Exhibits 3.1 and 3.2
10.1* The Dime Savings Bank of Wallingford 1986 Stock Option
and Incentive Plan, as amended (Incorporated by reference
to Exhibit 10.1 to the Company's Registration Statement
on Form S-4 (No. 33-23054) filed on July 8, 1988)
10.2* The Dime Savings Bank of Wallingford 1986 Stock Option
Plan for Outside Directors (Incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on
Form S-4 (No. 33-23054) filed on July 8, 1988)
10.3* The Dime Savings Bank of Wallingford 1986 Stock Option
and Incentive Plan Incentive Stock Option Agreement
(Incorporated by reference to Exhibit 10.3 to the
Company's Registration Statement on Form S-4 (No.
33-23054) filed on July 8, 1988)
10.4* The Dime Savings Bank of Wallingford 1986 Stock Option
Plan for Outside Directors Stock Option Agreement
(Incorporated by reference to Exhibit 10.4 to the
Company's Registration Statement on Form S-4 (No.
33-23054) filed on July 8, 1988)
10.5* Dime Financial Corporation 1996 Stock Option and
Incentive Plan (Incorporated by reference to Exhibit
4.1 to the Company's Registration Statement on Form S-8
(No. 333-04917) filed on May 31, 1996)
10.6* Dime Financial Corporation 1996 Stock Option Plan for
Outside Directors (Incorporated by reference to exhibit
4.2 to the Company's Registration Statement on Form S-8
(No. 333-04917) filed on May 31, 1996)
10.7* Dime Financial Corporation Non-Qualified Stock Option
Agreement for Mr. Ralph D. Lukens (Incorporated by
reference to exhibit 4.1 to the Company's Registration
Statement on Form S-8 (No. 333-08447) filed on July 19,
1996)
10.8* The Dime Savings Bank of Wallingford Non-Qualified Stock
Option Agreement, as Amended, for Mr. M. Joseph Canavan
(Incorporated by reference to exhibit 4.2 to the
Company's Registration Statement on Form S-8 (No.
333-08447) filed on July 19, 1996)
10.9* The Dime Savings Bank of Wallingford Non-Qualified Stock
Option Agreement, as Amended, for Mr. William J. Farrell
(Incorporated by reference to exhibit 4.3 to the
Company's Registration Statement on Form S-8 (No.
333-08447) filed on July 19, 1996)
10.10 Stock Option Agreement, dated as of March 31, 1998, by and
between HUBCO, Inc., and the Company
13 1997 Annual Report to Shareholders. Except for those
portions of the Annual Report which have been
specifically incorporated by reference in this Form 10-K,
such Annual Report shall not be deemed filed.
21 Subsidiaries of the Registrant (Incorporated by reference
to Exhibit 2 to the Company's Registration Statement on
Form S-4 (No. 33-23054) filed on July 8, 1988)
23 Consent of Independent Auditors
27 1997 Financial Data Schedule
27.1 1996 Financial Data Schedule
27.2 1995 Financial Data Schedule
<F*> Compensatory plan or arrangement required to be filed as an
exhibit to this form pursuant to Item 14(c) of this report.
</TABLE>
A COPY OF ANY EXHIBIT LISTED ABOVE WILL BE PROVIDED BY THE COMPANY TO
ANY SHAREHOLDER UPON THE WRITTEN REQUEST OF SUCH SHAREHOLDER AND UPON THE
PAYMENT OF A REASONABLE FEE LIMITED TO THE COMPANY'S EXPENSES IN FURNISHING
SUCH EXHIBIT. REQUESTS SHOULD BE ADDRESSED TO ELEANOR M. TOLLA, SECRETARY,
DIME FINANCIAL CORPORATION, 95 BARNES ROAD, WALLINGFORD, CONNECTICUT 06492.
(b) The Company filed no reports on Form 8-K during the period from
October 1, 1997 to December 31, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
DIME FINANCIAL CORPORATION
DATED: March 30, 1998 By /s/ Richard H. Dionne
---------------------------------
Richard H. Dionne
President and
Chief Executive Officer
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.
Signatures Title Date
---------- ----- ----
/s/ Ralph D. Lukens Chairman of the Board March 30, 1998
- -------------------------- of Directors -----------------
Ralph D. Lukens
/s/ Richard H. Dionne President, Chief 3/30/98
- -------------------------- Executive Officer -----------------
Richard H. Dionne and Director
/s/ Albert E. Fiacre, Jr. Executive Vice President 3/30/98
- -------------------------- and Chief Financial -----------------
Albert E. Fiacre, Jr. Officer
/s/ Robert P. Simon Vice President 3/26/98
- -------------------------- and Comptroller -----------------
Robert P. Simon
/s/ Gary O. Olson Director 3-30-98
- -------------------------- -----------------
Gary O. Olson
/s/ Fred A. Valenti Director March 27, 1998
- -------------------------- -----------------
Fred A. Valenti
/s/ Rosalind F. Gallagher Director March 27, 1998
- -------------------------- -----------------
Rosalind F. Gallagher
/s/ Robert Nicoletti Director 3/30/98
- -------------------------- -----------------
Robert Nicoletti
Director
- -------------------------- -----------------
M. Joseph Canavan
/s/ William J. Farrell Director 3/27/98
- -------------------------- -----------------
William J. Farrell
/s/ Richard D. Stapleton Director 3/27/98
- -------------------------- -----------------
Richard D. Stapleton
/s/ Theodore H. Horwitz Director 3/30/98
- -------------------------- -----------------
Theodore H. Horwitz
DIME FINANCIAL CORPORATION
Exhibits
to
Annual Report on Form 10-K
For the Year Ended December 31, 1997
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2 Agreement and Plan of Merger, dated as of March 31, 1998,
among HUBCO, Inc., Lafayette American Bank, the Company and
The Dime Savings Bank of Wallingford.
13 1997 Annual Report to Shareholders
10.10 Stock Option Agreement, dated as of March 31, 1998, by and
between HUBCO, Inc., and the Company
23 Consent of Independent Auditors
27 1997 Financial Data Schedule
27.1 1996 Financial Data Schedule
27.2 1995 Financial Data Schedule
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of March 31, 1998
("AGREEMENT"), is among HUBCO, Inc. ("HUBCO"), a New Jersey corporation
and registered bank holding company, Lafayette American Bank (the
"BANK"), a Connecticut state-chartered commercial banking corporation and
wholly-owned subsidiary of HUBCO, Dime Financial Corporation, a
Connecticut corporation and registered bank holding company ("DFC"), and
The Dime Savings Bank of Wallingford, a state savings bank and wholly-
owned subsidiary of DFC (the "DIME").
RECITALS
The respective Boards of Directors of HUBCO and DFC have each
determined that it is in the best interests of HUBCO and DFC and their
respective shareholders for HUBCO to acquire DFC by merging DFC with and
into HUBCO with HUBCO surviving and DFC shareholders receiving the
consideration hereinafter set forth. Immediately after the merger of DFC
into HUBCO, the Dime shall be merged with and into the Bank with the Bank
surviving.
The respective Boards of Directors of DFC, HUBCO, the Bank and
the Dime have each duly adopted and approved this Agreement and the Board
of Directors of DFC has directed that it be submitted to DFC's
shareholders for approval.
As a condition for HUBCO to enter into this Agreement, HUBCO
has required that it receive an option on certain authorized but unissued
shares of DFC Common Stock (as hereinafter defined) and, simultaneously
with the execution of this Agreement, DFC is issuing an option to HUBCO
(the "HUBCO STOCK OPTION") to purchase certain shares of the authorized
and unissued DFC Common Stock subject to the terms and conditions set
forth in the Agreement governing the HUBCO Stock Option.
NOW, THEREFORE, intending to be legally bound, the parties
hereto hereby agree as follows:
ARTICLE I - THE MERGER
1.1. THE MERGER. Subject to the terms and conditions of this
Agreement, at the Effective Time (as hereafter defined), DFC shall be
merged with and into HUBCO (the "MERGER") in accordance the New Jersey
Business Corporation Act (the "NJBCA") and the Connecticut Business
Corporation Act ("CBC") and HUBCO shall be the surviving corporation (the
"SURVIVING CORPORATION").
1.2. EFFECT OF THE MERGER. At the Effective Time, the
Surviving Corporation shall be considered the same business and corporate
entity as each of HUBCO and DFC and thereupon and thereafter, all the
property, rights, privileges, powers and franchises of each of HUBCO and
DFC shall vest in the Surviving Corporation and the Surviving Corporation
shall be subject to and be deemed to have assumed all of the debts,
liabilities, obligations and duties of each of HUBCO and DFC and shall
have succeeded to all of each of their relationships, as fully and to the
same extent as if such property, rights, privileges, powers, franchises,
debts, liabilities, obligations, duties and relationships had been
originally acquired, incurred or entered into by the Surviving
Corporation. In addition, any reference to either of HUBCO and DFC in
any contract or document, whether executed or taking effect before or
after the Effective Time, shall be considered a reference to the
Surviving Corporation if not inconsistent with the other provisions of
the contract or document; and any pending action or other judicial
proceeding to which either of HUBCO or DFC is a party, shall not be
deemed to have abated or to have discontinued by reason of the Merger,
but may be prosecuted to final judgment, order or decree in the same
manner as if the Merger had not been made; or the Surviving Corporation
may be substituted as a party to such action or proceeding, and any
judgment, order or decree may be rendered for or against it that might
have been rendered for or against either of HUBCO or DFC if the Merger
had not occurred.
1.3. CERTIFICATE OF INCORPORATION. As of the Effective Time,
the certificate of incorporation of HUBCO shall be the certificate of
incorporation of the Surviving Corporation until otherwise amended as
provided by law.
1.4. BY-LAWS. As of the Effective Time, the By-Laws of HUBCO
shall be the By-Laws of the Surviving Corporation until otherwise amended
as provided by law.
1.5. DIRECTORS AND OFFICERS. As of the Effective Time, the
directors and officers of HUBCO shall be the directors and officers of
the Surviving Corporation.
1.6 CLOSING, CLOSING DATE, DETERMINATION DATE AND EFFECTIVE
TIME. Unless a different date, time and/or place are agreed to by the
parties hereto, the closing of the Merger (the "CLOSING") shall take
place at 10:00 a.m., at the offices of Pitney, Hardin, Kipp & Szuch, 200
Campus Drive, Florham Park, New Jersey, on a date determined by HUBCO on
at least five business days notice (the "CLOSING NOTICE") given to DFC,
which date (the "CLOSING DATE") shall be not less than seven nor more
than 10 business days following the receipt of all necessary regulatory
and governmental approvals and consents and the expiration of all
statutory waiting periods in respect thereof and the satisfaction or
waiver of all of the conditions to the consummation of the Merger
specified in Article VI hereof (other than the delivery of certificates,
opinions and other instruments and documents to be delivered at the
Closing). In the Closing Notice, HUBCO shall specify the "DETERMINATION
DATE" for purposes of determining the Median Pre-Closing Price (as
hereinafter defined), which date shall be the first date on which all
federal and state bank regulatory approvals (and waivers, if applicable)
necessary for consummation of the Merger shall have been received and
either party shall have informed the other party that all such federal
and state bank regulatory approvals (and waivers, if applicable) have
been received. Simultaneous with or immediately following the Closing,
HUBCO and DFC shall cause to be filed (a) a certificate of merger, in
form and substance satisfactory to HUBCO and DFC, with the Secretary of
State of the State of New Jersey (the "New Jersey CERTIFICATE OF MERGER")
and (b) a certificate of merger, in form and substance satisfactory to
HUBCO and DFC, with the Secretary of State of Connecticut (the
"Connecticut Certificate of Merger"). Each Certificate of Merger shall
specify as the "EFFECTIVE TIME" of the Merger, which Effective Time shall
be a date and time following the Closing agreed to by HUBCO and DFC
(which date and time the parties currently anticipate will be the close
of business on the Closing Date). In the event the parties fail to
specify the date and time in the merger certificates, the Merger shall
become effective upon (and the "EFFECTIVE TIME" shall be) the later of
the time of the filing of the New Jersey Certificate of Merger or the
Connecticut Certificate of Merger.
1.7 THE BANK MERGER. Immediately following the Effective
Time, the Dime shall be then merged with and into the Bank (the "BANK
MERGER") in accordance with the provisions of Section 36a-125 of the
Banking Law of Connecticut (the "BANKING ACT"). In the Bank Merger, the
Bank shall be the surviving bank (the "SURVIVING BANK"). Upon the
consummation of the Bank Merger, the separate existence of the Dime shall
cease and the Surviving Bank shall be considered the same business and
corporate entity as each of the Dime and the Bank and all of the
property, rights, privileges, powers and franchises of each of the Dime
and the Bank shall vest in the Surviving Bank and the Surviving Bank
shall be deemed to have assumed all of the debts, liabilities,
obligations and duties of each of the Dime and the Bank and shall have
succeeded to all or each of their relationships, fiduciary or otherwise,
as fully and to the same extent as if such property, rights, privileges,
powers, franchises, debts, obligations, duties and relationships had been
originally acquired, incurred or entered into by the Surviving Bank.
Upon the consummation of the Bank Merger, the certificate of
incorporation and By-Laws of the Bank shall be the certificate of
incorporation and By-Laws of the Surviving Bank and the officers and
directors of the Bank shall be the officers and directors of the
Surviving Bank, except as provided in Section 5.20 hereof. Following the
execution of this Agreement, the Dime and the Bank shall execute and
deliver a merger agreement (the "BANK MERGER AGREEMENT"), both in form
and substance reasonably satisfactory to the parties hereto,
substantially as set forth in EXHIBIT 1.7 hereto, for delivery to the
Commissioner of the Connecticut Department of Banking (the "DEPARTMENT")
and the Federal Deposit Insurance Corporation (the "FDIC") for approval
of the Bank Merger.
ARTICLE II - CONVERSION OF DFC SHARES
2.1. CONVERSION OF DFC COMMON STOCK. Each share of common
stock, par value $1.00 per share, of DFC ("DFC COMMON STOCK"), issued and
outstanding immediately prior to the Effective Time (other than Excluded
Shares, as hereinafter defined) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted as
follows:
(a) EXCHANGE OF COMMON STOCK; EXCHANGE RATIO. Subject
to the provisions of this Section 2.1, each share of DFC Common Stock
issued and outstanding immediately prior to the Effective Time (excluding
any treasury shares and shares to be canceled pursuant to Section 2.1(d)
hereof) shall be converted at the Effective Time into the right to
receive a certain number (the "EXCHANGE RATIO") of shares of Common
Stock, no par value, of HUBCO ("HUBCO COMMON STOCK") determined in
accordance with the next sentence, subject to adjustment as provided in
Section 2.1(c) and subject to the payment of cash in lieu of fractional
shares in accordance with Section 2.2(e). The Exchange Ratio shall be a
number between 1.05 and .93, with the exact number determined from the
quotient, rounded to the nearest thousandth, obtained by dividing $38.25
by the Median Pre-Closing Price (as defined in Section 2.2(e)) of HUBCO
Common Stock, except if the quotient is greater than 1.05, the Exchange
Ratio shall be 1.05 and if the quotient is less than .93, the Exchange
Ratio shall be .93.
(b) CANCELLATION OF DFC CERTIFICATES. After the
Effective Time, all such shares of DFC Common Stock (other than those
canceled pursuant to Section 2.1(d)) shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and
each certificate previously evidencing any such shares (other than those
canceled pursuant to Section 2.1(d)) shall thereafter represent the right
to receive the Merger Consideration (as defined in Section 2.2(b)). The
holders of such certificates previously evidencing such shares of DFC
Common Stock outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such shares of DFC Common Stock
except as otherwise provided herein or by law. Such certificates
previously evidencing such shares of DFC Common Stock (other than those
canceled pursuant to Section 2.1(d)) shall be exchanged for certificates
evidencing shares of HUBCO Common Stock issued pursuant to this Article
II, upon the surrender of such certificates in accordance with this
Article II. No fractional shares of HUBCO Common Stock shall be issued,
and, in lieu thereof, a cash payment shall be made pursuant to Section
2.2(e).
(c) CAPITAL CHANGES. If between the date hereof and the
Effective Time the outstanding shares of HUBCO Common Stock shall have
been changed into a different number of shares or a different class, by
reason of any stock dividend, stock split, reclassification,
recapitalization, merger, combination or exchange of shares, the Exchange
Ratio and the definition of Median Pre-Closing Price shall be
correspondingly adjusted to reflect such stock dividend, stock split,
reclassification, recapitalization, merger, combination or exchange of
shares.
(d) EXCLUDED SHARES. All shares of DFC Common Stock
held by DFC in its treasury or owned by HUBCO or by any of HUBCO's
wholly-owned subsidiaries (other than shares held as trustee or in a
fiduciary capacity and shares held as collateral on or in lieu of a debt
previously contracted) immediately prior to the Effective Time ("EXCLUDED
SHARES") shall be canceled.
2.2. EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. As of the Effective Time, HUBCO
shall deposit, or shall cause to be deposited, with Hudson United Bank,
Trust Department or another bank or trust company designated by HUBCO and
reasonably acceptable to DFC (the "EXCHANGE AGENT"), for the benefit of
the holders of shares of DFC Common Stock, for exchange in accordance
with this Article II, through the Exchange Agent, certificates evidencing
shares of HUBCO Common Stock and cash in such amount such that the
Exchange Agent possesses such number of shares of HUBCO Common Stock and
such amount of cash as are required to provide all of the consideration
required to be exchanged by HUBCO pursuant to the provisions of this
Article II (such certificates for shares of HUBCO Common Stock, together
with any dividends or distributions with respect thereto, and cash being
hereinafter referred to as the "EXCHANGE FUND"). The Exchange Agent
shall, pursuant to irrevocable instructions, deliver the HUBCO Common
Stock and cash out of the Exchange Fund in accordance with Section 2.1.
Except as contemplated by Section 2.2(f) hereof, the Exchange Fund shall
not be used for any other purpose.
(b) EXCHANGE PROCEDURES. As soon as reasonably
practicable either before or after the Effective Time, but in any event
no later than five business days after the Effective Time, HUBCO will
instruct the Exchange Agent to mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
evidenced outstanding shares of DFC Common Stock (the "CERTIFICATES"),
(i) a letter of transmittal (the form and substance of which is
reasonably agreed to by HUBCO and DFC prior to the Effective Time and
which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent and which shall have such other
provisions as HUBCO may reasonably specify) and (ii) instructions for
effecting the surrender of the Certificates in exchange for certificates
evidencing shares of HUBCO Common Stock and cash in lieu of fractional
shares. Upon surrender of a Certificate for cancellation to the Exchange
Agent together with such letter of transmittal, duly executed, and such
other customary documents as may be required pursuant to such
instructions, the holder of such Certificate shall be entitled to receive
in exchange therefor (x) certificates evidencing that number of whole
shares of HUBCO Common Stock which such holder has the right to receive
in respect of the shares of DFC Common Stock formerly evidenced by such
Certificate in accordance with Section 2.1 and (y) cash in lieu of
fractional shares of HUBCO Common Stock to which such holder may be
entitled pursuant to Section 2.2(e) (the shares of HUBCO Common Stock and
cash described in clauses (x) and (y) being collectively referred to as
the "MERGER CONSIDERATION") and the Certificates so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of shares
of DFC Common Stock which is not registered in the transfer records of
DFC, a certificate evidencing the proper number of shares of HUBCO Common
Stock and/or cash may be issued and/or paid in accordance with this
Article II to a transferee if the Certificate evidencing such shares of
DFC Common Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence
that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 2.2, each Certificate shall
be deemed at any time after the Effective Time to evidence only the right
to receive upon such surrender the Merger Consideration.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES OF
HUBCO COMMON STOCK. No dividends or other distributions declared or made
after the Effective Time with respect to HUBCO Common Stock with a record
date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of HUBCO Common
Stock evidenced thereby, and no other part of the Merger Consideration
shall be paid to any such holder, until the holder of such Certificate
shall surrender such Certificate (or a suitable affidavit of loss and
customary bond). Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be paid to the holder of
the certificates evidencing shares of HUBCO Common Stock issued in
exchange therefor, without interest, (i) promptly, the amount of any cash
payable with respect to a fractional share of HUBCO Common Stock to which
such holder may have been entitled pursuant to Section 2.2(e) and the
amount of dividends or other distributions with a record date on or after
the Effective Time theretofore paid with respect to such shares of HUBCO
Common Stock, and (ii) at the appropriate payment date, the amount of
dividends or other distributions, with a record date on or after the
Effective Time but prior to surrender and a payment date occurring after
surrender, payable with respect to such shares of HUBCO Common Stock.
(d) NO FURTHER RIGHTS IN DFC COMMON STOCK. All shares of
HUBCO Common Stock issued and cash paid upon conversion of the shares of
DFC Common Stock in accordance with the terms hereof shall be deemed to
have been issued or paid in full satisfaction of all rights pertaining to
such shares of DFC Common Stock.
(e) NO FRACTIONAL SHARES; MEDIAN PRE-CLOSING PRICE. No
certificates or scrip evidencing fractional shares of HUBCO Common Stock
shall be issued upon the surrender for exchange of Certificates and such
fractional share interests will not entitle the owner thereof to vote or
to any rights of a shareholder of HUBCO. Cash shall be paid in lieu of
fractional shares of HUBCO Common Stock, based upon the Median Pre-
Closing Price per whole share of HUBCO Common Stock. The "MEDIAN PRE-
CLOSING PRICE" shall be determined by taking the price half-way between
the Closing Prices left after discarding the 4 lowest and 4 highest
Closing Prices in the 10 consecutive trading day period which ends on
(and includes) the Determination Date. The "CLOSING PRICE" shall mean
the closing price of HUBCO Common Stock as supplied by the NASDAQ Stock
Market and published in THE WALL STREET JOURNAL. A "TRADING DAY" shall
mean a day for which a Closing Price is so supplied and published. (The
NASDAQ Stock Market, or such other national securities exchange on which
HUBCO Common Stock may be traded after the date hereof, is referred to
herein as "NASDAQ")
(f) TERMINATION OF EXCHANGE FUND. Any portion of the
Exchange Fund which remains undistributed to the holders of DFC Common
Stock for two years after the Effective Time shall be delivered to HUBCO,
upon demand, and any holders of DFC Common Stock who have not theretofore
complied with this Article II shall thereafter look only to HUBCO for the
Merger Consideration, dividends and distributions to which they are
entitled.
(g) NO LIABILITY. Neither HUBCO, the Bank nor the
Exchange Agent shall be liable to any holder of shares of DFC Common
Stock for any such shares of HUBCO Common Stock or cash (or dividends or
distributions with respect thereto) delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(h) WITHHOLDING RIGHTS. HUBCO shall be entitled to
deduct and withhold, or cause the Exchange Agent to deduct and withhold,
from funds provided by the holder or from the consideration otherwise
payable pursuant to this Agreement to any holder of DFC Common Stock, the
minimum amounts (if any) that HUBCO is required to deduct and withhold
with respect to the making of such payment under the Code (as defined in
Section 3.8), or any provision of state, local or foreign tax law. To
the extent that amounts are so withheld by HUBCO, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid
to the holder of DFC Common Stock in respect of which such deduction and
withholding was made by HUBCO.
2.3. STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of DFC shall be closed and there shall be no further
registration of transfers of shares of DFC Common Stock thereafter on the
records of DFC. On or after the Effective Time, any Certificates
presented to the Exchange Agent or HUBCO for transfer shall be converted
into the Merger Consideration.
2.4. DFC STOCK OPTIONS. The Stock Options (as defined in
Section 3.2) described in the DFC DISCLOSURE SCHEDULE are issued and
outstanding pursuant to the 1986 Stock Option and Incentive Plan, the
City Savings Bank of Meriden Stock Option Plan, the 1986 Stock Option
Plan for Outside Directors, Non-Qualified Stock Option Agreements, as
amended, for William J. Farrell and M. Joseph Canavan, the 1996 Stock
Option and Incentive Plan, the Chairman's 1996 Non-Qualified Stock Option
Agreement, and the 1996 Stock Option Plan for Outside Directors (the "DFC
STOCK OPTION PLANS") and the agreements pursuant to which such Stock
Options were granted (each, an "OPTION GRANT AGREEMENT"). HUBCO
acknowledges and agrees to honor the provisions of the DFC Stock Option
Plan and the Option Grant Agreement, including those relating to vesting
and conversion in connection with a change in control of DFC. Each Stock
Option outstanding at the Effective Time (each a "CONTINUING STOCK
OPTION") shall be converted into an option to purchase HUBCO Common
Stock, wherein (i) the right to purchase shares of DFC Common Stock
pursuant to the Continuing Stock Option shall be converted into the right
to purchase that same number of shares of HUBCO Common Stock multiplied
by the Exchange Ratio, (ii) the option exercise price per share of HUBCO
Common Stock shall be the previous option exercise price per share of the
DFC Common Stock divided by the Exchange Ratio, and (iii) in all other
material respects the option shall be subject to the same terms and
conditions as governed the Continuing Stock Option on which it was based,
including the length of time within which the option may be exercised
(which shall not be extended except that the holder of a Stock Option who
continues in the service of HUBCO or a subsidiary of HUBCO shall not be
deemed to have terminated service for purposes of determining the
Continuing Stock Option exercise period) and for all Continuing Stock
Options, such adjustments shall be and are intended to be effected in a
manner which is consistent with Section 424(a) of the Code (as defined in
Section 3.2 hereof). If a Stock Option Grant Agreement also provided for
a Stock Appreciation Right, the Stock Appreciation Right shall also
continue (subject to the same adjustments as are provided for Continuing
Stock Options). Shares of HUBCO Common Stock issuable upon exercise of
Continuing Stock Options shall be covered by an effective registration
statement on Form S-8, and HUBCO shall use its reasonable best efforts to
file a registration statement on Form S-8 covering such shares as soon as
possible after the Effective Time.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF DFC
References herein to "DFC DISCLOSURE SCHEDULE" shall mean all
of the disclosure schedules required by this Article III, dated as of the
date hereof and referenced to the specific sections and subsections of
Article III of this Agreement, which have been delivered on the date
hereof by DFC to HUBCO. DFC hereby represents and warrants to HUBCO as
follows:
3.1. CORPORATE ORGANIZATION
(a) DFC is a corporation duly organized and validly
existing under the laws of the State of Connecticut. DFC has the
corporate power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted, and is
duly licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location
of the properties and assets owned or leased by it makes such licensing
or qualification necessary, except where the failure to be so licensed or
qualified would not have a material adverse effect on the business,
operations, assets or financial condition of DFC and the DFC Subsidiaries
(as defined below), taken as a whole. DFC is registered as a bank
holding company under the Bank Holding Company Act of 1956, as amended
(the "BHCA").
(b) Each DFC Subsidiary and its jurisdiction of
incorporation is listed in the DFC DISCLOSURE SCHEDULE. For purposes of
this Agreement, the term "DFC SUBSIDIARY" means any corporation,
partnership, joint venture or other legal entity in which DFC, directly
or indirectly, owns at least a 50% stock or other equity interest or for
which DFC, directly or indirectly, acts as a general partner, provided
that to the extent that any representation or warranty set forth herein
covers a period of time prior to the date of this Agreement, the term
"DFC SUBSIDIARY" shall include any entity which was a DFC Subsidiary at
any time during such period. The Dime is a Connecticut state-chartered
savings bank duly organized and validly existing in stock form under the
laws of the State of Connecticut. All eligible accounts of depositors
issued by the Dime are insured by the Bank Insurance Fund of the FDIC
(the "BIF") to the fullest extent permitted by law. Each DFC Subsidiary
has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being
conducted and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it
makes such licensing or qualification necessary, except where the failure
to be so licensed or qualified would not have a material adverse effect
on the business, operations, assets or financial condition of DFC and the
DFC Subsidiaries, taken as a whole.
(c) The DFC DISCLOSURE SCHEDULE sets forth true and
complete copies of the Certificate of Incorporation and By-Laws, as in
effect on the date hereof, of DFC and each DFC Subsidiary. Except as set
forth in Disclosure Schedule 3.1(b), the Dime and DFC do not own or
control, directly or indirectly, any equity interest in any corporation,
company, partnership, joint venture or other entity.
3.2. CAPITALIZATION. The authorized capital stock of DFC
consists of 9,000,000 shares of DFC Common Stock and 1,000,000 shares of
preferred stock. None of the preferred stock has been issued. As of
March 27, 1998, there were 5,248,067 shares of DFC Common Stock issued
and outstanding and 351,607 treasury shares. As of March 27, 1998,
there were 496,160 shares of DFC Common Stock issuable upon exercise of
outstanding stock options and stock appreciation rights. The DFC
DISCLOSURE SCHEDULE sets forth (i) all options and stock appreciation
rights which may be exercised for issuance of DFC Common Stock
(collectively, the "STOCK OPTIONS"), their strike prices and exercise
dates, and (ii) true and complete copies of each plan and a specimen of
each form of agreement pursuant to which any outstanding Stock Option was
granted, including a list of each outstanding Stock Option issued
pursuant thereto. All issued and outstanding shares of DFC Common Stock,
and all issued and outstanding shares of capital stock of each DFC
Subsidiary, have been duly authorized and validly issued, are fully paid,
nonassessable and free of preemptive rights and are free and clear of any
liens, encumbrances, charges, restrictions or rights of third parties
imposed by DFC or any DFC Subsidiary. Except for the Stock Options and
the HUBCO Stock Option, neither DFC nor the Dime has granted nor is bound
by any outstanding subscriptions, options, warrants, calls, commitments
or agreements of any character calling for the transfer, purchase,
subscription or issuance of any shares of capital stock of DFC or the
Dime or any securities representing the right to purchase, subscribe or
otherwise receive any shares of such capital stock or any securities
convertible into any such shares, and there are no agreements or
understandings with respect to voting of any such shares.
3.3. AUTHORITY; NO VIOLATION.
(a) Subject to the approval of this Agreement and the
transactions contemplated hereby by all applicable regulatory authorities
and by the shareholders of DFC, and the approval of the Bank Merger
Agreement by DFC as sole shareholder of the Dime, DFC and the Dime have
the full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby in
accordance with the terms hereof. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been duly and validly approved by the directors of DFC and the Dime
in accordance with their respective Certificate of Incorporation and By-
Laws and applicable laws and regulations. Except for such approvals, no
other corporate proceedings not otherwise contemplated hereby on the part
of DFC or the Dime are necessary to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and
delivered by DFC and the Dime, and constitutes the valid and binding
obligation of each of DFC and the Dime, enforceable against DFC and the
Dime in accordance with its terms, except to the extent that enforcement
may be limited by (i) bankruptcy, insolvency, reorganization, moratorium,
conservatorship, receivership or other similar laws now or hereafter in
effect relating to or affecting the enforcement of creditors' rights
generally or the rights of creditors of Connecticut state-chartered
savings banks or their holding companies, (ii) general equitable
principles, and (iii) laws relating to the safety and soundness of
insured depository institutions and except that no representation is made
as to the effect or availability of equitable remedies or injunctive
relief.
(b) Neither the execution and delivery of this Agreement
by DFC or the Dime, nor the consummation by DFC or the Dime of the
transactions contemplated hereby in accordance with the terms hereof, or
compliance by DFC or the Dime with any of the terms or provisions hereof,
will (i) violate any provision of DFC's or the Dime's Certificate of
Incorporation or By-Laws, (ii) assuming that the consents and approvals
set forth below are duly obtained, violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable
to DFC, the Dime or any of their respective properties or assets, or
(iii) except as set forth in the DFC DISCLOSURE SCHEDULE, violate,
conflict with, result in a breach of any provisions of, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of, accelerate the
performance required by, or result in the creation of any lien, security
interest, charge or other encumbrance upon any of the respective
properties or assets of DFC or the Dime under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to
which DFC or the Dime is a party, or by which they or any of their
respective properties or assets may be bound or affected except, with
respect to (ii) and (iii) above, such as individually or in the aggregate
will not have a material adverse effect on the business, operations,
assets or financial condition of DFC and the DFC Subsidiaries, taken as a
whole, and which will not prevent or materially delay the consummation of
the transactions contemplated hereby. Except for consents and approvals
of or filings or registrations with or notices to the Board of Governors
of the Federal Reserve System (the "FRB"), the FDIC, the Department, the
Connecticut Department of Environmental Protection (the "DEP"), the
Securities and Exchange Commission (the "SEC"), and the shareholders of
DFC, no consents or approvals of or filings or registrations with or
notices to any third party or any public body or authority are necessary
on behalf of DFC or the Dime in connection with (x) the execution and
delivery by DFC of this Agreement and (y) the consummation by DFC of the
Merger, and the consummation by DFC and the Dime of the other
transactions contemplated hereby, except (i) such as are listed in the
DFC DISCLOSURE SCHEDULE and (ii) such as individually or in the aggregate
will not (if not obtained) have a material adverse effect on the
business, operations, assets or financial condition of DFC and the DFC
Subsidiaries taken as a whole or prevent or materially delay the
consummation of the transactions contemplated hereby. To the best of
DFC's knowledge, no fact or condition exists which DFC has reason to
believe will prevent it and the Dime from obtaining the aforementioned
consents and approvals.
3.4. FINANCIAL STATEMENTS.
(a) The DFC DISCLOSURE SCHEDULE sets forth copies of the
consolidated statements of financial condition of DFC as of December 31,
1996 and 1997, and the related consolidated statements of income, changes
in stockholders' equity and of cash flows for the periods ended December
31, in each of the three fiscal years 1995 through 1997, in each case
accompanied by the audit report of KPMG Peat Marwick LLP, independent
public accountants with respect to DFC ("PEAT MARWICK"), filed with the
SEC under the Securities Exchange Act of 1934, as amended ("1934 ACT")
(collectively, the "DFC FINANCIAL STATEMENTS"). The DFC Financial
Statements (including the related notes) have been prepared in accordance
with generally accepted accounting principles ("GAAP") consistently
applied during the periods involved (except as may be indicated therein
or in the notes thereto), and fairly present the consolidated financial
condition of DFC as of the respective dates set forth therein, and the
related consolidated statements of income, changes in stockholders'
equity and cash flows fairly present the results of the consolidated
operations, changes in shareholders' equity and cash flows of DFC for the
respective periods set forth therein.
(b) The books and records of DFC and each of its
Subsidiaries are being maintained in material compliance with applicable
legal and accounting requirements.
(c) Except as and to the extent reflected, disclosed or
reserved against in the DFC Financial Statements (including the notes
thereto), as December 31, 1997, neither DFC nor any DFC Subsidiary had
any liabilities, whether absolute, accrued, contingent or otherwise,
material to the business, operations, assets or financial condition of
DFC and the DFC Subsidiaries, taken as a whole which were required by
GAAP (consistently applied) to be disclosed in DFC's consolidated
statement of condition as of December 31, 1997 or the notes thereto.
Since December 31, 1997, neither DFC nor any DFC Subsidiary has incurred
any liabilities except in the ordinary course of business and consistent
with prudent business practice, except as related to the transactions
contemplated by this Agreement or except as set forth in the DFC
DISCLOSURE SCHEDULE.
3.5. BROKER'S AND OTHER FEES. Except for A.G. Edwards & Sons,
Inc. ("A.G. EDWARDS") and First Albany Corporation ("FIRST ALBANY"),
neither Dime Financial Corporation nor any of its Subsidiaries nor any of
their respective directors or officers has employed any broker or finder
or incurred any liability for any broker's or finder's fees or
commissions in connection with any of the transactions contemplated by
this Agreement. The agreement with A.G. Edwards and the agreement with
First Albany are set forth in the DFC DISCLOSURE SCHEDULE. Other than
pursuant to the agreement with A.G. Edwards and First Albany or as set
forth in the DFC DISCLOSURE SCHEDULE, there are no fees (other than time
charges billed at usual and customary rates) payable to any consultants,
including lawyers and accountants, in connection with this transaction or
which would be triggered by consummation of this transaction or the
termination of the services of such consultants by DFC or any its
Subsidiaries.
3.6. ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as disclosed in the DFC DISCLOSURE SCHEDULE,
there has not been any material adverse change in the business,
operations, assets or financial condition of DFC and any DFC Subsidiary,
taken as a whole, since December 31, 1997 and to the best of DFC's
knowledge, no fact or condition exists which DFC believes will cause such
a material adverse change in the future; PROVIDED, HOWEVER, that a
material adverse change shall not be deemed to include (i) any change in
the value of the respective investment and loan portfolios of DFC and the
DFC Subsidiaries as the result of a change in interest rates generally,
(ii) any change occurring after the date hereof in any federal or state
law, rule or regulation or in GAAP, which change affects banking
institutions generally, (iii) reasonable expenses incurred in connection
with this Agreement and the transactions contemplated hereby, or (iv)
actions or omissions of DFC or any DFC Subsidiary taken with the prior
written consent of HUBCO in contemplation of the transactions
contemplated hereby (including without limitation any actions taken by
DFC or the Dime pursuant to Section 5.15 of this Agreement).
(b) Except as set forth in the DFC DISCLOSURE SCHEDULE,
neither DFC nor any DFC Subsidiary has taken or permitted any of the
actions set forth in Section 5.2 hereof between December 31, 1997 and the
date hereof and, except for execution of this Agreement, and the other
documents contemplated hereby, DFC and each DFC Subsidiary has conducted
their respective businesses only in the ordinary course, consistent with
past practice.
3.7. LEGAL PROCEEDINGS. Except as disclosed in the DFC
DISCLOSURE SCHEDULE, and except for ordinary routine litigation
incidental to the business of DFC and the DFC Subsidiaries, neither DFC
nor any DFC Subsidiary is a party to any, and there are no pending or, to
the best of DFC's knowledge, threatened legal, administrative, arbitral
or other proceedings, claims, actions or governmental investigations of
any nature against DFC or any DFC Subsidiary which, if decided adversely
to DFC or any DFC Subsidiary, are reasonably likely to have a material
adverse effect on the business, operations, assets or financial condition
of DFC and the DFC Subsidiaries taken as a whole. Except as disclosed in
the DFC DISCLOSURE SCHEDULE, neither DFC nor any DFC Subsidiary is a
party to any order, judgment or decree entered in any lawsuit or
proceeding which is material to DFC or such DFC Subsidiary.
3.8. TAXES AND TAX RETURNS.
(a) DFC and each DFC Subsidiary has duly filed (and until
the Effective Time will so file) all returns, declarations, reports,
information returns and statements ("RETURNS") required to be filed by it
on or before the Effective Time in respect of any federal, state and
local taxes (including withholding taxes, penalties or other payments
required) and has duly paid (and until the Effective Time will so pay)
all such taxes due and payable, other than taxes or other charges which
are being contested in good faith (and disclosed to HUBCO in writing) or
against which reserves have been established. DFC and each DFC
Subsidiary has established (and until the Effective Time will establish)
on its books and records reserves that are adequate for the payment of
all federal, state and local taxes not yet due and payable, but are
incurred in respect of DFC or such DFC Subsidiary through such date.
None of the federal or state income tax returns of DFC or any DFC
Subsidiary have been examined by the Internal Revenue Service (the "IRS")
or the Connecticut Department of Revenue Services within the past six
years. To the best knowledge of DFC, there are no audits or other
administrative or court proceedings presently pending nor any other
disputes pending with respect to, or claims asserted for, taxes or
assessments upon DFC or any DFC Subsidiary, nor has DFC or any DFC
Subsidiary given any currently outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to
any taxes or Returns.
(b) Except as set forth in the DFC DISCLOSURE SCHEDULE,
neither DFC nor any DFC Subsidiary (i) has requested any extension of
time within which to file any Return which Return has not since been
filed, (ii) is a party to any agreement providing for the allocation or
sharing of taxes, (iii) is required to include in income any adjustment
pursuant to Section 481(a) of the Internal Revenue Code of 1986, as
amended (the "CODE"), by reason of a voluntary change in accounting
method initiated by DFC or such DFC Subsidiary (nor does DFC have any
knowledge that the IRS has proposed any such adjustment or change of
accounting method), or (iv) has filed a consent pursuant to Section
341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply.
(c) The DFC DISCLOSURE SCHEDULE lists all of DFC's and
any DFC Subsidiary's federal, state and local tax loss carry forwards
including the year in which such tax loss carry forward was accumulated.
3.9. EMPLOYEE BENEFIT PLANS.
(a) Except as set forth on the DFC DISCLOSURE SCHEDULE,
neither DFC nor any DFC Subsidiary maintains or contributes to any
"employee pension benefit plan" (the "DFC PENSION PLANS") within the
meaning of such term in Section 3(2)(A) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), "employee welfare benefit
plan" (the "DFC WELFARE PLANS") within the meaning of such term in
Section 3(1) of ERISA, stock option plan, stock purchase plan, deferred
compensation plan, severance plan, bonus plan, employment agreement,
director retirement program or other similar plan, program or
arrangement. Neither DFC nor any DFC Subsidiary has, since September 2,
1974, contributed to any "Multiemployer Plan," within the meaning of
Section 3(37) of ERISA.
(b) DFC has previously delivered to HUBCO, and included
in the DFC DISCLOSURE SCHEDULEs, a complete and accurate copy of each of
the following with respect to each of the DFC Pension Plans and DFC
Welfare Plans, if any: (i) plan document, summary plan description, and
summary of material modifications (if not available, a detailed
description of the foregoing); (ii) trust agreement or insurance
contract, if any; (iii) most recent IRS determination letter, if any;
(iv) most recent actuarial report, if any; and (v) most recent annual
report on Form 5500.
(c) The present value of all accrued benefits, both
vested and non-vested, under each of the DFC Pension Plans subject to
Title IV of ERISA, based upon the actuarial assumptions used for funding
purposes in the most recent actuarial valuation prepared by such DFC
Pension Plan's actuary, did not exceed the then current value of the
assets of such plans allocable to such accrued benefits. To the best of
DFC 's knowledge, the actuarial assumptions then utilized for such plans
were reasonable and appropriate as of the last valuation date and reflect
then current market conditions.
(d) During the last six years, the Pension Benefit
Guaranty Corporation ("PBGC") has not asserted any claim for liability
against DFC or any DFC Subsidiary which has not been paid in full.
(e) All premiums (and interest charges and penalties for
late payment, if applicable) due to the PBGC with respect to each DFC
Pension Plan have been paid. All contributions required to be made to
each DFC Pension Plan under the terms thereof, ERISA or other applicable
law have been timely made, and all amounts properly accrued to date as
liabilities of DFC which have not been paid have been properly recorded
on the books of DFC .
(f) Except as disclosed in the DFC DISCLOSURE SCHEDULE,
each of the DFC Pension Plans, DFC Welfare Plans and each other employee
benefit plan and arrangement identified on the DFC DISCLOSURE SCHEDULE
has been operated in compliance in all material respects with the
provisions of ERISA, the Code, all regulations, rulings and announcements
promulgated or issued thereunder, and all other applicable governmental
laws and regulations. Furthermore, except as disclosed in the DFC
DISCLOSURE SCHEDULE, if DFC maintains any DFC Pension Plan, DFC has
received or applied for a favorable determination letter from the IRS
which takes into account the Tax Reform Act of 1986 and (to the extent it
mandates currently applicable requirements) subsequent legislation, and
DFC is not aware of any fact or circumstance which would disqualify any
plan, other than operational defects which could be retroactively
corrected (in accordance with the procedures of the IRS) without a
material adverse effect on DFC and the DFC Subsidiaries taken as a whole.
(g) To the best knowledge of DFC, no non-exempt
prohibited transaction, within the meaning of Section 4975 of the Code or
Section 406 of ERISA, has occurred with respect to any DFC Welfare Plan
or DFC Pension Plan that would result in any material tax or penalty for
DFC or any DFC Subsidiary.
(h) No DFC Pension Plan or any trust created thereunder
has been terminated, nor have there been any "reportable events" (notice
of which has not been waived by the PBGC), within the meaning of Section
4034(b) of ERISA, with respect to any DFC Pension Plan.
(i) No "accumulated funding deficiency," within the
meaning of Section 412 of the Code, has been incurred with respect to any
DFC Pension Plan.
(j) There are no material pending, or, to the best
knowledge of DFC, material threatened or anticipated claims (other than
routine claims for benefits) by, on behalf of, or against any of the DFC
Pension Plans or the DFC Welfare Plans, any trusts created thereunder or
any other plan or arrangement identified in the DFC DISCLOSURE SCHEDULE.
(k) Except as disclosed in the DFC DISCLOSURE SCHEDULE,
no DFC Pension Plan or DFC Welfare Plan provides medical or death
benefits (whether or not insured) beyond an employee's retirement or
other termination of service, other than (i) coverage mandated by law or
pursuant to conversion or continuation rights set out in such Plan or an
insurance policy providing benefits thereunder, or (ii) death benefits
under any DFC Pension Plan.
(l) Except with respect to customary health, life and
disability benefits, there are no unfunded benefit obligations which are
not accounted for by reserves shown on the DFC Financial Statements and
established in accordance with GAAP.
(m) With respect to each DFC Pension Plan and DFC
Welfare Plan that is funded wholly or partially through an insurance
policy, there will be no liability of DFC or any DFC Subsidiary as of the
Effective Time under any such insurance policy or ancillary agreement
with respect to such insurance policy in the nature of a retroactive rate
adjustment, loss sharing arrangement or other actual or contingent
liability arising wholly or partially out of events occurring prior to
the Effective Time.
(n) Except (i) for payments and other benefits due
pursuant to the employment agreements and the 1998 corporate bonus plan
included within the DFC DISCLOSURE SCHEDULE, and (ii) as set forth in the
DFC DISCLOSURE SCHEDULE, or as expressly agreed to by HUBCO in writing
either pursuant to this Agreement or otherwise, the consummation of the
transactions contemplated by this Agreement will not (x) entitle any
current or former employee of DFC or any DFC Subsidiary to severance pay,
unemployment compensation or any similar payment, or (y) accelerate the
time of payment or vesting, or increase the amount of any compensation or
benefits due to any current or former employee under any DFC Pension Plan
or DFC Welfare Plan.
(o) Except for the DFC Pension Plans and the DFC Welfare
Plans, and except as set forth on the DFC DISCLOSURE SCHEDULE, DFC has
no deferred compensation agreements, understandings or obligations for
payments or benefits to any current or former director, officer or
employee of DFC or any DFC Subsidiary or any predecessor of any thereof.
The DFC DISCLOSURE SCHEDULE sets forth: (i) true and complete copies of
the agreements, understandings or obligations with respect to each such
current or former director, officer or employee, and (ii) the most recent
actuarial or other calculation of the present value of such payments or
benefits.
(p) Except as set forth in the DFC DISCLOSURE SCHEDULE,
DFC does not maintain or otherwise pay for life insurance policies (other
than group term life policies on employees) with respect to any director,
officer or employee. The DFC DISCLOSURE SCHEDULE lists each such
insurance policy and includes a copy of each agreement with a party other
than the insurer with respect to the payment, funding or assignment of
such policy. To the best of DFC 's knowledge, neither DFC nor any DFC
Pension Plan or DFC Welfare Plan owns any individual or group insurance
policies issued by an insurer which has been found to be insolvent or is
in rehabilitation pursuant to a state proceeding.
(q) Except as set forth in the DFC DISCLOSURE SCHEDULE,
DFC does not maintain any retirement plan or retiree medical plan or
arrangement for directors. The DFC DISCLOSURE SCHEDULE sets forth the
complete documentation and actuarial evaluation of any such plan.
3.10. REPORTS.
(a) The DFC DISCLOSURE SCHEDULE lists, and as to item (i)
below DFC has previously delivered to HUBCO a complete copy of, each (i)
final registration statement, prospectus, annual, quarterly or current
report and definitive proxy statement filed by DFC since January 1, 1996
pursuant to the Securities Act of 1933, as amended ("1933 ACT"), or the
1934 Act and (ii) communication (other than general advertising materials
and press releases) mailed by DFC to its shareholders as a class since
January 1, 1996, and each such communication, as of its date, complied in
all material respects with all applicable statutes, rules and regulations
and did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in
order to make the statements made therein, in light of the circumstances
under which they were made, not misleading; PROVIDED that information as
of a later date shall be deemed to modify information as of an earlier
date.
(b) Since January 1, 1996, (i) DFC has filed all reports
that it was required to file with the SEC under the 1934 Act, and (ii)
DFC and the Dime each has duly filed all material forms, reports and
documents which it was required to file with each agency charged with
regulating any aspect of its business, in each case in form which was
correct in all material respects, and, subject to permission from such
regulatory authorities, DFC promptly will deliver or make available to
HUBCO accurate and complete copies of such reports. As of their
respective dates, each such form, report, or document, and each such
final registration statement, prospectus, annual, quarterly or current
report, definitive proxy statement or communication, complied in all
material respects with all applicable statutes, rules and regulations and
did not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under
which they were made, not misleading; PROVIDED that information contained
in any such document as of a later date shall be deemed to modify
information as of an earlier date. The DFC DISCLOSURE SCHEDULE lists the
dates of all examinations of DFC or the Dime conducted by either the FRB,
the FDIC or the Department since January 1, 1996 and the dates of any
responses thereto submitted by DFC or the Dime.
3.11. DFC AND DIME INFORMATION. The information relating to
DFC and the Dime, this Agreement, and the transactions contemplated
hereby (except for information relating solely to HUBCO) to be contained
in the Proxy Statement-Prospectus (as defined in Section 5.6(a) hereof)
to be delivered to shareholders of DFC in connection with the
solicitation of their approval of the Merger, as of the date the Proxy
Statement-Prospectus is mailed to shareholders of DFC, and up to and
including the date of the meeting of shareholders to which such Proxy
Statement-Prospectus relates, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3.12. COMPLIANCE WITH APPLICABLE LAW. Except as set forth in
the DFC DISCLOSURE SCHEDULE, DFC and each DFC Subsidiary holds all
licenses, franchises, permits and authorizations necessary for the lawful
conduct of its business and has complied with and is not in default in
any respect under any applicable law, statute, order, rule, regulation,
policy and/or guideline of any federal, state or local governmental
authority relating to DFC or such DFC Subsidiary (including, without
limitation, consumer, community and fair lending laws) (other than where
the failure to have a license, franchise, permit or authorization or
where such default or noncompliance will not result in a material adverse
effect on the business, operations, assets or financial condition of DFC
and the DFC Subsidiaries taken as a whole) and DFC has not received
notice of violation of, and does not know of any violations of, any of
the above.
3.13. CERTAIN CONTRACTS.
(a) Except for plans referenced in Section 3.9 and except
as disclosed in the DFC DISCLOSURE SCHEDULE, (i) neither DFC nor any DFC
Subsidiary is a party to or bound by any written contract or any
understanding with respect to the employment of any officers, employees,
directors or consultants, and (ii) the consummation of the transactions
contemplated by this Agreement will not (either alone or upon the
occurrence of any additional acts or events) result in any payment
(whether of severance pay or otherwise) becoming due from DFC or any DFC
Subsidiary to any officer, employee, director or consultant thereof. The
DFC DISCLOSURE SCHEDULE sets forth true and correct copies of all
severance or employment agreements with officers, directors, employees,
agents or consultants to which DFC or any DFC Subsidiary is a party.
(b) Except as disclosed in the DFC DISCLOSURE SCHEDULE
and except for loan commitments, loan agreements and loan instruments
entered into or issued by the Dime in the ordinary course of business,
(i) as of the date of this Agreement, neither DFC nor any DFC Subsidiary
is a party to or bound by any commitment, agreement or other instrument
which is material to the business, operations, assets or financial
condition of DFC and the DFC Subsidiaries taken as a whole, (ii) no
commitment, agreement or other instrument to which DFC or any DFC
Subsidiary is a party or by which either of them is bound limits the
freedom of DFC or any DFC Subsidiary to compete in any line of business
or with any person, and (iii) neither DFC nor any DFC Subsidiary is a
party to any collective bargaining agreement.
(c) Except as disclosed in the DFC DISCLOSURE SCHEDULE,
neither DFC nor any DFC Subsidiary or, to the best knowledge of DFC, any
other party thereto, is in default in any material respect under any
material lease, contract, mortgage, promissory note, deed of trust, loan
or other commitment (except those under which the Dime is or will be the
creditor) or arrangement, except for defaults which individually or in
the aggregate would not have a material adverse effect on the business,
operations, assets or financial condition of DFC and the DFC
Subsidiaries, taken as a whole.
3.14. PROPERTIES AND INSURANCE.
(a) Except as set forth in the DFC DISCLOSURE SCHEDULE,
DFC or a DFC Subsidiary has good and, as to owned real property,
marketable title to all material assets and properties, whether real or
personal, tangible or intangible, reflected in DFC's consolidated balance
sheet as of December 31, 1997, or owned and acquired subsequent thereto
(except to the extent that such assets and properties have been disposed
of for fair value in the ordinary course of business since December 31,
1997), subject to no encumbrances, liens, mortgages, security interests
or pledges, except (i) those items that secure liabilities that are
reflected in said balance sheet or the notes thereto or that secure
liabilities incurred in the ordinary course of business after the date of
such balance sheet, (ii) statutory liens for amounts not yet delinquent
or which are being contested in good faith, (iii) such encumbrances,
liens, mortgages, security interests, pledges and title imperfections
that are not in the aggregate material to the business, operations,
assets, and financial condition of DFC and the DFC Subsidiaries taken as
a whole and (iv) with respect to owned real property, title imperfections
noted in title reports delivered to HUBCO prior to the date hereof.
Except as affected by the transactions contemplated hereby, DFC or one or
more of its Subsidiaries as lessees have the right under valid and
subsisting leases to occupy, use, possess and control all real property
leased by DFC and such Subsidiaries in all material respects as presently
occupied, used, possessed and controlled by DFC and its Subsidiaries.
(b) The business operations and all insurable properties
and assets of DFC and each DFC Subsidiary are insured for their benefit
against all risks which, in the reasonable judgment of the management of
DFC, should be insured against, in each case under policies or bonds
issued by insurers of recognized responsibility, in such amounts with
such deductibles and against such risks and losses as are in the opinion
of the management of DFC adequate for the business engaged in by DFC and
the DFC Subsidiaries. As of the date hereof, neither DFC nor any DFC
Subsidiary has received any notice of cancellation or notice of a
material amendment of any such insurance policy or bond or is in default
under any such policy or bond, no coverage thereunder is being disputed
and all material claims thereunder have been filed in a timely fashion.
The DFC DISCLOSURE SCHEDULE sets forth in summary form a list of all
insurance policies of DFC and the DFC Subsidiaries.
3.15. MINUTE BOOKS. As of the date of this Agreement, the
minute books of DFC and the DFC Subsidiaries contain accurate records of
all meetings and other corporate action held of their respective
shareholders and Boards of Directors (including committees of their
respective Boards of Directors) through a date not later than 30 days
prior to the date of this Agreement, and except for the Merger, no
material corporate actions were considered or approved by the
shareholders or Boards of Directors (or committees thereof) between such
date and the date of this Agreement which are not fully disclosed in the
DFC DISCLOSURE SCHEDULE. On the Closing Date, the minute books of DFC
and the DFC Subsidiaries shall contain accurate records of all meetings
and other corporate action held of their respective shareholders and
Boards of Directors (including committees of their respective Boards of
Directors) through the Closing Date.
3.16. Environmental Matters. Except as set forth in the DFC
DISCLOSURE SCHEDULE:
(a) Neither DFC nor any DFC Subsidiary has received any
written notice, citation, claim, assessment, proposed assessment or
demand for abatement alleging that DFC or such DFC Subsidiary (either
directly or as a trustee or fiduciary, or as a successor-in-interest in
connection with the enforcement of remedies to realize the value of
properties serving as collateral for outstanding loans) is responsible
for the correction or cleanup of any condition resulting from the
violation of any law, ordinance or other governmental regulation
regarding environmental matters, which correction or cleanup would be
material to the business, operations, assets or financial condition of
DFC and the DFC Subsidiaries taken as a whole. DFC has no knowledge that
any toxic or hazardous substances or materials have been emitted,
generated, disposed of or stored on any real property owned or leased by
DFC or any DFC Subsidiary, as OREO or otherwise, or owned or controlled
by DFC or any DFC Subsidiary as a trustee or fiduciary (collectively,
"PROPERTIES"), in any manner that violates any presently existing
federal, state or local law or regulation governing or pertaining to such
substances and materials, the violation of which would have a material
adverse effect on the business, operations, assets or financial condition
of DFC and the DFC Subsidiaries, taken as a whole.
(b) DFC has no knowledge that any of the Properties has
been operated in any manner in the three years prior to the date of this
Agreement that violated any applicable federal, state or local law or
regulation governing or pertaining to toxic or hazardous substances and
materials, the violation of which would have a material adverse effect on
the business, operations, assets or financial condition of DFC and the
DFC Subsidiaries taken as a whole.
(c) To the best of DFC's knowledge, DFC, each DFC
Subsidiary and any and all of their tenants or subtenants have all
necessary permits and have filed all necessary registrations material to
permit the operation of the Properties in the manner in which the
operations are currently conducted under all applicable federal, state or
local environmental laws, excepting only those permits and registrations
the absence of which would not have a material adverse effect upon the
operations of requiring the permit or registration.
(d) To the knowledge of DFC, there are no underground
storage tanks on, in or under any of the Properties and no underground
storage tanks have been closed or removed from any of the Properties
while the property was owned, operated or controlled by DFC or any DFC
Subsidiary.
3.17. RESERVES. As of December 31, 1997, each of the allowance
for loan losses and the reserve for OREO properties in the DFC Financial
Statements was adequate pursuant to GAAP (consistently applied), and the
methodology used to compute each of the loan loss reserve and the reserve
for OREO properties complies in all material respects with GAAP
(consistently applied) and all applicable policies of the FDIC and the
Department.
3.18. NO PARACHUTE PAYMENTS. Except as set forth in the DFC
DISCLOSURE SCHEDULE, no officer, director, employee or agent (or former
officer, director, employee or agent) of DFC or any DFC Subsidiary is
entitled now, or will or may be entitled to as a consequence of this
Agreement or the Merger, to any payment or benefit from DFC, a DFC
Subsidiary, HUBCO or any HUBCO Subsidiary which if paid or provided would
constitute an "excess parachute payment", as defined in Section 280G of
the Code or regulations promulgated thereunder.
3.19. AGREEMENTS WITH BANK REGULATORS. Neither DFC nor any DFC
Subsidiary is a party to any agreement or memorandum of understanding
with, or a party to any commitment letter, board resolution submitted to
a regulatory authority or similar undertaking to, or is subject to any
order or directive by, or is a recipient of any extraordinary supervisory
letter from, any court, governmental authority or other regulatory or
administrative agency or commission, domestic or foreign ("GOVERNMENTAL
ENTITY") which restricts materially the conduct of its business, or in
any manner relates to its capital adequacy, its credit or reserve
policies or its management, except for those the existence of which has
been disclosed in writing to HUBCO by DFC prior to the date of this
Agreement, nor has DFC been advised by any Governmental Entity that it is
contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree,
agreement, memorandum of understanding, extraordinary supervisory letter,
commitment letter or similar submission, except as disclosed in writing
to HUBCO by DFC prior to the date of this Agreement. Neither DFC nor any
DFC Subsidiary is required by Section 32 of the Federal Deposit Insurance
Act to give prior notice to a Federal banking agency of the proposed
addition of an individual to its board of directors or the employment of
an individual as a senior executive officer, except as disclosed in
writing to HUBCO by DFC prior to the date of this Agreement.
3.20. YEAR 2000 COMPLIANCE. DFC and the DFC Subsidiaries have
taken all reasonable steps necessary to address the software, accounting
and record keeping issues raised in order to be substantially Year 2000
compliant on or before the end of 1999 and DFC does not expect the future
cost of addressing such issues to be material. Neither DFC nor Dime has
received a rating from any bank regulatory agency in year 2000 compliance
as of the date hereof.
3.21. INVESTMENTS. Dime represents that it will communicate in
good faith its business decisions regarding investments. Section 3.21 of
the DFC DISCLOSURE SCHEDULE sets forth, as of the date hereof: (i) the
Dime Funds and Investment Policy (the "DIME INVESTMENT POLICY"), (ii) the
projected Maturities and estimated Cash Flows, by month, which DFC and
Dime management anticipates receiving and reinvesting, and (iii) all firm
commitments (each, a "COMMITMENT") by which either DFC or Dime is
obligated to make an investment, whether of Cash Flow, Maturities or
Sales Proceeds (each, an "INVESTMENT"). For purposes of this Agreement,
"CASH FLOW" means earnings on Investments and return of capital from
Investments (including principal paydowns, prepayments and redemptions of
Investments). "MATURITIES" means scheduled maturities of instruments.
"Cash Flow" and "Maturities" specifically exclude proceeds ("SALES
PROCEEDS") from the voluntary sale or other transfer of instruments by
DFC or Dime.
3.22. DISCLOSURE. No representation or warranty contained in
Article III of this Agreement contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
herein not misleading.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF HUBCO
References herein to the "HUBCO DISCLOSURE SCHEDULE" shall mean
all of the disclosure schedules required by this Article IV, dated as of
the date hereof and referenced to the specific sections and subsections
of Article IV of this Agreement, which have been delivered on the date
hereof by HUBCO to DFC. HUBCO hereby represents and warrants to DFC as
follows:
4.1. CORPORATE ORGANIZATION.
(a) HUBCO is a corporation duly organized and validly
existing and in good standing under the laws of the State of New Jersey.
HUBCO has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business and is in
good standing in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and assets
owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed, qualified or in good standing
would not have a material adverse effect on the business, operations,
assets or financial condition of HUBCO and the HUBCO Subsidiaries
(defined below), taken as a whole. HUBCO is registered as a bank holding
company under the BHCA.
(b) Each HUBCO Subsidiary is listed in the HUBCO
DISCLOSURE SCHEDULE. For purposes of this Agreement, the term "HUBCO
SUBSIDIARY" means any corporation, partnership, joint venture or other
legal entity in which HUBCO directly or indirectly, owns at least a 50%
stock or other equity interest or for which HUBCO, directly or
indirectly, acts as a general partner provided that to the extent that
any representation or warranty set forth herein covers a period of time
prior to the date of this Agreement, the term "HUBCO SUBSIDIARY" shall
include any entity which was an HUBCO Subsidiary at any time during such
period. Each HUBCO Subsidiary is duly organized and validly existing
under the laws of the jurisdiction of its incorporation. The Bank is a
state-chartered commercial banking corporation duly organized and validly
existing under the laws of the State of Connecticut. Hudson United Bank
("HUB") is duly organized and validly existing under the laws of the
State of New Jersey. All eligible accounts of depositors issued by the
Bank and HUB are insured by the Bank Insurance Fund of the FDIC ("BIF")
to the fullest extent permitted by law. Each HUBCO Subsidiary has the
corporate power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted and is
duly licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location
of the properties and assets owned or leased by it makes such licensing
or qualification necessary, except where the failure to be so licensed or
qualified would not have a material adverse effect on the business,
operations, assets or financial condition of HUBCO and the HUBCO
Subsidiaries, taken as a whole. The HUBCO DISCLOSURE SCHEDULE sets forth
true and complete copies of the Certificate of Incorporation and By-Laws
of HUBCO and the Bank as in effect on the date hereof.
4.2. CAPITALIZATION. The authorized capital stock of HUBCO
consists of 53,045,000 common shares, no par value ("HUBCO COMMON
STOCK"), and 10,300,000 shares of preferred stock ("HUBCO AUTHORIZED
PREFERRED STOCK"). As of March 26, 1998, there were 22,648,970 shares of
HUBCO Common Stock issued and outstanding, and no shares of treasury
stock, and 1,000 shares of HUBCO Authorized Preferred Stock outstanding,
all of which were designated Series B, no par value, Convertible
Preferred Stock. Except as described in the HUBCO DISCLOSURE SCHEDULE,
there are no shares of HUBCO Common Stock issuable upon the exercise of
outstanding stock options or otherwise. All issued and outstanding
shares of HUBCO Common Stock and HUBCO Authorized Preferred Stock, and
all issued and outstanding shares of capital stock of HUBCO's
Subsidiaries, have been duly authorized and validly issued, are fully
paid, nonassessable and free of preemptive rights, and are free and clear
of all liens, encumbrances, charges, restrictions or rights of third
parties. All of the outstanding shares of capital stock of the HUBCO
Subsidiaries are owned by HUBCO free and clear of any liens,
encumbrances, charges, restrictions or rights of third parties. Except
as described in the HUBCO DISCLOSURE SCHEDULE, neither HUBCO nor any
HUBCO Subsidiary has granted or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the transfer, purchase or issuance of any shares of
capital stock of HUBCO or any HUBCO Subsidiary or any securities
representing the right to purchase, subscribe or otherwise receive any
shares of such capital stock or any securities convertible into any such
shares, and there are no agreements or understandings with respect to
voting of any such shares.
4.3. AUTHORITY; NO VIOLATION.
(a) Subject to the receipt of all necessary governmental
approvals and the possible need under NASDAQ rules (as hereinafter
defined) to obtain HUBCO shareholder approval, HUBCO and the Bank have
full corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby in accordance with
the terms hereof. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly approved by the Boards of Directors of HUBCO and the Bank in
accordance with their respective Certificate of Incorporation and
applicable laws and regulations. Except for such approvals, no other
corporate proceedings on the part of HUBCO or the Bank are necessary to
consummate the transactions so contemplated. This Agreement has been
duly and validly executed and delivered by HUBCO and the Bank and
constitutes a valid and binding obligation of HUBCO and the Bank,
enforceable against HUBCO and the Bank in accordance with its terms,
except to the extent that enforcement may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium, conservatorship, receivership or
other similar laws now or hereafter in effect relating to or affecting
the enforcement of creditors' rights generally or the rights of creditors
of bank holding companies, (ii) general equitable principles, and (iii)
laws relating to the safety and soundness of insured depository
institutions and except that no representation is made as to the effect
or availability of equitable remedies or injunctive relief.
(b) Neither the execution or delivery of this Agreement
by HUBCO or the Bank, nor the consummation by HUBCO or the Bank of the
transactions contemplated hereby in accordance with the terms hereof, or
compliance by HUBCO or the Bank with any of the terms or provisions
hereof will (i) violate any provision of the Certificate of Incorporation
or By-Laws of HUBCO or the Bank, (ii) assuming that the consents and
approvals set forth below are duly obtained, violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to HUBCO, any HUBCO Subsidiary, or any of their respective
properties or assets, or (iii) violate, conflict with, result in a breach
of any provision of, constitute a default (or an event which, with notice
or lapse of time, or both, would constitute a default) under, result in
the termination of, accelerate the performance required by, or result in
the creation of any lien, security interest, charge or other encumbrance
upon any of the properties or assets of HUBCO or any HUBCO Subsidiary
under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which HUBCO or the Bank is a party, or by
which it or any of their properties or assets may be bound or affected,
except, with respect to (ii) and (iii) above, such as individually or in
the aggregate will not have a material adverse effect on the business,
operation, assets or financial condition of HUBCO and the HUBCO
Subsidiaries, taken as a whole, and which will not prevent or materially
delay the consummation of the transactions contemplated hereby. Except
for consents and approvals of or filings or registrations with or notices
to the FDIC, the FRB, the Department, the Secretary of State of New
Jersey and the Secretary of State of Connecticut and the possible need
under NASDAQ rules (as hereafter defined) to obtain shareholder approval,
no consents or approvals of or filings or registrations with or notices
to any third party or any public body or authority are necessary on
behalf of HUBCO or the Bank in connection with (x) the execution and
delivery by HUBCO or the Bank of this Agreement, and (y) the consummation
by HUBCO or the Bank of the Merger and the other transactions
contemplated hereby, except such as are listed in the HUBCO DISCLOSURE
SCHEDULE or in the aggregate will not (if not obtained) have a material
adverse effect on the business, operation, assets or financial condition
of HUBCO and the HUBCO Subsidiaries, taken as a whole. To the best of
HUBCO's knowledge, no fact or condition exists which HUBCO has reason to
believe will prevent it from obtaining the aforementioned consents and
approvals.
4.4. FINANCIAL STATEMENTS.
(a) The HUBCO DISCLOSURE SCHEDULE sets forth copies of
the consolidated statements of financial condition of HUBCO as of
December 31, 1995, 1996 and 1997, and the related consolidated statements
of income, changes in stockholders' equity and of cash flows for the
periods ended December 31, in each of the two fiscal years 1996 through
1997, in each case accompanied by the audit report of Arthur Andersen LLP
("ARTHUR ANDERSEN"), independent public accountants with respect to HUBCO
(collectively, the "HUBCO FINANCIAL STATEMENTS"). The HUBCO Financial
Statements (including the related notes) have been prepared in accordance
with GAAP consistently applied during the periods involved (except as may
be indicated therein or in the notes thereto), and fairly present the
consolidated financial position of HUBCO as of the respective dates set
forth therein, and the related consolidated statements of income, changes
in stockholders' equity and of cash flows (including the related notes,
where applicable) fairly present the consolidated results of operations,
changes in stockholders' equity and cash flows of HUBCO for the
respective fiscal periods set forth therein.
(b) The books and records of HUBCO and the HUBCO
Subsidiaries are being maintained in material compliance with applicable
legal and accounting requirements, and reflect only actual transactions.
(c) Except as and to the extent reflected, disclosed or
reserved against in the HUBCO Financial Statements (including the notes
thereto), as of December 31, 1997 neither HUBCO nor any of the HUBCO
Subsidiaries had any obligation or liability, whether absolute, accrued,
contingent or otherwise, material to the business, operations, assets or
financial condition of HUBCO or any of the HUBCO Subsidiaries which were
required by GAAP (consistently applied) to be disclosed in HUBCO's
consolidated statement of condition as of December 31, 1997 or the notes
thereto. Except for the transactions contemplated by this Agreement, and
the other proposed acquisitions by HUBCO reflected in any Form 8-K filed
by HUBCO with the SEC since December 31, 1997, neither HUBCO nor any
HUBCO Subsidiary has incurred any liabilities since December 31, 1997
except in the ordinary course of business and consistent with past
practice (including for other pending or contemplated acquisitions).
4.5. BROKER'S AND OTHER FEES. Neither HUBCO nor any of its
directors or officers has employed any broker or finder or incurred any
liability for any broker's or finder's fees or commissions in connection
with any of the transactions contemplated by this Agreement.
4.6. ABSENCE OF CERTAIN CHANGES OR EVENTS. There has not been
any HUBCO Material Adverse Change since December 31, 1997 and to the best
of HUBCO's knowledge, no facts or condition exists which HUBCO believes
will cause a HUBCO Material Adverse Change in the future. "HUBCO
MATERIAL ADVERSE CHANGE" means any change which is material and adverse
to the consolidated financial condition, results, business or assets of
HUBCO and the HUBCO Subsidiaries taken as a whole, other than (i) a
change in the value of the respective investment and loan portfolios of
HUBCO and the HUBCO Subsidiaries as the result of a change in interest
rates generally, (ii) a change occurring after the date hereof in any
federal or state law, rule or regulation or in GAAP, which change affects
banking institutions generally, (iii) reasonable expenses incurred in
connection with this Agreement and the transactions contemplated hereby,
(iv) changes resulting from acquisitions by HUBCO or any HUBCO Subsidiary
pending on the date hereof as set forth in the HUBCO DISCLOSURE SCHEDULE
(other than changes resulting from facts not disclosed to, or otherwise
known by, DFC on or prior to the date hereof as to which HUBCO shall bear
the burden of proof in any dispute pertaining thereto), (v) the entry,
after the date hereof, by HUBCO or any HUBCO Subsidiary into an agreement
to acquire another entity, or (vi) matters disclosed in the HUBCO
DISCLOSURE SCHEDULE.
4.7 LEGAL PROCEEDINGS. Except as disclosed in the HUBCO
DISCLOSURE SCHEDULE, and except for ordinary routine litigation
incidental to the business of HUBCO or its Subsidiaries, neither HUBCO
nor any of its Subsidiaries is a party to any, and there are no pending
or, to the best of HUBCO's knowledge, threatened legal, administrative,
arbitral or other proceedings, claims, actions or governmental
investigations of any nature against HUBCO or any of its Subsidiaries
which, if decided adversely to HUBCO or its Subsidiaries, are reasonably
likely to have a material adverse effect on the business, operations,
assets or financial condition of HUBCO or its Subsidiaries, taken as a
whole. Except as disclosed in the HUBCO DISCLOSURE SCHEDULE, neither
HUBCO nor any of its Subsidiaries is a party to any order, judgment or
decree entered in any lawsuit or proceeding which is material to HUBCO or
its Subsidiaries.
4.8 REPORTS. Since January 1, 1996, HUBCO has filed all
reports that it was required to file with the SEC under the 1934 Act, all
of which complied in all material respects with all applicable
requirements of the 1934 Act and the rules and regulations adopted
thereunder. As of their respective dates, each such report and each
registration statement, proxy statement, form or other document filed by
HUBCO with the SEC, including without limitation, any financial
statements or schedules included therein, did not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in
light of the circumstances under which they were made, not misleading,
provided that information as of a later date shall be deemed to modify
information as of an earlier date. Since January 1, 1996, HUBCO and each
HUBCO Subsidiary has duly filed all material forms, reports and documents
which they were required to file with each agency charged with regulating
any aspect of their business.
4.9 HUBCO INFORMATION. The information relating to HUBCO and
its Subsidiaries (including, without limitation, information regarding
other transactions which HUBCO is required to disclose), this Agreement
and the transactions contemplated hereby in the Registration Statement
and Proxy Statement-Prospectus (as defined in Section 5.6(a) hereof), as
of the date of the mailing of the Proxy Statement-Prospectus, and up to
and including the date of the meeting of stockholders of DFC to which
such Proxy Statement-Prospectus relates, will not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they are made, not misleading.
The Registration Statement shall comply as to form in all material
respects with the provisions of the 1933 Act, the 1934 Act and the rules
and regulations promulgated thereunder.
4.10 COMPLIANCE WITH APPLICABLE LAW. Except as set forth in the
HUBCO DISCLOSURE SCHEDULE, each of HUBCO and HUBCO's Subsidiaries holds
all material licenses, franchises, permits and authorizations necessary
for the lawful conduct of its business, and has complied with and is not
in default in any respect under any applicable law, statute, order, rule,
regulation, policy and/or guideline of any federal, state or local
governmental authority relating to HUBCO or HUBCO's Subsidiaries
(including without limitation consumer, community and fair lending laws)
(other than where such default or noncompliance will not result in a
material adverse effect on the business, operations, assets or financial
condition of HUBCO and HUBCO's Subsidiaries taken as a whole) and HUBCO
has not received notice of violation of, and does not know of any
violations of, any of the above.
4.11 FUNDING AND CAPITAL ADEQUACY. At the Effective Time, after
giving pro forma effect to the Merger and any other acquisition which
HUBCO or its Subsidiaries have agreed to consummate, HUBCO will be deemed
"well capitalized" under prompt corrective action regulatory capital
requirements.
4.12 HUBCO COMMON STOCK. As of the date hereof, HUBCO has
available and reserved shares of HUBCO Common Stock sufficient for
issuance pursuant to the Merger and upon the exercise of Stock Options
subsequent thereto. The HUBCO Common Stock to be issued hereunder
pursuant to the Merger, and upon exercise of the Stock Options, when so
issued, will be duly authorized and validly issued, fully paid,
nonassessable, free of preemptive rights and free and clear of all liens,
encumbrances or restrictions created by or through HUBCO, with no
personal liability attaching to the ownership thereof. The HUBCO Common
Stock to be issued hereunder pursuant to the Merger, and upon exercise of
the Stock Options, when so issued, will be registered under the 1933 Act
and issued in accordance with all applicable state and federal laws,
rules and regulations.
4.13 AGREEMENTS WITH BANK REGULATORS. Neither HUBCO nor any
HUBCO Subsidiary is a party to any agreement or memorandum of
understanding with, or a party to any commitment letter, board resolution
submitted to a regulatory authority or similar undertaking to, or is
subject to any order or directive by, or is a recipient of any
extraordinary supervisory letter from, any Government Entity which
restricts materially the conduct of its business, or in any manner
relates to its capital adequacy, its credit or reserve policies or its
management, except for those the existence of which has been disclosed in
writing to DFC by HUBCO prior to the date of this Agreement, nor has
HUBCO been advised by any Governmental Entity that it is contemplating
issuing or requesting (or is considering the appropriateness of issuing
or requesting) any such order, decree, agreement, memorandum of
understanding, extraordinary supervisory letter, commitment letter or
similar submission, except as disclosed in writing to DFC by HUBCO prior
to the date of this Agreement. Neither HUBCO nor any HUBCO Subsidiary is
required by Section 32 of the Federal Deposit Insurance Act to give prior
notice to a Federal banking agency of the proposed addition of an
individual to its board of directors or the employment of an individual
as a senior executive officer, except as disclosed in writing to DFC by
HUBCO prior to the date of this Agreement.
4.14 TAXES AND TAX RETURNS.
(a) HUBCO and HUBCO's Subsidiaries have duly filed (and
until the Effective Time will so file) all Returns required to be filed
by them in respect of any federal, state and local taxes (including
withholding taxes, penalties or other payments required) and have duly
paid (and until the Effective Time will so pay) all such taxes due and
payable, other than taxes or other charges which are being contested in
good faith (and disclosed to DFC in writing). HUBCO and HUBCO's
Subsidiaries have established on their books and records reserves that
are adequate for the payment of all federal, state and local taxes not
yet due and payable, but are incurred in respect of HUBCO through such
date. The HUBCO DISCLOSURE SCHEDULE identifies the federal income tax
returns of HUBCO and its Subsidiaries which have been examined by the IRS
within the past six years. No deficiencies were asserted as a result of
such examinations which have not been resolved and paid in full. The
HUBCO DISCLOSURE SCHEDULE identifies the applicable state income tax
returns of HUBCO and its Subsidiaries which have been examined by the
applicable authorities. No deficiencies were asserted as a result of such
examinations which have not been resolved and paid in full. To the best
knowledge of HUBCO, there are no audits or other administrative or court
proceedings presently pending nor any other disputes pending with respect
to, or claims asserted for, taxes or assessments upon HUBCO or its
Subsidiaries, nor has HUBCO or its Subsidiaries given any currently
outstanding waivers or comparable consents regarding the application of
the statute of limitations with respect to any taxes or Returns.
(b) Except as set forth in the HUBCO DISCLOSURE SCHEDULE,
neither HUBCO nor any Subsidiary of HUBCO (i) has requested any extension
of time within which to file any Return which Return has not since been
filed, (ii) is a party to any agreement providing for the allocation or
sharing of taxes, (iii) is required to include in income any adjustment
pursuant to Section 481(a) of the Code, by reason of a voluntary change
in accounting method initiated by HUBCO or any of its Subsidiaries (nor
does HUBCO have any knowledge that the IRS has proposed any such
adjustment or change of accounting method) or (iv) has filed a consent
pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply.
4.15 EMPLOYEE BENEFIT PLANS.
(a) HUBCO and its Subsidiaries maintain or contribute to
certain "employee pension benefit plans" (the "HUBCO PENSION PLANS"), as
such term is defined in Section 3(2)(A) of ERISA, and "employee welfare
benefit plans" (the "HUBCO WELFARE PLANS"), as such term is defined in
Section 3(1) of ERISA. Since September 2, 1974, neither HUBCO nor its
subsidiaries have contributed to any "Multiemployer Plan", as such term
is defined in Section 3(37) of ERISA.
(b) HUBCO is not aware of any fact or circumstance which
would disqualify any HUBCO Pension Plan or HUBCO Welfare Plan that could
not be retroactively corrected (in accordance with the procedures of the
IRS).
(c) The present value of all accrued benefits under each
of the HUBCO Pension Plans subject to Title IV of ERISA, based upon the
actuarial assumptions used for purposes of the most recent actuarial
valuation prepared by such HUBCO Pension Plan's actuary, did not exceed
the then current value of the assets of such plans allocable to such
accrued benefits. To the best of HUBCO's knowledge, the actuarial
assumptions then utilized for such plans were reasonable and appropriate
as of the last valuation date and reflected then current market
conditions.
(d) During the last six years, the PBGC has not asserted
any claim for liability against HUBCO or any of its subsidiaries which
has not been paid in full.
(e) All premiums (and interest charges and penalties for
late payment, if applicable) due to the PBGC with respect to each HUBCO
Pension Plan have been paid. All contributions required to be made to
each HUBCO Pension Plan under the terms thereof, ERISA or other
applicable law have been timely made, and all amounts properly accrued to
date as liabilities of HUBCO which have not been paid have been properly
recorded on the books of HUBCO.
(f) No "accumulated funding deficiency", within the
meaning of Section 412 of the Code, has been incurred with respect to any
of the HUBCO Pension Plans.
(g) There are no pending or, to the best knowledge of
HUBCO, threatened or anticipated material claims (other than routine
claims for benefits) by, on behalf of or against any of the HUBCO Pension
Plans or the HUBCO Welfare Plans, any trusts created thereunder or any
other plan or arrangement identified in the HUBCO DISCLOSURE SCHEDULE.
(h) Except with respect to customary health, life and
disability benefits or as disclosed in the HUBCO DISCLOSURE SCHEDULE,
HUBCO has no unfunded benefit obligations which are not accounted for by
reserves shown on the financial statements and established under GAAP or
otherwise noted on such financial statements.
(i) Except as disclosed in the HUBCO DISCLOSURE SCHEDULE,
each of the HUBCO Pension Plans, HUBCO Welfare Plans and each other
employee benefit plan and arrangement identified on the HUBCO DISCLOSURE
SCHEDULE has been operated in compliance in all material respects with
the provisions of ERISA, the Code, all regulations, rulings and
announcements promulgated or issued thereunder, and all other applicable
governmental laws and regulations. Furthermore, except as disclosed in
the HUBCO DISCLOSURE SCHEDULE, if HUBCO maintains any HUBCO Pension Plan,
HUBCO has received or applied for a favorable determination letter from
the IRS which takes into account the Tax Reform Act of 1986 and (to the
extent it mandates currently applicable requirements) subsequent
legislation, and HUBCO is not aware of any fact or circumstance which
would disqualify any plan, other than operational defects which could be
retroactively corrected (in accordance with the procedures of the IRS)
without a material adverse effect on HUBCO and the HUBCO Subsidiaries
taken as a whole.
(j) To the best knowledge of HUBCO, no non-exempt
prohibited transaction, within the meaning of Section 4975 of the Code or
Section 406 of ERISA, has occurred with respect to any HUBCO Welfare Plan
or HUBCO Pension Plan that would result in any material tax or penalty
for HUBCO or any HUBCO Subsidiary.
4.16 CONTRACTS. Except as disclosed in the HUBCO DISCLOSURE
SCHEDULE, neither HUBCO nor any of its Subsidiaries, or to the best
knowledge of HUBCO, any other party thereto, is in default in any
material respect under any material lease, contract, mortgage, promissory
note, deed of trust, loan or other commitment (except those under which a
banking subsidiary of HUBCO is or will be the creditor) or arrangement,
except for defaults which individually or in the aggregate would not have
a material adverse effect on the business, operations, assets or
financial condition of HUBCO and its subsidiaries, taken as a whole.
4.17 PROPERTIES AND INSURANCE.
(a) HUBCO and its Subsidiaries have good and, as to owned
real property, marketable title to all material assets and properties,
whether real or personal, tangible or intangible, reflected in HUBCO's
consolidated balance sheet as of December 31, 1997, or owned and acquired
subsequent thereto (except to the extent that such assets and properties
have been disposed of for fair value in the ordinary course of business
since December 31, 1997), subject to no encumbrances, liens, mortgages,
security interests or pledges, except (i) those items that secure
liabilities that are reflected in said balance sheet or the notes thereto
or that secure liabilities incurred in the ordinary course of business
after the date of such balance sheet, (ii) statutory liens for amounts
not yet delinquent or which are being contested in good faith, (iii) such
encumbrances, liens, mortgages, security interests, pledges and title
imperfections that are not in the aggregate material to the business,
operations, assets, and financial condition of HUBCO and its subsidiaries
taken as a whole and (iv) with respect to owned real property, title
imperfections noted in title reports. Except as disclosed in the HUBCO
DISCLOSURE SCHEDULE, HUBCO and its Subsidiaries as lessees have the right
under valid and subsisting leases to occupy, use, possess and control all
property leased by HUBCO or its Subsidiaries in all material respects as
presently occupied, used, possessed and controlled by HUBCO and its
Subsidiaries.
(b) The business operations and all insurable properties
and assets of HUBCO and its Subsidiaries are insured for their benefit
against all risks which, in the reasonable judgment of the management of
HUBCO, should be insured against, in each case under policies or bonds
issued by insurers of recognized responsibility, in such amounts with
such deductibles and against such risks and losses as are in the opinion
of the management of HUBCO adequate for the business engaged in by HUBCO
and its Subsidiaries. As of the date hereof, neither HUBCO nor any of its
Subsidiaries has received any notice of cancellation or notice of a
material amendment of any such insurance policy or bond or is in default
under any such policy or bond, no coverage thereunder is being disputed
and all material claims thereunder have been filed in a timely fashion.
4.18. ENVIRONMENTAL MATTERS.
(a) Except as disclosed in the HUBCO DISCLOSURE SCHEDULE,
neither HUBCO nor any of its Subsidiaries has received any written
notice, citation, claim, assessment, proposed assessment or demand for
abatement alleging that HUBCO or any of its Subsidiaries (either directly
or as a successor-in-interest in connection with the enforcement of
remedies to realize the value of properties serving as collateral for
outstanding loans) is responsible for the correction or cleanup of any
condition resulting from the violation of any law, ordinance or other
governmental regulation regarding environmental matters which correction
or cleanup would be material to the business, operations, assets or
financial condition of HUBCO and its Subsidiaries taken as a whole.
Except as disclosed in the HUBCO DISCLOSURE SCHEDULE, HUBCO has no
knowledge that any toxic or hazardous substances or materials have been
emitted, generated, disposed of or stored on any property currently owned
or leased by HUBCO or any of its subsidiaries in any manner that violates
or, after the lapse of time is reasonably likely to violate, any
presently existing federal, state or local law or regulation governing or
pertaining to such substances and materials, the violation of which would
have a material adverse effect on the business, operations, assets or
financial condition of HUBCO and its Subsidiaries, taken as a whole.
(b) HUBCO has no knowledge that any of the Properties
has been operated in any manner in the three years prior to the date of
this Agreement that violated any applicable federal, state or local law
or regulation governing or pertaining to toxic or hazardous substances
and materials, the violation of which would have a material adverse
effect on the business, operations, assets or financial condition of
HUBCO and the HUBCO Subsidiaries taken as a whole.
4.19. RESERVES. As of December 31, 1997, the allowance for
possible loan losses in the HUBCO Financial Statements was adequate based
upon all factors required to be considered by HUBCO at that time in
determining the amount of such allowance. The methodology used to compute
the allowance for possible loan losses complies in all material respects
with all applicable FDIC, Connecticut Department of Banking and New
Jersey Department of Banking policies. As of December 31, 1997, the
valuation allowance for OREO properties in the HUBCO Financial Statements
was adequate based upon all factors required to be considered by HUBCO at
that time in determining the amount of such allowance.
4.20. YEAR 2000 COMPLIANCE. HUBCO and the HUBCO Subsidiaries
have taken all reasonable steps necessary to address the software,
accounting and record keeping issues raised in order to be substantially
Year 2000 compliant on or before the end of 1999 and HUBCO does not
expect the future cost of addressing such issues to be material. Neither
HUBCO nor any HUBCO Subsidiary has received a rating of less than
satisfactory from any bank regulatory agency with respect to Year 2000
compliance.
4.21. DISCLOSURE. No representation or warranty contained in
Article IV of this Agreement contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
herein not misleading.
ARTICLE V - COVENANTS OF THE PARTIES
5.1. CONDUCT OF THE BUSINESS OF DFC. During the period from
the date of this Agreement to the Effective Time, DFC and the Dime shall,
and shall cause each DFC Subsidiary to, conduct their respective
businesses only in the ordinary course and consistent with prudent
business practice, except for transactions permitted hereunder or with
the prior written consent of HUBCO, which consent will not be
unreasonably withheld. Each of DFC and the Dime also shall use its
reasonable best efforts to (i) preserve its business organization and
that of the DFC Subsidiaries intact, (ii) keep available to itself and
the DFC Subsidiaries the present services of their respective employees,
and (iii) preserve for itself and HUBCO the goodwill of its customers and
those of the DFC Subsidiaries and others with whom business relationships
exist.
5.2. NEGATIVE COVENANTS. From the date hereof to the Effective
Time, except as otherwise approved by HUBCO in writing, or as set forth
in the DFC DISCLOSURE SCHEDULE, or as permitted or required by this
Agreement, neither DFC nor the Dime will:
(a) change any provision of its Certificate of
Incorporation or any similar governing documents;
(b) change any provision of its By-Laws without the
consent of HUBCO which consent shall not be unreasonably withheld;
(c) change the number of shares of its authorized or
issued capital stock (other than upon exercise of stock options or
warrants described on the DFC DISCLOSURE SCHEDULE in accordance with the
terms thereof) or issue or grant any option, warrant, call, commitment,
subscription, right to purchase or agreement of any character relating to
its authorized or issued capital stock, or any securities convertible
into shares of such stock, or split, combine or reclassify any shares of
its capital stock, or declare, set aside or pay any dividend, or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock; PROVIDED, HOWEVER, that from
the date hereof to the Effective Time, DFC may declare, set aside or pay
dividends on the DFC Common Stock in a quarterly amount equal to $0.12
per share, with the dividend payment dates to be coordinated with HUBCO,
it being the intention of the parties that the shareholders of DFC
receive dividends for any particular calendar quarter on either the DFC
Common Stock or the HUBCO Common Stock acquired in exchange therefor
pursuant to the terms of this Agreement but not both; PROVIDED FURTHER,
that nothing contained herein shall be deemed to affect the ability of
Dime to pay dividends on its capital stock to DFC.
(d) grant any severance or termination pay (other than
pursuant to policies or contracts of DFC in effect on the date hereof and
disclosed to HUBCO in the DFC DISCLOSURE SCHEDULE) to, or enter into or
amend any employment or severance agreement with, any of its directors,
officers or employees; adopt any new employee benefit plan or arrangement
of any type; or award any increase in compensation or benefits to its
directors, officers or employees EXCEPT in each case as specified in
Section 5.2 of the DFC DISCLOSURE SCHEDULE.
(e) sell or dispose of any substantial amount of assets
or voluntarily incur any significant liabilities other than in the
ordinary course of business consistent with past practices and policies
or in response to substantial financial demands upon the business of DFC
or the Dime.
(f) make any capital expenditures other than pursuant to
binding commitments existing on the date hereof, expenditures necessary
to maintain existing assets in good repair and expenditures described in
business plans or budgets previously furnished to HUBCO.
(g) file any applications or make any contract with
respect to branching or site location or relocation.
(h) agree to acquire in any manner whatsoever (other than
to realize upon collateral for a defaulted loan) any business or entity.
(i) make any material change in its accounting methods or
practices, other than changes required in accordance with generally
accepted accounting principles or regulatory authorities.
(j) take any action that would result in any of its
representations and warranties contained in Article III of this Agreement
not being true and correct in any material respect at the Effective Time
or that would cause any of its conditions to Closing not to be satisfied;
(k) without first conferring with HUBCO, make or commit
to make any new loan or other extension of credit in an amount of
$500,000 or more, renew for a period in excess of one year any existing
loan or other extension of credit in an amount of $500,000 or more, or
increase by $500,000 or more the aggregate credit outstanding to any
borrower or group of affiliated borrowers except such loan initiations,
renewals or increases that are committed as of the date of this Agreement
and identified on the DFC DISCLOSURE SCHEDULE and residential mortgage
loans made in the ordinary course of business in accordance with past
practice; or
(l) agree to do any of the foregoing.
5.3. NO SOLICITATION. So long as this Agreement remains in
effect, DFC and the Dime shall not, directly or indirectly, encourage or
solicit or hold discussions or negotiations with, or provide any
information to, any person, entity or group (other than HUBCO) concerning
any merger or sale of shares of capital stock or sale of substantial
assets or liabilities not in the ordinary course of business, or similar
transactions involving DFC or the Dime (an "ACQUISITION TRANSACTION").
Notwithstanding the foregoing, DFC may enter into discussions or
negotiations or provide information in connection with an unsolicited
possible Acquisition Transaction if the Board of Directors of DFC, after
consulting with counsel, determines in the exercise of its fiduciary
responsibilities that such discussions or negotiations should be
commenced or such information should be furnished. DFC shall promptly
communicate to HUBCO the terms of any proposal, whether written or oral,
which it may receive in respect of any such Acquisition Transaction and
the fact that it is having discussions or negotiations with a third party
about an Acquisition Transaction.
5.4. CURRENT INFORMATION. During the period from the date of
this Agreement to the Effective Time, each of DFC and HUBCO will cause
one or more of its designated representatives to confer with
representatives of the other party on a monthly or more frequent basis
regarding its business, operations, properties, assets and financial
condition and matters relating to the completion of the transactions
contemplated herein. On a monthly basis, DFC agrees to provide HUBCO,
and HUBCO agrees to provide DFC, with internally prepared profit and loss
statements no later than 15 days after the close of each calendar month.
As soon as reasonably available, but in no event more than 45 days after
the end of each fiscal quarter (other than the last fiscal quarter of
each fiscal year), DFC will deliver to HUBCO and HUBCO will deliver to
DFC their respective quarterly reports on Form 10-Q, as filed with the
SEC under the 1934 Act. As soon as reasonably available, but in no event
more than 90 days after the end of each calendar year, DFC will deliver
to HUBCO and HUBCO will deliver to DFC their respective Annual Reports on
Form 10-K as filed with the SEC under the 1934 Act.
5.5. ACCESS TO PROPERTIES AND RECORDS; CONFIDENTIALITY.
(a) DFC and the Dime shall permit HUBCO and its
representatives, and HUBCO shall permit, and cause each HUBCO Subsidiary
to permit, DFC and its representatives, reasonable access to their
respective properties, and shall disclose and make available to HUBCO and
its representatives, or DFC and its representatives as the case may be,
all books, papers and records relating to its assets, stock ownership,
properties, operations, obligations and liabilities, including, but not
limited to, all books of account (including the general ledger), tax
records, minute books of directors' and shareholders' meetings,
organizational documents, By-Laws, material contracts and agreements,
filings with any regulatory authority, accountants' work papers,
litigation files, plans affecting employees, and any other business
activities or prospects in which HUBCO and its representatives or DFC and
its representatives may have a reasonable interest. Neither party shall
be required to provide access to or to disclose information where such
access or disclosure would violate or prejudice the rights of any
customer, would contravene any law, rule, regulation, order or judgment
or would waive any privilege. The parties will use their reasonable best
efforts to obtain waivers of any such restriction (other than waivers of
the attorney-client privilege) and in any event make appropriate
substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply. Notwithstanding the
foregoing, DFC acknowledges that HUBCO may be involved in discussions
concerning other potential acquisitions and HUBCO shall not be obligated
to disclose such information to DFC except as such information is
disclosed to HUBCO's shareholders generally.
(b) All information furnished by the parties hereto
previously in connection with transactions contemplated by this Agreement
or pursuant hereto shall be used solely for the purpose of evaluating the
Merger contemplated hereby and shall be treated as the sole property of
the party delivering the information until consummation of the Merger
contemplated hereby and, if such Merger shall not occur, each party and
each party's advisors shall return to the other party all documents or
other materials containing, reflecting or referring to such information,
will not retain any copies of such information, shall use its reasonable
best efforts to keep confidential all such information, and shall not
directly or indirectly use such information for any competitive or other
commercial purposes. In the event that the Merger contemplated hereby
does not occur, all documents, notes and other writings prepared by a
party hereto or its advisors based on information furnished by the other
party shall be promptly destroyed. The obligation to keep such
information confidential shall continue for five years from the date the
proposed Merger is abandoned but shall not apply to (i) any information
which (A) the party receiving the information can establish by convincing
evidence was already in its possession prior to the disclosure thereof to
it by the other party; (B) was then generally known to the public; (C)
became known to the public through no fault of the party receiving such
information; or (D) was disclosed to the party receiving such information
by a third party not bound by an obligation of confidentiality; or (ii)
disclosures pursuant to a legal requirement or in accordance with an
order of a court of competent jurisdiction. Notwithstanding the
foregoing provision, counsel for each party hereto may retain one copy of
all information in its files for archival purposes.
5.6. REGULATORY MATTERS.
(a) For the purposes of holding the Shareholders Meeting
(as such term is defined in Section 5.7 hereof), and qualifying under
applicable federal and state securities laws the HUBCO Common Stock to be
issued to DFC shareholders in connection with the Merger, the parties
hereto shall cooperate in the preparation and filing by HUBCO with the
SEC of a Registration Statement including a combined proxy statement and
prospectus satisfying all applicable requirements of applicable state and
federal laws, including the 1933 Act, the 1934 Act and applicable state
securities laws and the rules and regulations thereunder (such proxy
statement and prospectus in the form mailed by DFC and HUBCO to the DFC
shareholders together with any and all amendments or supplements thereto,
being herein referred to as the "PROXY STATEMENT-PROSPECTUS" and the
various documents to be filed by HUBCO under the 1933 Act with the SEC to
register the HUBCO Common Stock for sale, including the Proxy Statement-
Prospectus, are referred to herein as the "REGISTRATION STATEMENT").
(b) HUBCO shall furnish DFC with such information
concerning HUBCO and its Subsidiaries (including, without limitation,
information regarding other transactions which HUBCO is required to
disclose) as is necessary in order to cause the Proxy Statement-
Prospectus, insofar as it relates to such corporations, to comply with
Section 5.6(a) hereof. HUBCO agrees promptly to advise DFC if at any
time prior to the Shareholders' Meeting any information provided by HUBCO
in the Proxy Statement-Prospectus becomes incorrect or incomplete in any
material respect and to provide DFC with the information needed to
correct such inaccuracy or omission. HUBCO shall furnish DFC with such
supplemental information as may be necessary in order to cause the Proxy
Statement-Prospectus, insofar as it relates to HUBCO and the HUBCO
Subsidiaries, to comply with Section 5.6(a) after the mailing thereof to
DFC shareholders.
(c) DFC shall furnish HUBCO with such information
concerning DFC as is necessary in order to cause the Proxy Statement-
Prospectus, insofar as it relates to DFC, to comply with Section 5.6(a)
hereof. DFC agrees promptly to advise HUBCO if at any time prior to the
Shareholders' Meeting, any information provided by DFC in the Proxy
Statement-Prospectus becomes incorrect or incomplete in any material
respect and to provide HUBCO with the information needed to correct such
inaccuracy or omission. DFC shall furnish HUBCO with such supplemental
information as may be necessary in order to cause the Proxy Statement-
Prospectus, insofar as it relates to DFC and the Dime to comply with
Section 5.6(a) after the mailing thereof to DFC shareholders.
(d) HUBCO shall as promptly as practicable make such
filings as are necessary in connection with the offering of the HUBCO
Common Stock with applicable state securities agencies and shall use all
reasonable efforts to qualify the offering of such stock under applicable
state securities laws at the earliest practicable date. DFC shall
promptly furnish HUBCO with such information regarding the DFC
shareholders as HUBCO requires to enable it to determine what filings are
required hereunder. DFC authorizes HUBCO to utilize in such filings the
information concerning DFC and the Dime provided to HUBCO in connection
with, or contained in, the Proxy Statement-Prospectus. HUBCO shall
furnish DFC's counsel with copies of all such filings and keep DFC
advised of the status thereof. HUBCO and DFC shall as promptly as
practicable file the Registration Statement containing the Proxy
Statement-Prospectus with the SEC, and each of HUBCO and DFC shall
promptly notify the other of all communications, oral or written, with
the SEC concerning the Registration Statement and the Proxy Statement-
Prospectus.
(e) HUBCO shall cause the HUBCO Common Stock issuable
pursuant to the Merger to be listed on the NASDAQ at the Effective Time.
HUBCO shall cause the HUBCO Common Stock which shall be issuable pursuant
to exercise of Stock Options to be accepted for listing on the NASDAQ
when issued.
(f) The parties hereto will cooperate with each other and
use their reasonable best efforts to prepare all necessary documentation,
to effect all necessary filings and to obtain all necessary permits,
consents, approvals and authorizations of all third parties and
governmental bodies necessary to consummate the transactions contemplated
by this Agreement as soon as possible, including, without limitation,
those required by the FDIC, the FRB, the Department and the DEP. Without
limiting the foregoing, the parties shall use reasonable business efforts
to file for approval or waiver by the appropriate bank regulatory
agencies within 45 days after the date hereof. The parties shall each
have the right to review in advance (and shall do so promptly) all
filings with, including all information relating to the other, as the
case may be, and any of their respective subsidiaries, which appears in
any filing made with, or written material submitted to, any third party
or governmental body in connection with the transactions contemplated by
this Agreement.
(g) Each of the parties will promptly furnish each other
with copies of written communications received by them or any of their
respective subsidiaries from, or delivered by any of the foregoing to,
any Governmental Entity in respect of the transactions contemplated
hereby.
(h) DFC acknowledges that HUBCO is in or may be in the
process of acquiring other banks and financial institutions and that in
connection with such acquisitions, information concerning DFC may be
required to be included in the registration statements, if any, for the
sale of securities of HUBCO or in SEC reports in connection with such
acquisitions. DFC agrees to provide HUBCO with any information,
certificates, documents or other materials about DFC as are reasonably
necessary to be included in such other SEC reports or registration
statements, including registration statements which may be filed by HUBCO
prior to the Effective Time. DFC shall use its reasonable efforts to
cause its attorneys and accountants to provide HUBCO and any underwriters
for HUBCO with any consents, comfort letters, opinion letters, reports or
information which are necessary to complete the registration statements
and applications for any such acquisition or issuance of securities.
HUBCO shall reimburse DFC for reasonable expenses thus incurred by DFC
should this transaction be terminated for any reason. HUBCO shall not
file with the SEC any registration statement or amendment thereto or
supplement thereof containing information regarding DFC unless DFC shall
have consented in writing to such filing, which consent shall not be
unreasonably delayed or withheld.
(i) Between the date of this Agreement and the Effective
Time, DFC shall cooperate with HUBCO to reasonably conform DFC's policies
and procedures regarding applicable regulatory matters, to those of HUBCO
as HUBCO may reasonably identify to DFC from time to time.
5.7. APPROVAL OF SHAREHOLDERS. DFC, as sole shareholder of
Dime, will approve the Bank Merger Agreement. DFC will (i) take all
steps necessary duly to call, give notice of, convene and hold a meeting
of the shareholders of DFC (the "SHAREHOLDERS MEETING") for the purpose
of securing the approval of shareholders of this Agreement, (ii) subject
to the qualification set forth in Section 5.3 hereof and the right not to
make a recommendation or to withdraw a recommendation if (x) its
investment banker withdraws its fairness opinion prior to the
Shareholders' Meeting or (y) DFC's Board of Directors, after consulting
with counsel, determines in the exercise of its fiduciary duties that
such recommendation should not be made or should be withdrawn, recommend
to the shareholders of DFC the approval of this Agreement and the
transactions contemplated hereby and use its reasonable best efforts to
obtain, as promptly as practicable, such approval, and (iii) cooperate
and consult with HUBCO with respect to each of the foregoing matters.
If it becomes necessary under NASDAQ rules or applicable laws
to obtain HUBCO shareholder approval, HUBCO shall take all steps
necessary to obtain the approval of its shareholders as promptly as
possible. In connection therewith, HUBCO shall take all steps necessary
to duly call, give notice and convene a meeting of its shareholders for
such purpose.
5.8. FURTHER ASSURANCES.
(a) Subject to the terms and conditions herein provided,
each of the parties hereto agrees to use its reasonable best efforts to
take, or cause to be taken, all action and to do, or cause to be done,
all things necessary, proper or advisable under applicable laws and
regulations to satisfy the conditions to Closing and to consummate and
make effective the transactions contemplated by this Agreement,
including, without limitation, using reasonable efforts to lift or
rescind any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions
contemplated by this Agreement and using its reasonable best efforts to
prevent the breach of any representation, warranty, covenant or agreement
of such party contained or referred to in this Agreement and to promptly
remedy the same. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers and directors of each party to this
Agreement shall take all such necessary action. Nothing in this section
shall be construed to require any party to participate in any threatened
or actual legal, administrative or other proceedings (other than
proceedings, actions or investigations to which it is a party or subject
or threatened to be made a party or subject) in connection with
consummation of the transactions contemplated by this Agreement unless
such party shall consent in advance and in writing to such participation
and the other party agrees to reimburse and indemnify such party for and
against any and all costs and damages related thereto if the Merger is
not consummated.
(b) HUBCO agrees that from the date hereof to the
Effective Time, except as otherwise approved by DFC in writing or as
permitted or required by this Agreement, HUBCO will use reasonable
business efforts to maintain and preserve intact its business
organization, properties, leases, employees and advantageous business
relationships, and HUBCO will not, nor will it permit any HUBCO
Subsidiary to, take any action: (i) that would result in any of its
representations and warranties contained in Article IV of this Agreement
not being true and correct in any material respect at, or prior to, the
Effective Time, or (ii) that would cause any of its conditions to Closing
not to be satisfied, or (iii) that would constitute a breach or default
of its obligations under this Agreement.
(c) HUBCO, Bank, DFC and the Dime will use reasonable
efforts to cause the Merger to occur on or before August 31, 1998.
5.9. PUBLIC ANNOUNCEMENTS. HUBCO and DFC shall cooperate with
each other in the development and distribution of all news releases and
other public filings and disclosures with respect to this Agreement or
the Merger transactions contemplated hereby, and HUBCO and DFC agree that
unless approved mutually by them IN ADVANCE, they will not issue any
press release or written statement for general circulation relating
primarily to the transactions contemplated hereby, except as may be
otherwise required by law or regulation upon the advice of counsel.
5.10. FAILURE TO FULFILL CONDITIONS. In the event that HUBCO
or DFC determines that a material condition to its obligation to
consummate the transactions contemplated hereby cannot be fulfilled on or
prior to December 31, 1998 (the "CUTOFF DATE") and that it will not waive
that condition, it will promptly notify the other party. Except for any
acquisition or merger discussions HUBCO may enter into with other
parties, DFC and HUBCO will promptly inform the other of any facts
applicable to DFC or HUBCO, respectively, or their respective directors
or officers, that would be likely to prevent or materially delay approval
of the Merger by any Governmental Entity or which would otherwise prevent
or materially delay completion of the Merger.
5.11. EMPLOYEE MATTERS.
(a) Following consummation of the Merger, HUBCO agrees
with DFC to honor the existing written employment and severance contracts
with officers and employees of DFC and Dime that are included in the DFC
Disclosure Schedule.
(b) Following consummation of the Merger, the Bank will
decide whether to continue each of the Dime and/or DFC's pension and
welfare plans for the benefit of employees of Dime and DFC, or to have
such employees become covered under a HUBCO Pension and Welfare Plan. If
HUBCO decides to cover Dime and DFC employees under a HUBCO Pension and
Welfare Plan, such employees will receive credit for prior years of
service with Dime and/or DFC for purposes of determining eligibility to
participate, and vesting and eligibility for early retirement benefits,
other than qualification for the "Rule of 85," if applicable. No prior
existing condition limitation shall be imposed with respect to any
medical coverage plan as a result of the Merger.
(c) Following the consummation of the Merger, the Bank
shall honor Dime's severance policy as specified in Section 5.2(d) of the
DIME DISCLOSURE SCHEDULE for six months and to recognize years of service
completed while employed by DFC and/or Dime for purposes of such policy.
Following the expiration of the foregoing severance policy, any years of
service recognized for purposes of this Section 5.11(c) will be taken
into account under the terms of any applicable severance policy of HUBCO.
(d) HUBCO intends to continue to make charitable
contributions consistent with past practices of Dime, as is consistent
with prudent banking. HUBCO will offer comparable employment to all Dime
branch employees in good standing. HUBCO will use its best efforts to
offer comparable employment to all other Dime employees in good standing.
Comparable employment shall mean similar employment at a location less
than 35 miles from their current location and as specified in the DFC
DISCLOSURE SCHEDULE.
(e) Employees of DFC or Dime who continue as employees of
HUBCO or Bank following the Closing shall be entitled initially to the
amount of vacation time per year to which they were previously entitled
under the applicable DFC or Dime vacation policy or, if greater, the
amount of vacation time per year to which they would be entitled under
the applicable HUBCO or Bank. Thereafter, increases in the amount of
vacation time per year shall be based solely on the applicable HUBCO or
Bank vacation policy.
5.12. DISCLOSURE SUPPLEMENTS. From time to time prior to the
Effective Time, each party hereto will promptly supplement or amend (by
written notice to the other) its respective Disclosure Schedules
delivered pursuant hereto with respect to any matter hereafter arising
which, if existing, occurring or known at the date of this Agreement,
would have been required to be set forth or described in such Schedules
or which is necessary to correct any information in such Schedules which
has been rendered materially inaccurate thereby. For the purpose of
determining satisfaction of the conditions set forth in Article VI and
subject to Sections 6.2(a) and 6.3(a), no supplement or amendment to the
parties' respective Disclosure Schedules which corrects any
representation or warranty which was untrue when made shall eliminate the
other party's right (if any) to terminate this Agreement based on the
original untruth of the representation or warranty; PROVIDED, that the
other party shall be deemed to have waived such right if it does not
exercise such right within 15 days after receiving the correcting
supplement or amendment.
5.13. TRANSACTION EXPENSES OF DFC.
(a) For planning purposes, DFC shall, within 15 days
from the date hereof, provide HUBCO with its estimated budget of
transaction-related expenses reasonably anticipated to be payable by DFC
in connection with this transaction, including the fees and expenses of
counsel, accountants, investment bankers and other professionals. DFC
shall promptly notify HUBCO if or when it determines that it will expect
to exceed its budget.
(b) Promptly after the execution of this Agreement, DFC
shall ask all of its attorneys and other professionals to render current
and correct invoices for all unbilled time and disbursements. DFC shall
accrue and/or pay all of such amounts as soon as possible.
(c) DFC shall cause its professionals to render monthly
invoices within 15 days after the end of each month. DFC shall advise
HUBCO monthly of all out-of-pocket expenses which DFC has incurred in
connection with this transaction.
(d) HUBCO, in reasonable consultation with DFC, shall
make all arrangements with respect to the printing and mailing of the
Proxy Statement-Prospectus.
5.14 INDEMNIFICATION.
(a) For a period of six years after the Effective Time,
HUBCO shall indemnify, defend and hold harmless each person who is now,
or has been at any time prior to the date hereof or who becomes prior to
the Effective Time, a director, officer, employee or agent of DFC or the
Dime or serves or has served at the request of DFC or the Dime in any
capacity with any other person (collectively, the "INDEMNITEES") against
any and all claims, damages, liabilities, losses, costs, charges,
expenses (including, without limitation, reasonable costs of
investigation, and the reasonable fees and disbursements of legal counsel
and other advisers and experts as incurred), judgments, fines, penalties
and amounts paid in settlement, asserted against, incurred by or imposed
upon any Indemnitee by reason of the fact that he or she is or was a
director, officer, employee or agent of DFC or the Dime or serves or has
served at the request of DFC or the Dime in any capacity with any other
person, in connection with, arising out of or relating to (i) any
threatened, pending or completed claim, action, suit or proceeding
(whether civil, criminal, administrative or investigative), including,
without limitation, any and all claims, actions, suits, proceedings or
investigations by or on behalf of or in the right of or against DFC or
the Dime or any of their respective affiliates, or by any former or
present shareholder of DFC (each a "CLAIM" and collectively, "CLAIMS"),
including, without limitation, any Claim which is based upon, arises out
of or in any way relates to the Merger, the Proxy Statement/Prospectus,
this Agreement, any of the transactions contemplated by this Agreement,
the Indemnitee's service as a member of the Board of Directors of DFC or
the Dime or of any committee of DFC's or the Dime's Board of Directors,
the events leading up to the execution of this Agreement, any statement,
announcement, recommendation or solicitation made in connection therewith
or related thereto (or the absence of any of the foregoing) and any
breach of any duty in connection with any of the foregoing, or (ii) the
enforcement of the obligations of HUBCO set forth in this Section 5.14,
in each case to the fullest extent which DFC or the Dime would have been
permitted under any applicable law and their respective Certificates of
Incorporation By-Laws had the Merger not occurred (and HUBCO shall also
advance expenses as incurred to the fullest extent so permitted).
Notwithstanding the foregoing, but subject to subsection (b) below, HUBCO
shall not provide any indemnification or advance any expenses with
respect to any Claim which relates to a personal benefit improperly paid
or provided, or alleged to have been improperly paid or provided, to the
Indemnitee, but HUBCO shall reimburse the Indemnitee for costs incurred
by the Indemnitee with respect to such Claim when and if a court of
competent jurisdiction shall ultimately determine, and such determination
shall have become final and nonappealable, that the Indemnitee was not
improperly paid or provided with the personal benefit alleged in the
Claim.
(b) From and after the Effective Time, HUBCO shall
assume and honor any obligation of DFC or the Dime immediately prior to
the Effective Time with respect to the indemnification of the Indemnitees
arising out of the Certificate of Incorporation or By-Laws of DFC or the
Dime, or arising out of any written indemnification agreements between
DFC and/or the Dime and such persons disclosed in the DFC DISCLOSURE
SCHEDULE, as if such obligations were pursuant to a contract or
arrangement between HUBCO and such Indemnitees.
(c) In the event HUBCO or any of its successors or
assigns (i) reorganizes or consolidates with or merges into or enters
into another business combination transaction with any other person or
entity and is not the resulting, continuing or surviving corporation or
entity of such consolidation, merger or transaction, or (ii) liquidates,
dissolves or transfers all or substantially all of its properties and
assets to any person or entity, then, and in each such case, proper
provision shall be made so that the successors and assigns of HUBCO
assume the obligations set forth in this Section 5.14.
(d) HUBCO shall cause DFC's and the Dime's officers and
directors to be covered under HUBCO's then current officers' and
directors' liability insurance policy for a period of six years after the
Effective Time, or, in the alternative, to be covered under an extension
of DFC's and the Dime's existing officers' and directors' liability
insurance policy. However, HUBCO shall only be required to insure such
persons upon terms and for coverages substantially similar to DFC's and
the Dime's existing officers' and directors' liability insurance.
(e) Any Indemnitee wishing to claim indemnification
under this Section 5.14 shall promptly notify HUBCO upon learning of any
Claim, but the failure to so notify shall not relieve HUBCO of any
liability it may have to such Indemnitee if such failure does not
materially prejudice HUBCO. In the event of any Claim (whether arising
before or after the Effective Time) as to which indemnification under
this Section 5.14 is applicable, (x) HUBCO shall have the right to assume
the defense thereof and HUBCO shall not be liable to such Indemnitees for
any legal expenses of other counsel or any other expenses subsequently
incurred by such Indemnitee in connection with the defense thereof,
except that if HUBCO elects not to assume such defense, or counsel for
the Indemnitees advises that there are issues which raise conflicts of
interest between HUBCO and the Indemnitees, the Indemnitees may retain
counsel satisfactory to them, and HUBCO shall pay the reasonable fees and
expenses of such counsel for the Indemnitees as statements therefor are
received; PROVIDED, HOWEVER, that HUBCO shall be obligated pursuant to
this Section 5.14(e) to pay for only one firm of counsel for all
Indemnitees in any jurisdiction with respect to a matter unless the use
of one counsel for multiple Indemnitees would present such counsel with a
conflict of interest that is not waived, and (y) the Indemnitees will
cooperate in the defense of any such matter. HUBCO shall not be liable
for settlement of any claim, action or proceeding hereunder unless such
settlement is effected with its prior written consent. Notwithstanding
anything to the contrary in this Section 5.14, HUBCO shall not have any
obligation hereunder to any Indemnitee when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall
have become final and nonappealable, that the indemnification of such
Indemnitee in the manner contemplated hereby is prohibited by applicable
law or public policy.
5.15 BANK POLICIES AND BANK MERGER. Notwithstanding that DFC
believes that it has established all reserves and taken all provisions
for possible loan losses required by GAAP and applicable laws, rules and
regulations, DFC recognizes that HUBCO may have adopted different loan,
accrual and reserve policies (including loan classifications and levels
of reserves for possible loan losses). From and after the date of this
Agreement to the Effective Time and in order to formulate the plan of
integration for the Bank Merger, DFC and HUBCO shall consult and
cooperate with each other with respect to (i) conforming to the extent
appropriate, based upon such consultation, DFC's loan, accrual and
reserve policies and DFC's other policies and procedures regarding
applicable regulatory matters, including without limitation Federal
Reserve, the Bank Secrecy Act and FDIC matters, to those policies of
HUBCO as HUBCO may reasonably identify to DFC from time to time, (ii) new
extensions of credit or material revisions to existing terms of credits
by Bank, in each case where the aggregate exposure exceeds $500,000, and
(iii) conforming, based upon such consultation, the composition of the
investment portfolio and overall asset/liability management position of
DFC and the Dime to the extent appropriate; PROVIDED that any required
change in DFC's practices in connection with the matters described in
clause (i) or (iii) above need not be effected until the parties receive
all necessary governmental approvals and consents to consummate the
transactions contemplated hereby,
5.16 COMPLIANCE WITH ANTITRUST LAWS. Each of HUBCO and DFC
shall use its reasonable best efforts to resolve such objections, if any,
which may be asserted with respect to the Merger under antitrust laws,
including, without limitation, the Hart-Scott-Rodino Act. In the event a
suit is threatened or instituted challenging the Merger as violative of
antitrust laws, each of HUBCO and DFC shall use its reasonable best
efforts to avoid the filing of, resist or resolve such suit. HUBCO and
DFC shall use their reasonable best efforts to take such action as may be
required: (a) by the Antitrust Division of the Department of Justice or
the Federal Trade Commission in order to resolve such objections as
either of them may have to the Merger under antitrust laws, or (b) by any
federal or state court of the United States, in any suit brought by a
private party or governmental entity challenging the Merger as violative
of antitrust laws, in order to avoid the entry of, or to effect the
dissolution of, any injunction, temporary restraining order, or other
order which has the effect of preventing the consummation of the Merger.
Reasonable best efforts shall include, but not be limited to, the proffer
by HUBCO of its willingness to accept an order agreeing to the
divestiture, or the holding separate, of any assets of HUBCO or DFC,
except to the extent that any such divestitures or holding separate
arrangement would have a material adverse effect on HUBCO. The entry by
a court, in any suit brought by a private party or governmental entity
challenging the Merger as violative of antitrust laws, of an order or
decree permitting the Merger, but requiring that any of the businesses,
product lines or assets of HUBCO or DFC be divested or held separate
thereafter shall not be deemed a failure to satisfy the conditions
specified in Section 6.1 hereof except to the extent that any
divestitures or holding separate arrangement would have a material
adverse effect on HUBCO and HUBCO shall not have voluntarily consented to
such divestitures or holding separate arrangements. For the purposes of
this Section 5.16, the divestiture or the holding separate of a branch or
branches of the Bank with, in the aggregate, less than $50,000,000 in
assets shall not be considered to have a material adverse effect on
HUBCO.
5.17 POOLING AND TAX-FREE REORGANIZATION TREATMENT. Prior to
the date hereof, neither HUBCO or DFC has taken any action or failed to
take any action which would disqualify the Merger for pooling of
interests accounting treatment. Before the Effective Time, neither HUBCO
nor DFC shall intentionally take, fail to take, or cause to be taken or
not taken any action within its control, which would disqualify the
Merger as a "pooling-of-interests" for accounting purposes or as a
"reorganization" within the meaning of Section 368(a) of the Code.
Subsequent to the Effective Time, HUBCO shall not take and shall cause
the Surviving Corporation not to take any action within their control
that would disqualify the Merger as such a "reorganization" under the
Code.
5.18 COMFORT LETTERS. HUBCO shall cause Arthur Andersen, its
independent public accountants, to deliver to DFC, and DFC shall cause
Peat Marwick, its independent public accountants, to deliver to HUBCO and
to its officers and directors who sign the Registration Statement for
this transaction, a short-form "comfort letter" or "agreed upon
procedures" letter, dated the date of the mailing of the Proxy Statement-
Prospectus for the Shareholders Meeting of DFC, in the form customarily
issued by such accountants at such time in transactions of this type.
5.19 AFFILIATES. Promptly, but in any event within two weeks,
after the execution and delivery of this Agreement, DFC shall deliver to
HUBCO (a) a letter identifying all persons who, to the knowledge of DFC,
may be deemed to be affiliates of DFC under Rule 145 of the 1933 Act and
the pooling-of-interests accounting rules, including, without limitation,
all directors and executive officers of DFC and (b) use its reasonable
best efforts to cause each person who may be deemed to be an affiliate of
DFC to execute and deliver to HUBCO a letter agreement, substantially in
the form of EXHIBIT 5.19-1, agreeing to comply with Rule 145 and to
refrain from transferring shares as required by the pooling-of-interests
accounting rules. Within two weeks after the date hereof, HUBCO shall use
its reasonable best efforts to cause its directors and executive officers
to enter into letter agreements in the form of EXHIBIT 5.19-2 with HUBCO
concerning the pooling-of-interests accounting rules. HUBCO hereby agrees
to publish, or file a Form 8-K, Form 10-K or Form 10-Q containing
financial results covering at least 30 days of post-Merger combined
operations of HUBCO and DFC as soon as practicable (but in no event later
than 30 days) following the close of the first calendar month ending 30
days after the Effective Time, in form and substance sufficient to remove
the restrictions set forth in paragraph "B" of EXHIBIT 5.19-1.
5.20 APPOINTMENTS. HUBCO agrees to cause five current
directors of Dime to be appointed to the Board of Directors of the
Surviving Bank and to invite each other director of Dime to serve on a
regional advisory board of the Surviving Bank.
5.21 INVESTMENT POLICY. From the date hereof through and
including June 15, 1998, DFC and Dime shall limit their Investment of
Cash Flow and Maturities to instruments which are permissible under the
Dime Investment Policy. From and including June 16, 1998 through the
Effective Time, DFC and Dime shall limit their Investment of Cash Flow
and Maturities to instruments which are permissible under the HUBCO
Investment Policy. From the date hereof through the Effective Time, DFC
and Dime shall limit their Investment of Sales Proceeds to instruments
which are permissible under the HUBCO Investment Policy. From the date
hereof through the Effective Time, DFC and Dime shall: (i) provide notice
to HUBCO, prior to or contemporaneous with each Investment, of the
intended nature and amount of such Investment, (ii) provide HUBCO written
reports of each week's Investments promptly following such week, and
(iii) not make any Commitments which would obligate either of them to
make an Investment at any time after June 15, 1998 which would not be
permissible under the HUBCO Investment Policy.
ARTICLE VI - CLOSING CONDITIONS
6.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS UNDER THIS
AGREEMENT. The respective obligations of each party under this Agreement
to consummate the Merger shall be subject to the satisfaction, or, where
permissible under applicable law, waiver at or prior to the Effective
Time of the following conditions:
(a) APPROVAL OF DFC SHAREHOLDERS; SEC REGISTRATION. This
Agreement and the transactions contemplated hereby shall have been
approved by the requisite vote of the shareholders of DFC, and if
required, by the requisite vote of the shareholders of HUBCO. The HUBCO
Registration Statement shall have been declared effective by the SEC and
shall not be subject to a stop order or any threatened stop order, and
the issuance of the HUBCO Common Stock shall have been qualified in every
state where such qualification is required under the applicable state
securities laws.
(b) REGULATORY FILINGS. All necessary regulatory or
governmental approvals and consents (including without limitation any
required approval of the FDIC, the Department, the FRB, the SEC and the
DEP) required to consummate the transactions contemplated hereby shall
have been obtained without any term or condition which would materially
impair the value of DFC and the Dime, taken as a whole, to HUBCO. All
conditions required to be satisfied prior to the Effective Time by the
terms of such approvals and consents shall have been satisfied; and all
statutory waiting periods in respect thereof (including the Hart-Scott-
Rodino waiting period if applicable) shall have expired.
(c) SUITS AND PROCEEDINGS. No order, judgment or decree
shall be outstanding against a party hereto or a third party that would
have the effect of preventing completion of the Merger; no suit, action
or other proceeding shall be pending or threatened by any governmental
body in which it is sought to restrain or prohibit the Merger; and no
suit, action or other proceeding shall be pending before any court or
governmental agency in which it is sought to restrain or prohibit the
Merger or obtain other substantial monetary or other relief against one
or more parties hereto in connection with this Agreement and which HUBCO
or DFC determines in good faith, based upon the advice of their
respective counsel, makes it inadvisable to proceed with the Merger
because any such suit, action or proceeding has a significant potential
to be resolved in such a way as to deprive the party electing not to
proceed of any of the material benefits to it of the Merger.
(d) TAX OPINION. HUBCO and DFC shall each have received
an opinion, dated as of the Effective Time, of Pitney, Hardin, Kipp &
Szuch, reasonably satisfactory in form and substance to DFC and its
counsel and to HUBCO, based upon representation letters reasonably
required by such counsel, dated on or about the date of such opinion, and
such other facts and representations as such counsel may reasonably deem
relevant, to the effect that: (i) the Merger will be treated for federal
income tax purposes as a reorganization qualifying under the provisions
of Section 368 of the Code; (ii) no gain or loss will be recognized by
DFC; (iii) no gain or loss will be recognized by the DFC shareholders
upon the exchange in the Merger of DFC Common Stock into HUBCO Common
Stock (except with respect to cash received in lieu of a fractional share
interest in DFC Common Stock; (iv) the tax basis of any HUBCO Common
Stock received in exchange for DFC Common Stock shall equal the basis of
the recipient's DFC Common Stock surrendered on the exchange, reduced by
the amount of cash received, if any, on the exchange, and increased by
the amount of the gain recognized, if any, on the exchange (whether
characterized as dividend or capital gain income); and (v) the holding
period for any HUBCO Common Stock received in exchange for DFC Common
Stock will include the period during which DFC Common Stock surrendered
on the exchange was held, provided such stock was held as a capital asset
on the date of the exchange.
(e) POOLING OF INTERESTS. HUBCO shall have received a
letter, dated the Closing Date, from its accountants, Arthur Andersen,
reasonably satisfactory to HUBCO and DFC, to the effect that the Merger
shall be qualified to be treated by HUBCO as a pooling-of-interests for
accounting purposes.
6.2. CONDITIONS TO THE OBLIGATIONS OF HUBCO UNDER THIS
AGREEMENT. The obligations of HUBCO under this Agreement shall be
further subject to the satisfaction or waiver, at or prior to the
Effective Time, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
OBLIGATIONS OF DFC AND THE DIME. Except for those representations which
are made as of a particular date, the representations and warranties of
DFC contained in this Agreement shall be true and correct in all material
respects on the Closing Date as though made on and as of the Closing
Date. DFC shall have performed in all material respects the agreements,
covenants and obligations to be performed by it prior to the Closing
Date. With respect to any representation or warranty which as of the
Closing Date has required a supplement or amendment to the DFC DISCLOSURE
SCHEDULE to render such representation or warranty true and correct in
all material respects as of the Closing Date, the representation and
warranty shall be deemed true and correct as of the Closing Date only if
(i) the information contained in the supplement or amendment to the
Disclosure Schedule related to events occurring following the execution
of this Agreement and (ii) the facts disclosed in such supplement or
amendment would not either alone, or together with any other supplements
or amendments to the DFC DISCLOSURE SCHEDULE, materially adversely affect
the representation as to which the supplement or amendment relates.
(b) OPINION OF COUNSEL. HUBCO shall have received an
opinion of counsel to DFC, dated the Closing Date, in form and substance
reasonably satisfactory to HUBCO, substantially in accordance with
Exhibit 6.2(b) hereto.
(c) CERTIFICATES. DFC shall have furnished HUBCO with
such certificates of its officers or other documents to evidence
fulfillment of the conditions set forth in this Section 6.2 as HUBCO may
reasonably request.
(d) LEGAL FEES. DFC shall have furnished HUBCO with
letters from all attorneys representing DFC and the Dime in any matters
confirming that all material legal fees have been paid in full for
services rendered as of the Effective Time.
(e) MERGER RELATED EXPENSE. DFC shall have provided
HUBCO with an accounting of all merger related expenses incurred by it
through the Closing Date, including a good faith estimate of such
expenses incurred but as to which invoices have not been submitted as of
the Closing Date. The merger related expenses of DFC shall be
reasonable.
(f) YEAR 2000 COMPLIANCE. Neither DFC nor Dime shall
have received a rating of less than satisfactory from any bank regulatory
agency in year 2000 compliance.
6.3. CONDITIONS TO THE OBLIGATIONS OF DFC UNDER THIS AGREEMENT.
The obligations of DFC under this Agreement shall be further subject to
the satisfaction or waiver, at or prior to the Effective Time, of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
OBLIGATIONS OF HUBCO. Except for those representations which are made as
of a particular date, the representations and warranties of HUBCO
contained in this Agreement shall be true and correct in all material
respects on the Closing Date as though made on and as of the Closing
Date. HUBCO shall have performed in all material respects, the
agreements, covenants and obligations to be performed by it prior to the
Closing Date. With respect to any representation or warranty which as of
the Closing Date has required a supplement or amendment to the HUBCO
DISCLOSURE SCHEDULE to render such representation or warranty true and
correct in all material respects as of the Closing Date, the
representation and warranty shall be deemed true and correct as of the
Closing Date only if (i) the information contained in the supplement or
amendment to the Disclosure Schedule related to events occurring
following the execution of this Agreement and (ii) the facts disclosed in
such supplement or amendment would not either alone, or together with any
other supplements or amendments to the HUBCO DISCLOSURE SCHEDULE,
materially adversely effect the representation as to which the supplement
or amendment relates.
(b) OPINION OF COUNSEL TO HUBCO. DFC shall have received
an opinion of counsel to HUBCO, dated the Closing Date, in form and
substance reasonably satisfactory to DFC, substantially in accordance
with Exhibit 6.3(b) hereto.
(c) FAIRNESS OPINION. DFC shall have received an opinion
from A.G. Edwards, dated no more than three days prior to the date the
Proxy Statement-Prospectus is mailed to DFC's shareholders (and if it
shall become necessary to resolicit proxies thereafter, dated no more
than three days prior to the date of any substantive amendment to the
Proxy Statement-Prospectus), to the effect that, in its opinion, the
consideration to be paid to shareholders of DFC hereunder is fair to such
shareholders from a financial point of view ("FAIRNESS OPINION").
(d) CERTIFICATES. HUBCO shall have furnished DFC with
such certificates of its officers or others and such other documents to
evidence fulfillment of the conditions set forth in this Section 6.3 as
DFC may reasonably request.
(e) BANK DIRECTOR APPOINTMENT. Five directors, nominated
by DFC and acceptable to HUBCO, shall have been added to the Board of
Directors of the Bank.
ARTICLE VII - TERMINATION, AMENDMENT AND WAIVER
7.1. TERMINATION. This Agreement may be terminated prior to
the Effective Time, whether before or after approval of this Agreement by
the shareholders of DFC:
(a) by mutual written consent of the parties hereto;
(b) by HUBCO or DFC (i) if the Effective Time shall not
have occurred on or prior to the Cutoff Date unless the failure of such
occurrence shall be due to the failure of the party seeking to terminate
this Agreement to perform or observe its agreements set forth herein to
be performed or observed by such party at or before the Effective Time,
or (ii) if a vote of the shareholders of DFC is taken and such
shareholders fail to approve this Agreement at the meeting (or any
adjournment or postponement thereof) held for such purpose, or (iii) if a
vote of the shareholders of HUBCO is required by applicable NASDAQ rules,
such vote is taken and such shareholders fail to approve this Agreement
at the meeting (or any adjournment or postponement thereof) held for such
purpose;
(c) by HUBCO or DFC upon written notice to the other if
any application for regulatory or governmental approval necessary to
consummate the Merger and the other transactions contemplated hereby
shall have been denied or withdrawn at the request or recommendation of
the applicable regulatory agency or Governmental Entity or by HUBCO upon
written notice to DFC if any such application is approved with conditions
(other than conditions which are customary in such regulatory approvals)
which would materially impair the value of DFC and the Dime, taken as a
whole, to HUBCO;
(d) by HUBCO if (i) there shall have occurred a material
adverse change in the business, operations, assets, or financial
condition of DFC and the Dime, taken as a whole, from that disclosed by
DFC in DFC's Annual Report on Form 10-K for the year ended December 31,
1997 (it being understood that those matters disclosed in the DFC
DISCLOSURE SCHEDULE shall not be deemed to constitute such a material
adverse change) or (ii) there was a material breach in any
representation, warranty, covenant, agreement or obligation of DFC
hereunder and such breach shall not have been remedied within 30 days
after receipt by DFC of notice in writing from HUBCO to DFC specifying
the nature of such breach and requesting that it be remedied;
(e) by DFC, if (i) there shall have occurred a HUBCO
Material Adverse Change from that disclosed by HUBCO in HUBCO's Annual
Report on Form 10-K for the year ended December 31, 1997; or (ii) there
was a material breach in any representation, warranty, covenant,
agreement or obligation of HUBCO hereunder and such breach shall not have
been remedied within 30 days after receipt by HUBCO of notice in writing
from DFC specifying the nature of such breach and requesting that it be
remedied;
(f) by DFC, if DFC's Board of Directors shall have
approved an Acquisition Transaction after determining, upon advice of
counsel, that such approval was necessary in the exercise of its
fiduciary obligations under applicable laws;
(g) by HUBCO if the conditions set forth in Sections 6.1
and 6.2 are not satisfied and are not capable of being satisfied by the
Cutoff Date;
(h) by DFC if the conditions set forth in Sections 6.1
and 6.3 are not satisfied and are not capable of being satisfied by the
Cutoff Date; or
(i) by DFC, if (either before or after its approval by
the shareholders of DFC) its Board of Directors so determines by a vote
of a majority of the members of its entire Board, at any time during the
three (3) business day period commencing with the Determination Date, if
the Median Pre-Closing Price of HUBCO Common Stock Average Price on the
Determination Date is less than $31.43. Notwithstanding the foregoing,
if DFC elects to exercise its termination right pursuant to this
subsection (i), it shall give prompt written notice to HUBCO (provided
that such notice of election to terminate may be withdrawn at any time
within the aforementioned three (3) business day period)). During the
three (3) business day period commencing with its receipt of such notice,
HUBCO shall have the option of increasing the consideration to be
received by the holders of DFC Common Stock hereunder by increasing the
Exchange Ratio to equal a number (rounded to four decimals) equal to a
quotient, the numerator of which is $33.00 and the denominator of which
is the Median Pre-Closing Price of HUBCO Common Stock. If HUBCO makes an
election contemplated by the preceding sentence, within such three (3)
business day period, it shall give prompt written notice to DFC of such
election and the revised Exchange Ratio, whereupon no termination shall
have occurred pursuant to this subsection (i) and this Agreement shall
remain in effect in accordance with its terms (except as the Exchange
Ratio shall have been so modified), and any references in this Agreement
to "EXCHANGE RATIO" shall thereafter be deemed to refer to the Exchange
Ratio as adjusted pursuant to this subsection.
7.2. EFFECT OF TERMINATION. In the event of the termination
and abandonment of this Agreement by either HUBCO or DFC pursuant to
Section 7.1, this Agreement (other than Section 5.5(b), the penultimate
sentence of Section 5.6(h), this Section 7.2 and Section 8.1) shall
forthwith become void and have no effect, without any liability on the
part of any party or its officers, directors or shareholders. Nothing
contained herein, however, shall relieve any party from any liability for
any breach of this Agreement.
7.3. AMENDMENT. This Agreement may be amended by action taken
by the parties hereto at any time before or after adoption of this
Agreement by the shareholders of DFC but, after any such adoption, no
amendment shall be made which reduces the amount or changes the form of
the consideration to be delivered to the shareholders of DFC without the
approval of such shareholders. This Agreement may not be amended except
by an instrument in writing signed on behalf of all the parties hereto.
7.4. EXTENSION; WAIVER. The parties may, at any time prior to
the Effective Time of the Merger, (i) extend the time for the performance
of any of the obligations or other acts of the other parties hereto; (ii)
waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant thereto; or (iii) waive
compliance with any of the agreements or conditions contained herein.
Any agreement on the part of any party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on
behalf of such party against which the waiver is sought to be enforced.
<PAGE>
ARTICLE VIII - MISCELLANEOUS
8.1. EXPENSES.
(a) Except as otherwise expressly stated herein, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby (including legal, accounting and
investment banking fees and expenses) shall be borne by the party
incurring such costs and expenses. Notwithstanding the foregoing, DFC
may bear the expenses of the Dime.
(b) Notwithstanding any provision in this Agreement to
the contrary, in the event that either of the parties shall willfully
default in its obligations hereunder, the non-defaulting party may pursue
any remedy available at law or in equity to enforce its rights and shall
be paid by the willfully defaulting party for all damages, costs and
expenses, including without limitation legal, accounting, investment
banking and printing expenses, incurred or suffered by the non-defaulting
party in connection herewith or in the enforcement of its rights
hereunder.
8.2. SURVIVAL. The respective representations, warranties,
covenants and agreements of the parties to this Agreement shall not
survive the Effective Time, but shall terminate as of the Effective Time,
except for Article II, this Section 8.2 and Sections 5.5(b), 5.8(a) and
5.14.
8.3. NOTICES. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if
delivered personally or by reputable overnight courier or sent by
registered or certified mail, postage prepaid, as follows:
(a) If to HUBCO, to:
HUBCO, Inc.
1000 MacArthur Boulevard
Mahwah, NJ 07430
Attn.: Kenneth T. Neilson, Chairman, President and Chief
Executive Officer
Copy to:
HUBCO, Inc.
1000 MacArthur Boulevard
Mahwah, NJ 07430
Attn.: D. Lynn Van Borkulo-Nuzzo, Esq.
And copy to:
Pitney, Hardin, Kipp & Szuch
(mail to) P.O. Box 1945
Morristown, NJ 07962
(deliver to) 200 Campus Drive
Florham Park, NJ 07932
Attn.: Ronald H. Janis, Esq.
(b) If to DFC, to:
Dime Financial Corp.
95 Barnes Road
Wallingford, CT 0642
Attention: Richard H. Dionne, President and Chief
Executive Officer
Copy to:
Day. Berry & Howard
CityPlace I
Hartford, CT 06103
Attention Paul F. McAlenney, Esq.
or such other addresses as shall be furnished in writing by any party,
and any such notice or communications shall be deemed to have been given
as of the date actually received.
8.4. PARTIES IN INTEREST; ASSIGNABILITY. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns. Nothing in this Agreement is
intended to confer, expressly or by implication, upon any other person
any rights or remedies under or by reason of this Agreement except the
Indemnitees described in Section 5.14. This Agreement and the rights and
obligations of the parties hereunder may not be assigned.
8.5. ENTIRE AGREEMENT. This Agreement, which includes the
Disclosure Schedules hereto and the other documents, agreements and
instruments executed and delivered pursuant to or in connection with this
Agreement, contains the entire Agreement between the parties hereto with
respect to the transactions contemplated by this Agreement and supersedes
all prior negotiations, arrangements or understandings, written or oral,
with respect thereto, other than any confidentiality agreements entered
into by the parties hereto.
8.6. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same
agreement and each of which shall be deemed an original.
8.7. GOVERNING LAW. This Agreement shall be governed by the
laws of the State of New Jersey, without giving effect to the principles
of conflicts of laws thereof.
8.8. DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are for convenience only and shall not control or affect the
meaning or construction of any provision of this Agreement.
<PAGE>
IN WITNESS WHEREOF, HUBCO, the Bank, DFC and the Dime have caused this
Agreement to be executed by their duly authorized officers as of the day
and year first above written.
ATTEST: HUBCO, INC.
By: /s/ D. Lynn Van Borkulo-Nuzzo By: /s/ Kenneth T. Neilson
D. Lynn Van Borkulo-Nuzzo, Kenneth T. Neilson, Chairman,
Secretary President and Chief Executive Officer
ATTEST: DIME FINANCIAL CORPORATION
By: ________________________ By: /s/ Richard H. Dionne
By: Richard H. Dionne, President and Chief
Executive Officer
Title:
ATTEST: LAFAYETTE AMERICAN BANK
By: /s/ D. Lynn Van Borkulo-Nuzzo By: /s/ Kenneth T. Neilson
D. Lynn Van Borkulo-Nuzzo, Kenneth T. Neilson
Secretary
ATTEST: THE DIME SAVINGS BANK
OF WALLINGFORD
By: ________________________ By: /s/ Richard H. Dionne
By: Richard H. Dionne, President and Chief
Executive Officer
Title:
<PAGE>
AGREEMENT OF DFC AND DIME DIRECTORS
Reference is made to the Agreement and Plan of Merger, dated
March __, 1998 (the "MERGER AGREEMENT"), among HUBCO, Inc. ("HUBCO"), a
New Jersey corporation and registered bank holding company, Lafayette
American Bank (the "BANK"), a New Jersey state-chartered commercial
banking corporation and wholly-owned subsidiary of HUBCO, Dime Financial
Corporation, a Connecticut corporation and registered bank holding
company ("DFC"), and The Dime Savings Bank of Wallingford, a Connecticut
state-chartered savings bank and wholly-owned subsidiary of DFC (the
"DIME"). Capitalized terms used herein and not otherwise defined have
the meanings given to them in the Merger Agreement.
Each of the following persons, being all of the directors of
DFC and the Dime, solely in such person's capacity as a holder of DFC
Common Stock, agrees to vote or cause to be voted all shares of DFC
Common Stock which are held by such person, or over which such person
exercises full voting control (except as trustee or in a fiduciary
capacity, or as nominee), in favor of the Merger.
It is understood and agreed that this Agreement of DFC and Dime
Directors (this "AGREEMENT") relates solely to the capacity of the
undersigned as shareholders or other beneficial owners of shares of DFC
Common Stock and is not in any way intended to affect the exercise by the
undersigned of the undersigned's responsibilities as directors of DFC or
the Dime. It is further understood and agreed that this Agreement is not
in any way intended to affect the exercise by the undersigned of any
fiduciary responsibility which the undersigned may have in respect of any
shares of DFC Common Stock held by the undersigned as of the date hereof.
Dated: As of March __, 1998
<PAGE>
EXHIBIT 5.19-1
FORM OF AFFILIATE LETTER FOR DFC AFFILIATES
March __, 1998
HUBCO, Inc.
1000 MacArthur Boulevard
Mahwah, NJ 07430
Gentlemen:
I am delivering this letter to you in connection with the
proposed acquisition (the "MERGER") of Dime Financial Corp. (the "DFC"),
by HUBCO, Inc., a New Jersey corporation and registered bank holding
company ("HUBCO"), pursuant to the Agreement and Plan of Merger dated
March __, 1998 (the "AGREEMENT") between DFC, its bank subsidiary, HUBCO
and its bank subsidiary. Capitalized terms used herein and not otherwise
defined have the meanings assigned to them in the Agreement. I currently
own shares of DFC Common Stock. As a result of the Merger, I will
receive shares of HUBCO Common Stock in exchange for my DFC Common Stock.
I have been advised that as of the date of this letter I may be
deemed to be an "affiliate" of DFC, as the term "affiliate" is defined
for purposes of paragraphs (c) and (d) of Rule 145 of the rules and
regulations promulgated under the Securities Act of 1933, as amended (the
"1933 ACT") by the Securities and Exchange Commission ("SEC") and as the
term "affiliate" is used for purposes of the SEC's rules and regulations
applicable to the determination of whether a merger can be accounted for
as a "pooling of interests" as specified in the SEC's Accounting Series
Release 135, as amended by Staff Accounting Bulletins Nos. 65 and 76
("ASR 135").
I represent to and agree with HUBCO that:
A. TRANSFER REVIEW RESTRICTIONS. During the period beginning
on the date hereof and ending 30 days prior to the consummation of the
Merger, I shall not sell, transfer, reduce my risk with respect to or
otherwise dispose of ("TRANSFER") any DFC Common Stock owned by me, and I
shall not permit any relative who shares my home, or any person or entity
who or which I control, to transfer any DFC Common Stock owned by such
person or entity, without notifying HUBCO in advance of the proposed
transfer and giving HUBCO a reasonable opportunity to review the transfer
before it is consummated. HUBCO, if advised to do so by its independent
public accountants in writing a copy of which is provided to me, may
instruct me not to make or permit the transfer because it may interfere
with the "pooling of interests" treatment of the Merger. I shall abide
by any such instructions.
B. TRANSFER RESTRICTIONS DURING MERGER CONSUMMATION PERIOD. I
shall not transfer any DFC Common Stock owned by me, and I shall not
permit any relative who shares my home, or any person or entity who or
which I control, to transfer any DFC Common Stock owned by such person or
entity during the period beginning 30 days prior to the consummation of
the Merger and ending immediately after financial results covering at
least 30 days of post-Merger combined operations have been published by
HUBCO by means of the filing of a Form 10-Q or Form 8-K under the
Securities Exchange Act of 1934, as amended, the issuance of a quarterly
earnings report, or any other public issuance which satisfies the
requirements of ASR 135. For purposes of this paragraph only, "DFC
Common Stock" includes HUBCO Common Stock as converted.
C. COMPLIANCE WITH RULE 145. I have been advised that the
issuance of HUBCO Common Stock to me pursuant to the Merger will be
registered with the SEC under the 1933 Act on a Registration Statement on
Form S-4. However, I have also been advised that, since I may be deemed
to be an affiliate of DFC at the time the Merger is submitted for a vote
of DFC's shareholders, any transfer by me of HUBCO Common Stock is
restricted under Rule 145 promulgated by the SEC under the 1933 Act. I
agree not to transfer any HUBCO Common Stock received by me or any of my
affiliates unless (i) such transfer is made in conformity with the volume
and other limitations of Rule 145 promulgated by the SEC under the 1933
Act, (ii) in the opinion of HUBCO's counsel or counsel reasonably
acceptable to HUBCO, such transfer is otherwise exempt from registration
under the 1933 Act or (iii) such transfer is registered under the 1933
Act.
D. STOP TRANSFER INSTRUCTIONS; LEGEND ON CERTIFICATES. I also
understand and agree that stop transfer instructions will be given to
HUBCO's transfer agents with respect to the HUBCO Common Stock received
by me and any of my affiliates and that there will be placed on the
certificates of the HUBCO Common Stock issued to me and any of my
affiliates, or any substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT
OF 1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
ONLY BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT
DATED MARCH __, 1998 BETWEEN THE REGISTERED HOLDER HEREOF AND HUBCO,
INC., A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES
OF HUBCO, INC."
E. CONSULTATION WITH COUNSEL. I have carefully read this
letter and the Agreement and discussed the requirements of such documents
and other applicable limitations upon my ability to transfer HUBCO Common
Stock to the extent I felt necessary with my counsel or counsel for DFC.
Execution of this letter is not an admission on my part that I
am an "affiliate" of DFC as described in the second paragraph of this
letter, or a waiver of any rights I may have to object to any claim that
I am such an affiliate on or after the date of this letter. This letter
shall terminate concurrently with any termination of the Agreement in
accordance with its terms.
Very truly yours,
_____________________________
Name:
Accepted this _____
day of _______, 199__ by
HUBCO, INC.
By: ______________________________
Name:
Title:
<PAGE>
EXHIBIT 5.19-2
FORM OF AFFILIATE LETTER FOR HUBCO AFFILIATES
March __, 1998
HUBCO, Inc.
1000 MacArthur Boulevard
Mahwah, NJ 07430
Gentlemen:
I am delivering this letter to you in connection with the
proposed merger (the "Merger") of Dime Financial Corp. ("DFC") with and
into HUBCO, Inc., a New Jersey corporation and registered bank holding
company ("HUBCO"), pursuant to the Agreement and Plan of Merger dated
March __, 1998 (the "AGREEMENT") between DFC, its bank subsidiary, HUBCO
and its bank subsidiary. I currently own shares of HUBCO's common stock,
no par value ("HUBCO COMMON STOCK").
I have been advised that as of the date of this letter I may be
deemed to be an "affiliate" of HUBCO, as the term "affiliate" is used for
purposes of the rules and regulations of the Securities and Exchange
Commission (the "SEC") applicable to the determination of whether a
merger can be accounted for as a "pooling of interests" as specified in
the SEC's Accounting Series Release 135, as amended by Staff Accounting
Bulletins Nos. 65 and 76 ("ASR 135").
I represent and covenant with HUBCO and DFC that:
A. TRANSFER RESTRICTIONS PRIOR TO MERGER CONSUMMATION.
During the period beginning on the date hereof and ending 30 days prior
to the consummation of the Merger, I shall not sell, transfer, reduce my
risk with respect to or otherwise dispose of ("TRANSFER") any HUBCO
Common Stock owned by me, and I shall not permit any relative who shares
my home, or any person or entity who or which I control, from
transferring any HUBCO Common Stock owned by such person or entity,
without notifying HUBCO in advance of the proposed transfer and giving
HUBCO a reasonable opportunity to object to the transfer before it is
consummated. HUBCO, upon advice of its independent public accountants,
may instruct me not to make or permit the transfer because it may
interfere with the "pooling of interests" treatment of the Merger. I
shall abide by any such instructions.
B. POST-CONSUMMATION TRANSFER RESTRICTIONS. During the
period beginning 30 days prior to the consummation of the Merger and
ending immediately after financial results covering at least 30 days of
post-Merger combined operations have been published by HUBCO by means of
filing of a Form 10-Q or Form 8-K under the Securities Exchange Act of
1934, the issuance of a quarterly earnings report, or any other public
issuance which satisfies the requirements of ASR 135, I shall not
transfer any HUBCO Common Stock owned by me, and I shall not permit any
relative who shares my home, or any person or entity who or which I
control, to transfer any HUBCO Common Stock owned by such person or
entity.
C. CONSULTATION WITH COUNSEL. I have carefully read this
letter and the Agreement and discussed the requirements of such documents
and other applicable limitations upon my ability to transfer HUBCO Common
Stock to the extent I felt necessary with my counsel or counsel for
HUBCO.
Execution of this letter is not an admission on my part that I
am an "affiliate" of HUBCO as described in the second paragraph of this
letter, or a waiver of any rights I may have to object to any claim that
I am such an affiliate on or after the date of this letter. This letter
shall terminate concurrently with any termination of the Agreement in
accordance with its terms.
Very truly yours,
_____________________________________
Name:
Title:
Accepted this ____ day of
________________, 199_ by
HUBCO, INC.
By: ________________________________
Name:
Title:
<PAGE>
EXHIBIT 6.2(b)
FORM OF OPINION OF COUNSEL TO DFC
TO BE DELIVERED TO HUBCO ON THE EFFECTIVE TIME
(a) DFC and Dime have full corporate power to carry out the
transactions contemplated in the Agreement. The execution and delivery
of the Agreement and the consummation of the transactions contemplated
thereunder have been duly and validly authorized by all necessary
corporate action on the part of DFC and Dime, and the Agreement
constitutes the valid and legally binding obligations of DFC and Dime
enforceable in accordance with its terms, except as may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium, receivership,
conservatorship, and other laws now or hereafter in effect relating to or
affecting the enforcement of creditors' rights generally or the rights of
creditors of Connecticut state-chartered capital stock savings banks or
their holding companies, (ii) general equitable principles, and (iii)
laws relating to the safety and soundness of insured depository
institutions, and except that no opinion need be rendered as to the
effect or availability of equitable remedies or injunctive relief
(regardless of whether such enforceability is considered in a proceeding
in equity or at law). Subject to satisfaction of the conditions set
forth in the Agreement, neither the transactions contemplated in the
Agreement, nor compliance by DFC and Dime with any of the provisions
thereof, will (i) conflict with or result in a breach or default under
the certificate of incorporation or bylaws of DFC or the charter or
bylaws of Dime, or (ii) based exclusively on certificates of officers and
without independent verification, to the knowledge of such counsel, (A)
conflict with or result in a breach or default under any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation
to which DFC or Dime is a party; or (B) result in the creation or
imposition of any material lien, instrument or encumbrance upon the
property of DFC or Dime, except such material lien, instrument or
obligation that has been disclosed to HUBCO pursuant to the Agreement, or
(iii) violate in any material respect any order, writ, injunction, or
decree known to such counsel, or any statute, rule or regulation
applicable to DFC or Dime.
(b) DFC is a corporation validly existing and in good standing
under the laws of the State of Connecticut, Dime is a validly existing
capital stock savings bank under the laws of the State of Connecticut and
each of DFC and Dime has the corporate power and authority to own or
lease all of its properties and assets and to conduct the business in
which it is currently engaged as described on pages __ and __ under the
caption "_____________________" in the Proxy Statement-Prospectus.
(c) There is, to the knowledge of such counsel, no legal,
administrative, arbitration or governmental proceeding or investigation
pending or threatened to which DFC or Dime is a party which would, if
determined adversely to DFC or Dime, have a material adverse effect on
the business, properties, results of operations, or condition, financial
or otherwise, of DFC or Dime taken as a whole or which presents a claim
to restrain or prohibit the transactions contemplated by the Agreement.
(d) No consent, approval, authorization, or order of any
federal or state court or federal or state governmental agency or body,
or to such counsel's knowledge of any third party, is required for the
consummation by DFC or Dime of the transactions contemplated by the
Agreement, except for such consents, approvals, authorizations or orders
as have been obtained or which would not have a material adverse effect
upon HUBCO upon consummation of the Merger.
In addition to the foregoing opinions, counsel shall state that on
the sole basis of such counsel's participation in conferences with
officers and employees of DFC in connection with the preparation of the
Prospectus-Proxy Statement and without other independent investigation or
inquiry, such counsel has no reason to believe that the Prospectus-Proxy
Statement, including any amendments or supplements thereto (except for
the financial information, financial statements, notes to financial
statements, financial schedules and other financial or statistical data
and stock valuation information contained or incorporated by reference
therein and except for any information supplied by HUBCO for inclusion
therein, as to which counsel need express no belief), as of the date of
mailing thereof and as of the date of the meeting of shareholders of DFC
to approve the Merger, contained any untrue statement of a material fact
or omitted to state a material fact necessary to make any statement
therein, in light of the circumstances under which it was made, not
misleading. Counsel may state in connection with the foregoing that such
counsel has not independently verified and does not assume any
responsibility for the accuracy, completeness or fairness of any
information or statements contained in the Prospectus-Proxy Statement,
except with respect to identified statements of law or regulations or
legal conclusions relating to DFC or Dime or to their participation in
the transactions contemplated in the Agreement and that it is relying as
to materiality as to factual matters on certificates of officers and
representatives of the parties to the Agreement and other factual
representations by DFC and Dime.
Such counsel's opinion shall be limited to matters governed by
the laws of the State of Connecticut and federal laws and regulations of
the United States of America.
<PAGE>
EXHIBIT 6.3(b)
FORM OF OPINION OF COUNSEL TO HUBCO
TO BE DELIVERED TO DFC ON THE EFFECTIVE TIME
(a) HUBCO is a corporation validly existing and in good
standing under the laws of the State of New Jersey, the Lafayette is a
validly existing Connecticut state-chartered commercial banking
corporation under the laws of the State of Connecticut and each of HUBCO
and Lafayette has the corporate power and authority to own or lease all
of its properties and assets and to carry on its business as described in
the Proxy Statement-Prospectus on pages __ and __ under the caption
"_____________________________." HUBCO is registered as a bank holding
company under the BHCA.
(b) Each HUBCO Subsidiary listed as such in the HUBCO
Disclosure Schedule is validly existing and in good standing under the
laws of the jurisdiction of its incorporation.
(c) The authorized capital stock of HUBCO consists of
____________ shares of common stock, no par value per share ("HUBCO
Common Stock") and _____________ shares of Series B, no par value,
Convertible Preferred Stock (the "Authorized Preferred Stock). Except
for to our knowledge, there are no outstanding
subscription rights, options, conversion rights, warrants or other
agreements or commitments of any nature whatsoever (either firm or
conditional) obligating HUBCO to issue, deliver or sell, cause to be
issued, delivered or sold, or restricting HUBCO from selling any
additional HUBCO Common Stock or Authorized Preferred Stock or obligating
HUBCO to grant, extend or enter into any such agreement or commitment.
The HUBCO Common Stock to be issued in connection with the Merger in
accordance with Article II of the Agreement, or pursuant to the
Continuing Stock Options, when so issued in accordance therewith, will be
duly authorized, validly issued, fully paid and non-assessable, free of
preemptive rights and free and clear of all liens, encumbrances or
restrictions created by HUBCO.
(d) The Agreement has been authorized, executed and delivered
by HUBCO and Lafayette and constitutes the valid and binding obligations
of HUBCO and Lafayette enforceable in accordance with its terms, except
that the enforceability of the obligations of HUBCO and Lafayette may be
limited by bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium, or laws affecting institutions the deposits of which are
insured by the FDIC or other laws heretofore or hereafter enacted
relating to or affecting the enforcement of creditors' rights generally
and by principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law). In addition, certain
remedial and other provisions of the Agreement may be limited by implied
covenants of good faith, fair dealing, and commercially reasonable
conduct, by judicial discretion, in the instance of equitable remedies,
and by applicable public policies and laws.
(e) Subject to satisfaction of the conditions set forth in the
Agreement, the execution and delivery of the Agreement and the
consummation of the transactions contemplated thereby will not (i)
conflict with or violate any provision of or result in the breach of any
provision of the Certificate of Incorporation or By-Laws of HUBCO or the
Charter and By-Laws of Lafayette; (ii) based on certificates of officers
of HUBCO and without independent verification, conflict with or violate
in any material respect, or result in a material breach or violation of
the terms or provisions of, or constitute a default under, or result in
(whether upon or after the giving of notice or lapse of time or both) any
material obligation under, any indenture, mortgage, deed of trust or loan
agreement or any other agreement, instrument, judgment, order,
arbitration award or decree of which we have knowledge (through our
representation of HUBCO and Lafayette in connection therewith or in the
course of our representation of HUBCO and Lafayette in connection with
the Agreement) and to which HUBCO or Lafayette is a party or by which
HUBCO or Lafayette is bound; or (iii) cause HUBCO or Lafayette to violate
any corporation or banking law applicable to HUBCO.
(f) All actions of the directors and shareholders of HUBCO and
Lafayette required by federal banking laws and regulations, New Jersey
law and Connecticut banking law or by the Certificate of Incorporation or
By-Laws of HUBCO and Lafayette, to be taken by HUBCO and Lafayette to
authorize the execution, delivery and performance of the Agreement and
consummation of the Merger have been taken.
(g) Assuming that there has been due authorization of the
Merger by all necessary corporate and governmental proceedings on the
part of DFC and Dime and that DFC and Dime have taken all action required
to be taken by it prior to the Effective Time, upon the appropriate
filing of the Certificates of Merger in respect of the Merger with the
New Jersey Secretary of State and the Connecticut Secretary of State in
accordance with Section 1.6 of the Agreement, the Merger will become
effective at the Effective Time, as such term is defined in Section 1.6,
and upon effectiveness of the Merger each share of DFC Common Stock will
be converted as provided in Article II of the Agreement.
(h) No approvals, authorizations, consents or other actions or
filings under federal banking laws, New Jersey law or Connecticut banking
law ("Approvals") are required to be obtained by HUBCO or Lafayette in
order to permit the execution and delivery of the Agreement by HUBCO or
Lafayette and the performance by HUBCO or Lafayette of the transactions
contemplated thereby other than those Approvals which have been obtained
or those Approvals or consents required to be obtained by DFC or Dime.
(i) The Registration Statement has been declared effective by
the Securities and Exchange Commission ("SEC") under the 1933 Act and we
are not aware that any stop order suspending the effectiveness has been
issued under the 1933 Act or proceedings therefor initiated or threatened
by the SEC.
We are not passing upon and do not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in
the Proxy Statement-Prospectus and make no representation that we have
independently verified the accuracy, completeness or fairness of such
statements, but from our examination of the Proxy Statement-Prospectus
and our general familiarity with HUBCO no facts have come to our
attention that caused us to believe that (except for financial statements
and other tabular financial information, and other financial and
statistical data and information, as to which we do not express any
belief) the Proxy Statement-Prospectus on the date of the mailing thereof
and on the date of the meeting of stockholders of DFC at which the
Agreement was approved, contained any untrue statement of a material fact
regarding HUBCO or the Merger, or omitted to make a material fact
regarding HUBCO or the Merger therein, in light of the circumstances
under which they were made, not misleading.
We are members of the Bar of the State of New Jersey and we
express no opinion as to any of the laws of any jurisdiction other than
the laws of the State of New Jersey, Connecticut banking law and federal
laws and regulations of the United States of America.
<PAGE>
Index of Schedules
2.4 Stock Option Plans
3.1(b) Subsidiaries
3.1(c) Certificates of Incorporation and Bylaws
3.2 Stock Options
3.3(b) Violations of Certain Obligations
3.4(a) Financial Statements
3.4(c) Liabilities Incurred Since 12/31/97
3.5 Copies of Agreements
3.6(a) Material Adverse Changes
3.6(b) Section 5.2 Actions
3.7 Legal Proceedings
3.8 Taxes and Tax Returns
3.9(a) DFC Pension and Welfare Plans
3.9(b) DFC Pension and Welfare Plan Documents
3.9(f) DFC Pension and Welfare Plan Compliance
3.9(k) Post-Retirement or Termination Benefits
3.9(o) Deferred Compensation and Related Agreements
3.9(n) Severance and Related Compensation
3.9(p) Life Insurance Policies
3.9(q) Directors' Retirement Plans or Retirees' Medical Plans
3.10(a) SEC Filings and Shareholder Communications
3.10(b) Examination Dates
3.12 Compliance with Applicable Law
3.13(a) Certain Employment and Related Agreements
3.13(b) Material Non-Loan Agreements
3.13(c) Material Defaults
3.14(a) Encumbered Assets
3.14(b) Insurance
3.16(a) Environmental Violations
3.16(b) Hazardous Substances and Materials
3.16(c) Environmental Permits
3.16(d) Underground Storage Tanks
3.18 Excess Parachute Payments
4.1 Corporate Organization
4.2 Capitalization
4.3 Authority; No Violation
4.4 Financial Statements
4.7 Legal Proceedings
4.10 Compliance With Applicable Law
4.14 Taxes and Tax Returns
4.15 Employee Benefit Plans
4.16 Contracts
4.17 Properties and Insurance
4.18 Environmental Matters
5.2(d) Negative Covenants
5.2(j) Establishment of Trust
5.11(d) Comparable Employment
5.14(d) Indemnification
The registrant agrees to furnish supplementarily a copy of any omitted
schedule to the Securities and Exchange Commission upon request.
EXHIBIT 10.10
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Agreement") dated as of March 31,
1998, is by and between HUBCO, Inc., a New Jersey corporation and registered
bank holding company ("HUBCO"), and Dime Financial Corporation, a Connecticut
corporation and registered bank holding company ("DFC").
BACKGROUND
WHEREAS, HUBCO and DFC, as of the date hereof, are prepared to
execute a definitive agreement and plan of merger (the "Merger Agreement")
pursuant to which DFC will be merged with and into HUBCO (the "Merger"); and
WHEREAS, HUBCO has advised DFC that it will not execute the Merger
Agreement unless DFC executes this Agreement; and
WHEREAS, the Board of Directors of DFC has determined that the
Merger Agreement provides substantial benefits to the shareholders of DFC; and
WHEREAS, as an inducement to HUBCO to enter into the Merger
Agreement and in consideration for such entry, DFC desires to grant to HUBCO
an option to purchase authorized but unissued shares of common stock of DFC in
an amount and on the terms and conditions hereinafter set forth.
AGREEMENT
In consideration of the foregoing and the mutual covenants and
agreements set forth herein and in the Merger Agreement, HUBCO and DFC,
intending to be legally bound hereby, agree:
1. GRANT OF OPTION. DFC hereby grants to HUBCO the option to
purchase 1,040,000 shares of common stock, $1.00 par value, of DFC (the
"Common Stock") at a price of $30.25 per share (the "Option Price"), on the
terms and conditions set forth herein (the "Option"); PROVIDED that in no
event shall the number of shares of Common Stock for which the Option is
exercisable exceed 19.9% of DFC's issued and outstanding shares of Common
Stock without giving effect to any shares subject to or issued pursuant to the
Option.
2. EXERCISE OF OPTION. This Option shall not be exercisable
until the occurrence of a Triggering Event (as such term is hereinafter
defined). Upon or after the occurrence of a Triggering Event (as such term is
hereinafter defined), HUBCO may exercise the Option, in whole or in part, at
any time or from time to time, subject to the terms and conditions set forth
herein and the termination provisions of Section 19 of this Agreement.
The term "Triggering Event" means the occurrence of any of the
following events:
A person or group (as such terms are defined in the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder) other than HUBCO or an affiliate of HUBCO:
a. acquires beneficial ownership (as such term is defined in
Rule 13d-3 as promulgated under the Exchange Act) of at least 20% of the then
outstanding shares of Common Stock; or
b. enters into a letter of intent or an agreement, whether
oral or written, with DFC pursuant to which such person or any affiliate of
such person would (i) merge or consolidate, or enter into any similar
transaction, with DFC, (ii) acquire all or a significant portion of the assets
or liabilities of DFC, or (iii) acquire beneficial ownership of securities
representing, or the right to acquire beneficial ownership or to vote
securities representing, 20% or more of the then outstanding shares of Common
Stock; or
c. makes a filing with any bank or thrift regulatory
authorities or publicly announces a bona fide proposal (a "Proposal") for (i)
any merger with, consolidation with or acquisition of all or a significant
portion of all the assets or liabilities of, DFC or any other business
combination involving DFC, or (ii) a transaction involving the transfer of
beneficial ownership of securities representing, or the right to acquire
beneficial ownership or to vote securities representing, 20% or more of the
outstanding shares of Common Stock, and thereafter, if such Proposal has not
been Publicly Withdrawn (as such term is hereinafter defined) at least 15 days
prior to the meeting of stockholders of DFC called to vote on the Merger and
DFC's stockholders fail to approve the Merger by the vote required by
applicable law at the meeting of stockholders called for such purpose; or
d. makes a bona fide Proposal and thereafter, but before
such Proposal has been Publicly Withdrawn, DFC willfully takes any action in
any manner which would materially interfere with its ability to consummate the
Merger or materially reduce the value of the transaction to HUBCO.
The term "Triggering Event" also means the taking of any material
direct or indirect action by DFC or any of its directors, officers or agents
with the intention of inviting, encouraging or soliciting any proposal which
has as its purpose a tender offer for the shares of Common Stock, a merger,
consolidation, plan of exchange, plan of acquisition or reorganization of DFC,
or a sale of a significant number of shares of Common Stock or any significant
portion of its assets or liabilities.
The term "significant portion" means 25% of the assets or
liabilities of DFC. The term "significant number" means 20% of the
outstanding shares of Common Stock.
"Publicly Withdrawn", for purposes of clauses (c) and (d) above,
shall mean an unconditional bona fide withdrawal of the Proposal coupled with
a public announcement of no further interest in pursuing such Proposal or in
acquiring any controlling influence over DFC or in soliciting or inducing any
other person (other than HUBCO or any affiliate) to do so.
Notwithstanding the foregoing, the Option may not be exercised at
any time (i) in the absence of any required governmental or regulatory
approval or consent necessary for DFC to issue the shares of Common Stock
covered by the Option (the "Option Shares") or HUBCO to exercise the Option or
prior to the expiration or termination of any waiting period required by law,
or (ii) so long as any injunction or other order, decree or ruling issued by
any federal or state court of competent jurisdiction is in effect which
prohibits the sale or delivery of the Option Shares.
DFC shall notify HUBCO promptly in writing of the occurrence of any
Triggering Event known to it, it being understood that the giving of such
notice by DFC shall not be a condition to the right of HUBCO to exercise the
Option. DFC will not take any action which would have the effect of
preventing or disabling DFC from delivering the Option Shares to HUBCO upon
exercise of the Option or otherwise performing its obligations under this
Agreement, except to the extent required by applicable securities and banking
laws and regulations.
In the event HUBCO wishes to exercise the Option, HUBCO shall send a
written notice to DFC (the date of which is hereinafter referred to as the
"Notice Date") specifying the total number of Option Shares it wishes to
purchase and a place and date between two and ten business days inclusive from
the Notice Date for the closing of such a purchase (a "Closing"); PROVIDED,
HOWEVER, that a Closing shall not occur prior to two days after the later of
receipt of any necessary regulatory approvals and the expiration of any
legally required notice or waiting period, if any.
3. PAYMENT AND DELIVERY OF CERTIFICATES. At any Closing
hereunder (a) HUBCO will make payment to DFC of the aggregate price for the
Option Shares so purchased by wire transfer of immediately available funds to
an account designated by DFC; (b) DFC will deliver to HUBCO a stock
certificate or certificates representing the number of Option Shares so
purchased, free and clear of all liens, claims, charges and encumbrances of
any kind or nature whatsoever created by or through DFC, registered in the
name of HUBCO or its designee, in such denominations as were specified by
HUBCO in its notice of exercise and, if necessary, bearing a legend as set
forth below; and (c) HUBCO shall pay any transfer or other taxes required by
reason of the issuance of the Option Shares so purchased.
If required under applicable federal securities laws, a legend will
be placed on each stock certificate evidencing Option Shares issued pursuant
to this Agreement, which legend will read substantially as follows:
The shares of stock evidenced by this certificate have not been
registered for sale under the Securities Act of 1933 (the "1933 Act").
These shares may not be sold, transferred or otherwise disposed of unless
a registration statement with respect to the sale of such shares has been
filed under the 1933 Act and declared effective or, in the opinion of
counsel reasonably acceptable to Dime Financial Corporation, said
transfer would be exempt from registration under the provisions of the
1933 Act and the regulations promulgated thereunder.
No such legend shall be required if a registration statement is filed and
declared effective under Section 4 hereof.
4. REGISTRATION RIGHTS. Upon or after the occurrence of a
Triggering Event and upon receipt of a written request from HUBCO, DFC shall,
if necessary for the resale of the Option or the Option Shares by HUBCO,
prepare and file a registration statement with the Securities and Exchange
Commission and any state securities bureau covering the Option and such number
of Option Shares as HUBCO shall specify in its request, and DFC shall use its
best efforts to cause such registration statement to be declared effective in
order to permit the sale or other disposition of the Option and the Option
Shares, provided that HUBCO shall in no event have the right to have more than
one such registration statement become effective, and provided further that
DFC shall not be required to prepare and file any such registration statement
in connection with any proposed sale with respect to which counsel to DFC
delivers to DFC and to HUBCO (which is reasonably acceptable to HUBCO) its
opinion to the effect that no such filing is required under applicable laws
and regulations with respect to such sale or disposition; provided further,
however, that DFC may delay any registration of Option Shares above for a
period not exceeding 90 days in the event that DFC shall in good faith
determine that any such registration would adversely effect an offering of
securities by DFC for cash. HUBCO shall provide all information reasonable
requested by DFC for inclusion in any registration statement to be filed
hereunder.
In connection with such filing, DFC shall use its best efforts to
cause to be delivered to HUBCO such certificates, opinions, accountant's
letters and other documents as HUBCO shall reasonably request and as are
customarily provided in connection with registrations of securities under the
Securities Act of 1933, as amended. All expenses incurred by DFC in complying
with the provisions of this Section 4, including without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for DFC and blue sky fees and expenses shall be paid by DFC.
Underwriting discounts and commissions to brokers and dealers relating to the
Option Shares, fees and disbursements of counsel to HUBCO and any other
expenses incurred by HUBCO in connection with such registration shall be borne
by HUBCO. In connection with such filing, DFC shall indemnify and hold
harmless HUBCO against any losses, claims, damages or liabilities, joint or
several, to which HUBCO may become subject, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in any preliminary or final registration statement or any
amendment or supplement thereto, or arise out of a material fact required to
be stated therein or necessary to make the statements therein not misleading;
and DFC will reimburse HUBCO for any legal or other expense reasonably
incurred by HUBCO in connection with investigating or defending any such loss,
claim, damage, liability or action; PROVIDED, HOWEVER, that DFC will not be
liable in any case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such preliminary or final
registration statement or such amendment or supplement thereto in reliance
upon and in conformity with written information furnished by or on behalf of
HUBCO specifically for use in the preparation thereof. HUBCO will indemnify
and hold harmless DFC to the same extent as set forth in the immediately
preceding sentence but only with reference to written information specifically
furnished by or on behalf of HUBCO for use in the preparation of such
preliminary or final registration statement or such amendment or supplement
thereto; and HUBCO will reimburse DFC for any legal or other expense
reasonably incurred by DFC in connection with investigating or defending any
such loss, claim, damage, liability or action. Notwithstanding anything to
the contrary herein, no indemnifying party shall be liable for any settlement
effected without its prior written consent.
5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of
any change in the Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, conversions, exchanges of shares or
the like, then the number and kind of Option Shares and the Option Price shall
be appropriately adjusted.
In the event any capital reorganization or reclassification of the
Common Stock, or any consolidation, merger or similar transaction of DFC with
another entity, or any sale of all or substantially all of the assets of DFC,
shall be effected in such a way that the holders of Common Stock shall be
entitled to receive stock, securities or assets with respect to or in exchange
for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provisions (in form reasonably satisfactory to the holder hereof) shall be
made whereby the holder hereof shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified herein and
in lieu of the Common Stock immediately theretofore purchasable and receivable
upon exercise of the rights represented by this Option, such shares of stock,
securities or assets as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately theretofore
purchasable and receivable upon exercise of the rights represented by this
Option had such reorganization, reclassification, consolidation, merger or
sale not taken place; PROVIDED, HOWEVER, that if such transaction results in
the holders of Common Stock receiving only cash, the holder hereof shall be
paid the difference between the Option Price and such cash consideration
without the need to exercise the Option.
6. FILINGS AND CONSENTS. Each of HUBCO and DFC will use its
reasonable efforts to make all filings with, and to obtain consents of, all
third parties and governmental authorities necessary to the consummation of
the transactions contemplated by this Agreement.
Exercise of the Option herein provided shall be subject to
compliance with all applicable laws including, in the event HUBCO is the
holder hereof, approval of the Securities and Exchange Commission, the Board
of Governors of the Federal Reserve System, the Office of Thrift Supervision,
the Federal Deposit Insurance Corporation or the New York Department of
Banking, and DFC agrees to cooperate with and furnish to the holder hereof
such information and documents as may be reasonably required to secure such
approvals.
7. REPRESENTATIONS AND WARRANTIES OF DFC. DFC hereby represents
and warrants to HUBCO as follows:
a. DUE AUTHORIZATION. DFC has full corporate power and
authority to execute, deliver and perform this Agreement and all corporate
action necessary for execution, delivery and performance of this Agreement has
been duly taken by DFC.
b. AUTHORIZED SHARES. DFC has taken and, as long as the
Option is outstanding, will take all necessary corporate action to authorize
and reserve for issuance all shares of Common Stock that may be issued
pursuant to any exercise of the Option.
c. NO CONFLICTS. Neither the execution and delivery of this
Agreement nor consummation of the transactions contemplated hereby (assuming
all appropriate regulatory approvals) will violate or result in any violation
or default of or be in conflict with or constitute a default under any term of
the Certificate of Incorporation or Bylaws of DFC or any agreement,
instrument, judgment, decree or order applicable to DFC.
8. SPECIFIC PERFORMANCE. The parties hereto acknowledge that
damages would be an inadequate remedy for a breach of this Agreement and that
the obligations of the parties hereto shall be specifically enforceable.
Notwithstanding the foregoing, HUBCO shall have the right to seek money
damages against DFC for a breach of this Agreement.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and
oral, among the parties or any of them with respect to the subject matter
hereof.
10. ASSIGNMENT OR TRANSFER. HUBCO may not sell, assign or
otherwise transfer its rights and obligations hereunder, in whole or in part,
to any person or group of persons other than to an affiliate of HUBCO. HUBCO
represents that it is acquiring the Option for HUBCO's own account and not
with a view to or for sale in connection with any distribution of the Option
or the Option Shares. HUBCO is aware that neither the Option nor the Option
Shares is the subject of a registration statement filed with, and declared
effective by, the Securities and Exchange Commission pursuant to Section 5 of
the Securities Act, but instead each is being offered in reliance upon the
exemption from the registration requirement provided by Section 4(2) thereof
and the representations and warranties made by HUBCO in connection therewith.
11. AMENDMENT OF AGREEMENT. Upon mutual consent of the parties
hereto, this Agreement may be amended in writing at any time, for the purpose
of facilitating performance hereunder or to comply with any applicable
regulation of any governmental authority or any applicable order of any court
or for any other purpose.
12. VALIDITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
13. NOTICES. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and shall
be deemed to have been duly given when delivered personally, by express
service, cable, telegram or telex, or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties as follows:
If to HUBCO:
HUBCO, Inc.
1000 MacArthur Boulevard
Mahwah, New Jersey 07430
Attention: Mr. Kenneth T. Neilson
President and Chief Executive Officer
With a copy to:
Pitney, Hardin, Kipp & Szuch
200 Campus Drive
Florham Park, New Jersey 07932-0950
Attention: Ronald H. Janis, Esq.
Michael W. Zelenty, Esq.
If to DFC:
Dime Financial Corporation
95 Barnes Road
Wallingford, CT 06492
Attention: Richard H. Dionne
President and Chief Executive Officer
With a copy to:
Day, Berry & Howard
CityPlace I
Hartford, CT 06103
Attention: Paul F. McAlenney, Esq.
or to such other address as the person to whom notice is to be given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
14. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey.
15. CAPTIONS. The captions in the Agreement are inserted for
convenience and reference purposes, and shall not limit or otherwise affect
any of the terms or provisions hereof.
16. WAIVERS AND EXTENSIONS. The parties hereto may, by mutual
consent, extend the time for performance of any of the obligations or acts of
either party hereto. Each party may waive (a) compliance with any of the
covenants of the other party contained in this Agreement and/or (b) the other
party's performance of any of its obligations set forth in this Agreement.
17. PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
18. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
19. TERMINATION. This Agreement shall terminate upon either the
termination of the Merger Agreement as provided therein or the consummation of
the transactions contemplated by the Merger Agreement; PROVIDED, HOWEVER, that
if termination of the Merger Agreement occurs after the occurrence of a
Triggering Event (as defined in Section 2 hereof), this Agreement shall not
terminate until the later of 18 months following the date of the termination
of the Merger Agreement or the consummation of any proposed transactions which
constitute the Triggering Event.
20. EFFECTIVENESS AND TERMINATION FEE. Solely for the purposes of
the Connecticut Banking Laws, Section 36a-184, this Agreement shall not be
considered effective until and unless it is submitted to and approved by the
Commissioner of the Connecticut Department of Banking (the "Commissioner").
DFC shall pay HUBCO a termination fee of $5,000,000 (the "Termination Fee"),
forthwith on demand, in lieu of all its other rights hereunder, if each of the
following conditions are met: (a) the Option never becomes effective due to a
failure by the Commissioner to make a determination that the Option may be
exercised, after a request for approval by HUBCO to do so is submitted by
HUBCO to the Commissioner, and either the Commissioner makes a determination
that the Option may not be exercised or a period of five months elapses from
the date the request is submitted by HUBCO; (b) a Triggering Event has
occurred, which would allow HUBCO to exercise the Option; and (c) DFC is
merged or acquired by another financial institution within 18 months following
the Triggering Event. In the event that HUBCO is due the Termination Fee
hereunder and DFC fails to pay such Fee on demand by HUBCO, DFC shall in
addition reimburse HUBCO for the legal fees and expenses incurred by HUBCO in
seeking to enforce and in collecting the Termination Fee.
IN WITNESS WHEREOF, each of the parties hereto, pursuant to
resolutions adopted by its Board of Directors, has caused this Stock Option
Agreement to be executed by its duly authorized officer, all as of the day and
year first above written.
DIME FINANCIAL CORPORATION
By:/s/ Richard H. Dionne
Richard H. Dionne
President and Chief Executive Officer
HUBCO, INC.
By:/s/ Kenneth T. Neilson
Kenneth T. Neilson,
President & Chief Executive Officer
EXHIBIT 13
DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
As of or for the years ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income $ 28,221 $ 25,896 $ 25,397
Provision for loan losses 200 2,000 7,550
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision 28,021 23,896 17,847
Investment securities gains, net 195 326 298
Other operating income 2,038 2,049 2,080
- -----------------------------------------------------------------------------------------------------------------------------
Income before operating expenses and income taxes 30,254 26,271 20,225
Other operating expenses (a) 13,436 13,808 16,997
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 16,818 12,463 3,228
Income tax expense (benefit) 70 (10) (2,813)
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 16,748 $ 12,473 $ 6,041
=============================================================================================================================
Assets $961,436 $751,303 $658,373
Investment securities $533,383 $305,218 $151,226
Loans receivable, net $361,658 $387,293 $443,664
Deposits $817,091 $626,098 $543,344
Shareholders' equity $ 79,285 $ 62,611 $ 51,668
Book value per share $ 15.35 $ 12.21 $ 10.29
Basic earnings per share $ 3.25 $ 2.45 $ 1.21
Diluted earnings per share $ 3.16 $ 2.42 $ 1.20
Dividends paid per share $ 0.40 $ 0.30 -
Net interest rate spread 2.78% 3.30% 3.65%
Net yield on interest-earning assets 3.33% 3.85% 4.12%
Return on average assets 1.94% 1.82% 0.95%
Return on average equity 24.20% 22.19% 12.82%
<Fa> A net non-recurring restructure charge of $1.9 million was
charged to operations during 1995 and $77,000 during 1996.
</TABLE>
(3) BAR GRAPHS
(1) TOTAL ASSETS (IN THOUSANDS)
1995 $658,373
1996 $751,303
1997 $961,436
(2) BOOK VALUE PER SHARE
1995 10.29
1996 12.21
1997 15.35
(3) TOTAL DEPOSITS (IN THOUSANDS)
1995 $543,344
1996 $626,098
1997 $817,091
<PAGE>
TO OUR SHAREHOLDERS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
Dime Financial Corporation earned $16.7 million or $3.16
per share for the year ended December 31, 1997 compared with net
income of $12.5 million or $2.42 per share for the year ended
December 31, 1996 representing an increase in per share earnings of
nearly 31%. The increase in net income during 1997 was caused
primarily by a reduction in the provision to the allowance for loan
losses to $200,000 during 1997 compared with $2.0 million for the
year ended 1996. In addition, net interest income increased by 9.0%
as total assets grew nearly 28% from $751.3 million at December 31,
1996 to $961.4 million at December 31, 1997.
The strategies and efforts put forth during 1997
produced exceptional results. Net earnings, total deposits and
total assets reached record levels. More importantly, these levels
were reached without increases in operating expenses or changes in
the risk profile of the Company's balance sheet. The Company's
efficiency ratio, a common measurement of operating efficiency,
equalled just 43.87% for the year ended December 31, 1997. In fact,
operating expenses, during 1997, actually fell nearly 3% from the
prior year. The allowance for loan losses totalled $12.4 million at
December 31, 1997 and represented nearly 540% of non-performing
loans and 3.30% of total loans outstanding.
The continued dedication to expense controls allowed the
Company to pass on a portion of those savings to our customers
through competitive deposit pricing. In addition, the expanded use
of alternative funding sources such as the retail brokered
certificate market, the municipal deposit market, and the Federal
Home Loan Bank provided necessary funding flexibility and
diversification. Solicited municipal deposits, a new source of
funds for Dime, totalled $21.5 million at December 31, 1997. In
addition, retail brokered certificates grew to $31.7 million at
year-end 1997 compared with $3.0 million at December 31, 1996. As a
result of these initiatives, deposit growth continued during 1997
with total deposits equalling $817.1 million at December 31, 1997
compared with $626.1 million at December 31, 1996, an increase of
over 30%.
The Company stands ready to face the challenges ahead
and looks forward to continued success as we build upon the
foundation which has been painstakingly constructed. Our commitment
to the community has never been stronger as we approach an important
milestone of $1 billion in assets. The Board and Management
appreciate the dedication and commitment shown by our employees and
shareholders as we continue to strive to produce an appropriate
return while maintaining a quality balance sheet.
/s/ Ralph D. Lukens /s/ Richard M. Dionne
Ralph D. Lukens Richard H. Dionne
Chairman of the Board President and Chief Executive Officer
<PAGE>
SELECTED FINANCIAL DATA DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
As of or for the years ended December 31, 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Financial Condition and Other Data:
Total assets $961,436 $751,303 $658,373 $637,729 $672,114
Loans receivable $374,010 $400,222 $456,443 $510,378 $508,081
Allowance for loan losses $(12,352) $(12,929) $(12,779) $ (9,326) $(14,062)
Loans receivable, net $361,658 $387,293 $443,664 $501,052 $494,019
Investments (a) $567,991 $333,855 $182,735 $103,912 $105,645
Deposits $817,091 $626,098 $543,344 $527,786 $566,845
FHLBB advances $ 58,000 $ 58,000 $ 58,000 $ 60,000 $ 61,000
Shareholders' equity $ 79,285 $ 62,611 $ 51,668 $ 45,196 $ 40,358
Non-performing loans $ 2,288 $ 2,570 $ 7,682 $ 7,959 $ 12,849(b)
Non-performing assets $ 2,769 $ 3,780 $ 9,097 $ 11,670 $ 19,402(b)
- ---------------------------------------------------------------------------------------------------------------------------
Operating Data:
Interest income $ 63,009 $ 51,391 $ 47,476 $ 44,703 $ 49,973
Interest expense $ 34,788 $ 25,495 $ 22,079 $ 18,755 $ 22,519
Net interest income $ 28,221 $ 25,896 $ 25,397 $ 25,948 $ 27,454
Provision for loan losses $ 200 $ 2,000 $ 7,550 $ 4,516 $ 20,900
Investment securities gains, net $ 195 $ 326 $ 298 $ 6 $ 630
Gain on assets held for sale - - - $ 1,266 -
Other operating income $ 2,038 $ 2,049 $ 2,080 $ 2,207 $ 2,050
Other operating expenses (f) $ 13,436 $ 13,808 $ 16,997 $ 20,123 $ 31,856
Income (loss) before income taxes,
extraordinary item and cumulative effect
of changes in accounting methods $ 16,818 $ 12,463 $ 3,228 $ 4,788 $(22,622)
Income tax expense (benefit) $ 70 $ (10) $ (2,813) $ 60 -
Income (loss) before extraordinary item and
cumulative effect of changes in accounting methods $ 16,748 $ 12,473 $ 6,041 $ 4,728 $(22,622)
Extraordinary item - prepayment penalty on long-term debt - - - - $ (874)
Cumulative effect of changes in accounting methods:
Postretirement benefits other than pensions, net of tax - - - - $ (477)
Income taxes - - - - $ 563
Net income (loss) $ 16,748 $ 12,473 $ 6,041 $ 4,728 $(23,410)
- ---------------------------------------------------------------------------------------------------------------------------
Per Share Data:
Basic net income (loss) $ 3.25 $ 2.45 $ 1.21 $ 0.95 $ (4.69)
Diluted net income (loss) $ 3.16 $ 2.42 $ 1.20 $ 0.94 $ (4.69)
Book value $ 15.35 $ 12.21 $ 10.29 $ 9.05 $ 8.08
Dividends declared (e) $ 0.40 $ 0.30 - - -
- ---------------------------------------------------------------------------------------------------------------------------
Selected Statistical Data:
Return on average assets 1.94% 1.82% 0.95% 0.71% (3.26)%
Return on average equity 24.20% 22.19% 12.82% 11.06% (36.40)%
Average equity to average assets 8.01% 8.19% 7.43% 6.46% 8.95%
Net interest rate spread (c) 2.78% 3.30% 3.65% 4.00% 3.95%
Net yield on interest-earning assets (d) 3.33% 3.85% 4.12% 4.22% 4.18%
Tier 1 leverage capital ratio 8.17% 8.44% 7.50% 6.45% 5.14%
Dividend payout ratio 12.31% 12.24% - - -
Non-performing loans to total loans 0.61% 0.64% 1.68% 1.56% 2.53%(b)
Non-performing assets to total assets 0.29% 0.50% 1.38% 1.83% 2.89%(b)
<Fa> Including interest-bearing deposits with other banks,
federal funds sold, investments, and Federal Home Loan Bank of
Boston stock.
<Fb> Does not include $28.4 million of loans and other real
estate owned held for sale.
<Fc> Return on average interest-earning assets less cost of
average interest-bearing liabilities.
<Fd> Net interest income divided by average interest-earning
assets.
<Fe> The Company suspended the quarterly dividend following the
April 26, 1991 dividend of $0.10 per share.
<Ff> A net non-recurring restructure charge of $1.9 million was
charged to operations during 1995 and $77,000 during 1996.
</TABLE>
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
1997 1996 1997 1996 1997 1996 1997 1996
First Quarter Second Quarter Third Quarter Fourth Quarter
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income $14,199 $12,588 $15,466 $13,090 $16,331 $12,641 $17,013 $13,072
Total interest expense 7,513 6,174 8,365 6,185 9,171 6,347 9,739 6,789
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income 6,686 6,414 7,101 6,905 7,160 6,294 7,274 6,283
Provision for loan losses 50 700 50 600 50 450 50 250
Investment securities gains, net 11 159 6 12 144 32 34 123
Other operating income 515 506 488 485 534 552 501 506
Other operating expenses (a) 3,388 3,528 3,395 3,764 3,358 3,259 3,295 3,257
- -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 3,774 2,851 4,150 3,038 4,430 3,169 4,464 3,405
Income tax expense (benefit) - (8) - (2) 35 - 35 -
Net income $ 3,774 $ 2,859 $ 4,150 $ 3,040 $ 4,395 $ 3,169 $ 4,429 $ 3,405
- -------------------------------------------------------------------------------------------------------------------------------
Basic net income per share $ 0.73 $ 0.57 $ 0.80 $ 0.60 $ 0.85 $ 0.62 $ 0.86 $ 0.66
Diluted net income per share $ 0.72 $ 0.56 $ 0.79 $ 0.60 $ 0.82 $ 0.61 $ 0.83 $ 0.65
<Fa> Net restructure charges of $158,000, $182,000 and
($263,000) were charged to expense in the first, second and
fourth quarters of 1996, respectively.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
1997 Overview
The Company achieved extraordinary results during 1997 while
continuing to strengthen the balance sheet through diversification
of earning assets and interest-bearing liabilities. Concentration
on asset quality, deposit growth, and operating expense controls
continued to be the themes throughout 1997. The progress achieved
during 1997 can be measured in several ways:
* Net income rose over 34% to $16.7 million, or $3.16 per share on a
diluted basis, for the year ended December 31, 1997 compared with
net income of $12.5 million, or $2.42 per share on a diluted
basis, for the year ended December 31, 1996. During 1997, the
Company recognized $6.6 million of its deferred tax asset due to
favorable earnings history compared with recognition of $5.8
million in 1996. Management anticipates that earnings in 1998
will be subject to a combined federal and state effective tax
rate of approximately 40%.
* Total assets increased $210.1 million or nearly 28% from year-end
1996 to $961.4 million at December 31, 1997.
* Total deposits increased $191.0 million or over 30% from year-end
1996 to $817.1 million at December 31, 1997.
* Non-performing assets declined to $2.8 million representing 0.29%
of total assets at December 31, 1997, compared with
non-performing assets of $3.8 million representing 0.50% of total
assets at year-end 1996.
* The allowance for loan losses equalled $12.4 million representing
3.30% of total loans at December 31, 1997 compared with an
allowance of $12.9 million representing 3.23% of total loans at
December 31, 1996.
* Total operating expenses decreased 2.7% from the prior year-end
and equalled $13.4 million for the year ended December 31, 1997,
representing 1.54% of average assets compared with operating
expenses of $13.8 million for the year ended December 31, 1996,
representing 2.02% of average assets.
An important achievement during 1997 was the continued growth in
deposits. Total deposits increased $191 million or nearly 31% from
year end 1996. The Company expanded upon the retail brokered
certificate of deposit program and also began to bid on selected
local municipal deposits. Retail brokered certificates increased
$28.8 million to $31.7 million at December 31, 1997, as pricing
available for these products continued to be favorable compared with
other funding alternatives. During 1997, the Company began to bid
on selected local municipal deposits. This funding source totalled
$21.5 million at December 31, 1997. There were no solicited
municipal deposits prior to 1997. While these new funding sources
were an important part of the overall growth in deposits during
1997, the majority of the growth, $140.7 million, came from local
retail and commercial deposit relationships.
In addition to the success the Company enjoyed with regard to
deposit growth, additional flexibility within earning assets was
achieved as competition for quality loans led management to the
investment securities market for alternatives. Investment
securities increased nearly 75% to total $533.4 million at December
31, 1997 compared with $305.2 million at December 31, 1996. Loan
production, though increased from 1996, was not strong enough to
overcome the normal amortization and prepayment activity within the
portfolio. Loan originations totalled $55.3 million during 1997
compared with $26.5 million during 1996, yet the loan portfolio
decreased from $400.2 million at December 31, 1996 to $374.0 million
at December 31, 1997.
Asset Quality
The Company maintained its focus on asset quality during 1997.
Non-performing assets continued a multi-year decline and totalled
$2.8 million at December 31, 1997, representing 0.29% of total
assets compared with non-performing assets of $3.8 million at
December 31, 1996, representing 0.50% of total assets.
Non-performing assets are comprised of loans in non-accrual status
("non-performing loans") and other real estate owned ("OREO").
Non-performing loans totalled $2.3 million, representing 0.61% of
total loans at December 31, 1997 compared with non-performing loans
of $2.6 million at December 31, 1996, representing 0.64% of total
loans. Loans are classified as non-performing when they become
ninety days past due as to interest or principal payments, unless
government guaranteed, or when the ability of the borrower to meet
the contractual payment terms is in doubt. Loans classified as
non-performing are placed in non-accrual status and previously
accrued, but unpaid interest is reversed by charging interest
income. Interest payments received on non-accrual residential
mortgage loans and consumer loans are generally recognized as income
on a cash basis. Interest payments received on non-accrual loans
which are commercial in nature are generally used to further reduce
the carrying value of the loan. Interest payments applied to
principal during 1997 totalled $67,000 compared with interest
payments applied to principal during 1996 of $122,000. Loans past
due ninety days or more and still in accrual status are limited to
guaranteed student loans and totalled $82,000 at December 31, 1997
compared with $118,000 at December 31, 1996.
Other real estate owned totalled $481,000 at December 31, 1997
compared with $1.2 million at December 31, 1996. OREO is real
estate acquired by the Company through foreclosure or in settlement
of loans. The collections and OREO areas of the Bank are designed
to monitor and review real estate acquired by the Bank through
foreclosure. The results of their reviews are based on property
re-appraisals, current and prospective economic conditions and other
relevant factors. Management in this area is responsible for
ensuring that specific properties are carried at a value that does
not exceed fair value, less selling costs. During 1997, the Company
transferred $196,000 of loans to OREO compared with $1.4 million
during 1996. Sales of OREO amounted to $976,000 during 1997 versus
$2.2 million during 1996.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
During 1997 and 1996, the Company executed periodic sales of
non-performing and delinquent loans. These sales were completed
based on certain factors which convinced management that pursuing
resolutions through conventional collections efforts would be more
costly than resolutions through sales. During 1997, proceeds from
sales of non-performing and performing problem loans totalled $2.2
million net of charge-offs of $1.3 million through the allowance for
loan losses. Proceeds received from loan sales during 1996
totalled $2.1 million net of charge-offs of $1.6 million through the
allowance for loan losses prior to their sale.
The Company's policies ensure that lending and investment activities
are evaluated in the context of an acceptable level of risk which
produces a profit consistent with the exposure to risk. These
policies are reviewed by the Company's senior management. The
lending and credit administration staffs are charged with monitoring
the loan portfolio and identifying changes in the economy or in a
borrower's circumstances which may affect the ability to repay debt
or affect the value of pledged collateral. In addition, the Company
has engaged an independent firm for several years to perform ongoing
independent review of the loan portfolio. The results of such
reviews were consistent with the actions management has taken.
A loan is categorized as a troubled debt restructure ("TDR") if the
original interest rate on such loan, repayment terms, or both were
restructured due to a deterioration in the financial condition of
the borrower. The Company had no loans categorized TDR at December
31, 1997 or 1996.
At December 31, 1997 impaired loans totalled $2.8 million with a
valuation allowance of $465,000. At December 31, 1996 impaired
loans totalled $2.5 million with a valuation allowance of $425,000.
The average balance of impaired loans during 1997 approximated $2.9
million compared with an average of $3.8 million during 1996.
Income recognized on impaired loans during 1997 totalled
approximately $185,000. Income recognized during 1996 on these
loans totalled approximately $22,000.
(1) BAR GRAPH
NON-PERFORMING ASSETS (IN THOUSANDS)
1995 $9,097
1996 $3,780
1997 $2,769
The following table is an analysis of the Company's non-performing
assets at the dates indicated:
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1997 1996 1995 1994 1993(a)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
Mortgage loans:
Residential real estate - owner occupied $ 473 $ 862 $2,729 $ 4,194 $ 4,757
Residential real estate - non-owner occupied 330 510 1,235 -(b) -(b)
Commercial real estate 1,250 788 2,580 1,501 4,906
Builders' & land - - - 103 -
Commercial loans 77 303 690 1,858 2,708
Consumer loans 158 107 448 303 478
- ---------------------------------------------------------------------------------------------------------------------------
Total non-accruing loans 2,288 2,570 7,682 7,959 12,849
- ---------------------------------------------------------------------------------------------------------------------------
Other real estate owned:
Residential real estate 49 472 1,072 2,093 3,401
Commercial real estate - 306 - 390 1,063
Builders' & land 432 432 793 1,969 3,008
- ---------------------------------------------------------------------------------------------------------------------------
Total other real estate owned 481 1,210 1,865 4,452 7,472
- ---------------------------------------------------------------------------------------------------------------------------
Allowance for losses on other real estate owned - - (450) (741) (919)
- ---------------------------------------------------------------------------------------------------------------------------
Total other real estate owned, net 481 1,210 1,415 3,711 6,553
- ---------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $2,769 $3,780 $9,097 $11,670 $19,402
===========================================================================================================================
Total non-accruing loans to total loans 0.61% 0.64% 1.68% 1.56% 2.53%
Total non-performing assets to total loans 0.74% 0.94% 1.99% 2.29% 3.81%
Total allowance for loan losses to non-accruing loans 539.77% 503.07% 166.36% 117.17% 109.44%
Total allowances for loan and OREO losses to
non-performing assets 446.06% 342.02% 138.57% 81.11% 73.72%
<Fa> 1993 non-performing assets exclude $28.4 million of assets
classified as held for sale.
<Fb> Information for this period is not available, it is
included within "Residential real estate - owner occupied"
for prior periods.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
Allowance for Loan Losses and Provisions
to the Allowance for Loan Losses
The allowance for loan losses is a reserve established through
provisions for loan losses charged to expense on a periodic basis
and is reduced by charge-offs in the loan portfolio and increased
through recoveries of loans previously charged off. The allowance
is maintained at a level that management believes is adequate to
absorb inherent losses in the loan portfolio. Management's
methodology in determining the adequacy of the allowance considers
specific credit reviews, past loan loss experience, current economic
conditions and trends, borrowers' financial condition,
concentrations of credit, and the growth and composition of the loan
portfolio, among other factors.
At December 31, 1997, the Company maintained an allowance for loan
losses of $12.4 million, representing 3.30% of total loans
outstanding at that date. The allowance for loan losses at December
31, 1996 totalled $12.9 million, representing 3.23% of total loans
outstanding. Gross charge-offs for the year ended December 31, 1997
totalled $1.9 million compared with gross charge-offs of $3.8
million for the year ended December 31, 1996. Recoveries totalled
$1.1 million for the year ended December 31, 1997 compared with
recoveries of $1.9 million for the year ended December 31, 1996.
Net charge-offs of $800,000 for the year ended December 31, 1997
equalled 0.20% of average loans outstanding compared with net
charge-offs of $1.9 million for the year ended December 31, 1996
which equalled 0.43% of average loans outstanding.
While the ratio of the allowance for loan losses to total loans
increased to 3.30%, the level of the allowance decreased slightly to
$12.4 million at December 31, 1997 compared with $12.9 million at
December 31, 1996. A reduction in total loans outstanding accounted
for the increase in the ratio.
Provisions to the allowance for loan losses for the year ended
December 31, 1997 totalled $200,000 a reduction from provisions to
the allowance for loan losses for the year ended December 31, 1996
which totalled $2.0 million. The decrease in provisions was
primarily the result of a reduction in non-performing loans and a
reduction in total loans outstanding.
A comparative analysis of the allowance for loan losses is shown in
the following table. At December 31, 1997, management believes that
the allowance for loan losses was adequate given the quality of the
loan portfolio at that date. Management may make additional
provisions to the allowance for loan losses as necessary in the
coming year if changes in economic conditions or the status of
particular loans increases potential loss exposures.
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 12,929 $ 12,779 $ 9,326 $ 14,062 $ 21,280
Provision charged to expense 200 2,000 7,550 4,516 20,900
Charge-offs:
Mortgage loans:
Residential real estate (1,442) (2,926) (3,193) (2,826) (4,735)
Commercial real estate (207) (70) (1,308) (4,467) (14,194)
Builders' & land - - - - (2,277)
Commercial loans (3) (387) (93) (2,706) (7,103)
Consumer loans (227) (384) (252) (246) (226)
Recoveries:
Mortgage loans:
Residential real estate 189 372 187 88 107
Commercial real estate 15 207 21 369 19
Builders' & land - 35
Commercial loans 836 1,176 506 487 237
Consumer loans 62 127 35 49 54
- --------------------------------------------------------------------------------------------------------------------------------
Net charge-offs (777) (1,850) (4,097) (9,252) (28,118)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of the year $ 12,352 $ 12,929 $ 12,779 $ 9,326 $ 14,062
================================================================================================================================
Average loans for the year $387,252 $427,008 $492,028 $515,640 $546,134
Net charge-offs as a percentage of average loans 0.20% 0.43% 0.83% 1.79% 5.15%
Allowances for loan losses as a percentage
of non-performing loans 539.77% 503.07% 166.36% 117.17% 109.44%
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
Asset/Liability Management and Market Risk
The primary function of asset/liability management is to maximize
net interest income while ensuring adequate liquidity, monitoring
proper credit risk and maintaining an appropriate balance between
interest rate sensitive assets and interest rate sensitive
liabilities. Liquidity management involves the ability to meet the
cash flow requirements of the Company's loan and deposit customers.
Interest rate sensitivity management seeks to minimize fluctuating
net interest margins and to enhance consistent growth of net
interest income through periods of changing interest rates.
The Company has an asset/liability committee ("ALCO") which meets
weekly to discuss loan and deposit pricing and trends, current
liquidity and interest rate risk positions, interest rate and
economic trends and other relevant information. To aid in the
measurement of interest rate risk, the Company utilizes an
asset/liability model which, given many key assumptions, projects
estimated results within the constraints of those assumptions. The
model is also used to estimate movement within the balance sheet,
given certain scenari os, and to measure the effects of that
movement on net interest income.
Once a quarter, a series of five year financial simulations are
performed to measure the Company's exposure to interest rate risk
and compliance with policies governing interest rate risk
management. These results and policy compliance are reported to the
Board of Directors.
The following table summarizes the sensitivity of all assets and
liabilities at December 31, 1997 to changes in interest rates within
certain time horizons. A positive "GAP" exists when rate sensitive
assets exceed rate sensitive liabilities and indicates that a g
reater volume of assets than liabilities will reprice in a given
period. This will generally enhance earnings in a rising rate
environment and inhibit earnings in a declining rate environment.
Conversely, when rate sensitive liabilities exceed rate sensitive
assets, the "GAP" is referred to as negative and indicates that a
greater volume of liabilities than assets will reprice during a
given period. In this case, a rising rate environment generally
will inhibit earnings and declining rates will enhance earnings.
The Company's policy is to maintain a ratio of net rate sensitive
assets or liabilities on a one year time horizon to less than 10% of
total assets. At December 31, 1997 this rate sensitive position
equalled a negative 2.59% of assets, well within policy guidelines.
Interest Rate Sensitivity Management
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1997
After After After
six months one year three years Non-
Within but within but within but within After Interest
six months one year three years five years five years Bearing (c) Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest rate sensitive assets:
Interest-bearing deposits $ 661 $ - $ - $ - $ - $ - $ 661
Mortgage-backed securities (a) 97,145 61,483 127,665 38,673 55,045 730 380,741
Debt securities 52,796 22,399 24,320 13,846 37,573 180 151,114
Other investments 34,189 - - - 1,212 74 35,475
Loans (a) 100,080 85,740 69,154 24,337 92,340 2,359 374,010
Non-interest bearing - - - - - 19,435 19,435
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets 284,871 169,622 221,139 76,856 186,170 22,778 961,436
- ----------------------------------------------------------------------------------------------------------------------------------
Interest rate sensitive liabilities:
Regular savings and money market,
club and escrow accounts (b) $ 66,608 $ 3,688 $ 10,632 $ 5,316 $142,799 $ - $229,043
Interest-bearing checking (b) 7,870 2,955 4,432 2,216 6,608 - 24,081
Certificates of deposit 282,813 90,495 125,126 9,458 10,200 (254) 517,838
Borrowings from FHLB of Boston 20,000 5,000 33,000 - - - 58,000
Non-interest bearing - - - - - 132,474 132,474
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Capital 377,291 102,138 173,190 16,990 159,607 132,220 961,436
- ----------------------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity GAP $(92,420) $ 67,484 $ 47,949 $59,866 $ 26,563 $(109,442) $ -
==================================================================================================================================
Cumulative interest rate sensitivity GAP $(92,420) $(24,936) $ 23,013 $82,879 $109,442 $ - $ -
==================================================================================================================================
Percentage of interest rate
sensitivity GAP to total assets
Period (9.61)% 7.02% 4.99% 6.23% 2.76% (11.38)%
Cumulative (9.61)% (2.59)% 2.39% 8.62% 11.38% -%
Cumulative rate sensitive assets as a percentage
of cumulative rate sensitive liabilities 75.50% 94.80% 103.53% 112.38% 113.20% 100.00%
<Fa> The categories within which loans and mortgage-backed
securities have been included reflect certain
prepayment assumptions by management given certain
weighted average maturities and projected interest rate
assumptions.
<Fb> A substantial portion of regular savings deposits and
interest-bearing checking deposits are considered core
deposits by management and therefore less sensitive to
changes in interest rates.
<Fc> Non-accrual loans are included in non-interest bearing.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
The Company, like most public companies, is subject to market risk
in some form. Market risk can best be described as the risk of loss
from changes in prevailing prices and/or interest rates. A banking
institution's primary market risk is generally interest rate risk
which is inherent in the services which most institutions offer;
lending, investing, and deposit activities. To that end, management
actively monitors and manages interest rate risk as part of the
Company's asset/liability management policies. These policies seek
to minimize the impact on net interest income of changes in
prevailing interest rates. The following table presents information
about the Company's financial instruments that are sensitive to
changes in interest rates. The table presents expected cash flows
derived from contractual maturities adjusted for prepayments.
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1997 Expected Maturity Date
Fair
1998 1999 2000 2001 2002 Thereafter Total Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets (d)
Federal funds sold
and interest bearing deposits $ 27,416 - - - - - $ 27,416 $ 27,416
Average interest rate 5.27% - - - - - 5.27%
Fixed rate investment securities $ 75,194 $ 17,126 $ 7,194 $13,846 $ 4,219 $ 34,567 $152,146 $152,312
Average interest rate 7.03% 7.01% 7.05% 6.50% 6.51% 6.97% 6.95%
Adjustable rate investment
securities - - - - - $ 7,434 $ 7,434 $ 7,434
Average interest rate - - - - - 6.58% 6.58%
Fixed rate mortgage-backed
securities $ 95,792 $ 72,155 $55,510 $38,673 $22,599 $ 32,446 $317,175 $317,507
Average interest rate (a) - - - - - - 6.96%
Adjustable rate
mortgage-backed securities $ 5,581 $ 5,652 $ 4,991 $ 4,121 $ 3,911 $ 38,579 $ 62,835 $ 63,234
Average interest rate 6.68% 6.65% 6.66% 6.71% 6.71% 6.82% 6.77%
Fixed rate loans (b) $ 39,404 $ 30,731 $24,787 $19,651 $16,444 $ 63,908 $194,925 $197,036
Average interest rate 7.99% 7.86% 7.82% 7.68% 7.63% 7.60% 7.76%
Adjustable rate loans (b) $ 31,840 $ 18,041 $15,360 $13,582 $11,884 $ 86,019 $176,726 $177,566
Average interest rate 8.74% 8.35% 8.29% 8.30% 8.13% 8.20% 8.33%
- -----------------------------------------------------------------------------------------------------------------------------
Liabilities
Fixed rate deposits $357,982 $105,495 $19,631 $ 9,458 $10,200 - $502,766 $503,770
Average interest rate 5.32% 5.97% 6.28% 6.38% 6.11% - 5.53%
Adjustable rate deposits:
Regular savings, money
market, club and
escrow deposits (c) $ 70,296 $ 5,316 $ 5,316 $ 5,316 $ 5,316 $137,483 $229,043 $229,043
Average interest rate 4.61% 2.30% 2.30% 2.30% 2.30% 2.33% 3.02%
Interest-bearing
demand deposits (c) $ 10,825 $ 2,216 $ 2,216 $ 2,216 $ 2,216 $ 4,392 $ 24,081 $ 24,081
Average interest rate 2.20% 1.50% 1.50% 1.50% 1.50% 1.50% 1.81%
Certificates of deposit $ 10,920 $ 4,406 - - - - $ 15,326 $ 15,328
Average interest rate 5.08% 5.08% - - - - 5.08%
Fixed rate FHLBB
borrowings $ 25,000 $ 25,000 $ 8,000 - - - $ 58,000 $ 58,267
Average interest rate 5.97% 6.39% 6.51% - - - 6.22%
<Fa> Average interest rate information, for the time horizons
presented, was not available due to system constraints.
<Fb> Loan information is shown gross of the allowance for loan
losses and excludes non-performing loans.
<Fc> Deposits with no stated maturity are staggered within all
maturities using the same assumptions utilized with the interest
sensitivity table.
<Fd> Purchased interest rate contracts with a book value of
$196,000 and a fair value of $145,000 at December 31, 1997 are
excluded from the presentation above.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
In an effort to manage the interest rate sensitivity position of the
Bank's balance sheet and to respond to certain modeling scenarios
which indicated sensitivity exposures at certain time horizons, the
Company purchased selected interest rate contracts during 1997. The
Company entered into these contracts in order to hedge against the
effects of changes in net interest inc ome caused by fluctuations in
the levels of prevailing interest rates.
During 1997, Dime purchased two interest rate floor contracts with a
combined notional value of $20.0 million for three and four year
terms. These hedges were purchased in order to mitigate the impact
of falling interest rates which could cause increases in prepayment
within the loan, mortgage-backed sec urity and CMO portfolios. The
contracts call for payments to be made to Dime when the three month
London Interbank Offering Rate ("LIBOR" or "the index") falls below
a specified level at certain measurement dates. The premium for
these contracts is considered a hedging cost and amortized over the
life of the contracts as a reduction of interest income. The Bank's
cost for these contracts is fixed. No additional liability to Dime
exists under these contracts.
Dime also entered into interest rate cap corridor contracts with a
combined notional value of $30.0 million for three year terms.
These hedges were purchased in order to mitigate the impact of
rising interest rates which could cause an increase in the cost of
funds. These contracts call for payments to be made to the Bank
when the index rises above a specified level at certain measurement
dates. The premium for these contracts is considered a hedging cost
and amortized over the life of the contracts as an increase in
interest expense. The Bank's cost for these contracts is fixed. No
additional liability to Dime exists under these contracts.
Existing policies allow for the continued purchase of these types of
contracts in response to measured exposures to interest rate risk.
In addition, existing positions may be sold with any proceeds in
excess of amortized cost deferred and amortized over the remaining
life of the original contract.
Net Interest Rate Spread & Net Interest Income
The net interest rate spread (the "spread") is the difference
between the average interest rate received on interest-earning
assets and the average interest rate paid for interest-bearing
liabilities. For the year ended December 31, 1997 average
interest-earning assets totalled $846.7 million, an increase of
26.0%, and generated an average yield of 7.44%. This compares with
average interest-earning assets of $672.0 million generating an
average yield of 7.65% for the year ended December 31, 1996.
Average interest-bearing liabilities totalled $746.5 million, an
increase of 27.3%, with an average cost of 4.66% for the year ended
December 31, 1997 compared with average interest-bearing liabilities
of $586.2 million with an average cost of 4.35% for the year ended
December 31, 1996. The spread for the year ended December 31, 1997
equalled 2.78% compared with a spread of 3.30% for the year ended
December 31, 1996. The net interest margin for the year ended
December 31, 1997 was 3.33% versus a net interest margin of 3.85%
for the year ended December 31, 1996.
The reduction in the spread and margin during 1997 was caused
primarily by an increase in the cost of interest-bearing deposits
coupled with a shift in the composition of interest-earning assets
from higher yielding loans to lower yielding investment securities.
The average balance of certificates of deposit, the largest deposit
category, totalled $454.4 million during 1997 with an average cost
of 5.47% for the year, compared with average certificates of deposit
of $308.8 million for the year ended December 31, 1996, with an
average cost of 5.33%. The average balance of loans receivable
decreased to $387.3 million during 1997 compared with $427.0 million
during 1996, representing a decrease of $39.8 million. In addition,
the average rate earned on these loans decreased nine basis points
from 8.29% during 1996 to 8.20% during 1997.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
The following comparative table shows the average balances and
average interest rates of interest-earning assets and
interest-bearing liabilities:
Average Balances and Interest Rates
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996 1995
--------------------------- --------------------------- ---------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable (a) $387,252 $31,757 8.20% $427,008 $35,417 8.29% $492,028 $39,781 8.09%
Interest-bearing deposits 154 4 2.60% 360 23 6.39% 3,556 126 3.54%
Federal funds sold 23,075 1,253 5.36% 17,643 929 5.18% 20,171 1,174 5.74%
U.S. treasury securities 3,464 226 6.52% 4,104 241 5.87% 13,553 649 4.79%
U.S. agency obligations 144,958 10,025 6.92% 78,869 5,389 6.83% 34,931 2,315 6.63%
REMIC's/CMO's 143,449 9,752 6.80% 50,216 3,152 6.28% 19,929 1,380 6.92%
Non-agency REMIC's/CMO's 76,183 5,209 6.84% 29,608 2,008 6.78% - - -
Mortgage-backed securities
adjustable rate 49,929 3,422 6.85% 47,793 3,062 6.41% 15,893 1,069 6.73%
Asset-backed securities 12,423 887 7.14% 9,410 661 7.02% - - -
Other bonds and notes - - - 766 48 6.27% 9,079 475 5.23%
Equity securities 81 8 9.88% 12 1 8.33% 65 3 4.62%
Net unrealized gain (loss) on
available for sale securities (1,449) - - (960) - - n/m - -
Federal Home Loan Bank
of Boston stock 7,192 466 6.48% 7,192 460 6.40% 7,192 504 7.01%
- ----------------------------------------------------------------------------------------------------------------------------
$846,711 $63,009 7.44% $672,021 $51,391 7.65% $616,397 $47,476 7.70%
============================================================================================================================
Noninterest-Earning Assets:
Cash & due from banks 9,359 9,307 8,876
Premises and equipment 4,802 5,568 7,485
Accrued interest receivable 5,839 4,444 4,108
Other assets (a) (3,106) (4,716) (2,928)
- ----------------------------------------------------------------------------------------------------------------------------
16,894 14,603 17,541
- ----------------------------------------------------------------------------------------------------------------------------
Total $863,605 $686,624 $633,938
============================================================================================================================
Interest-Bearing Liabilities:
Now accounts $ 22,553 347 1.54% $ 21,998 $ 339 1.54% $ 21,569 $ 340 1.58%
Savings, money market, club
and escrow deposits 219,040 6,317 2.88% 197,475 4,704 2.38% 221,050 5,136 2.32%
Certificates of deposit 454,448 24,849 5.47% 308,772 16,454 5.33% 244,518 12,417 5.08%
FHLBB advances 50,507 3,275 6.40% 58,000 3,998 6.78% 58,060 4,186 7.11%
- ----------------------------------------------------------------------------------------------------------------------------
$746,548 $34,788 4.66% $586,245 $25,495 4.35% $545,197 $22,079 4.05%
============================================================================================================================
Noninterest-Bearing Liabilities
and Capital accounts:
Demand deposits 42,268 38,540 35,897
Other liabilities 5,580 5,623 5,714
Shareholders' equity 69,209 56,216 47,130
- ----------------------------------------------------------------------------------------------------------------------------
117,057 100,379 88,741
- ----------------------------------------------------------------------------------------------------------------------------
Total $863,605 $686,624 $633,938
============================================================================================================================
Net Interest Income $28,221 $25,896 $25,397
============================================================================================================================
Net Interest Rate Spread 2.78% 3.30% 3.65%
============================================================================================================================
Net Yield on Interest
Earning Assets 3.33% 3.85% 4.12%
============================================================================================================================
<Fa> Average loans receivable including loans in non-accrual
status, are shown gross and the related allowance is included
in other assets. The average daily balance for the allowance
exceeded that of the remaining other assets, creating a
negative balance.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
Net interest income for the year ended December 31, 1997 increased
$2.3 million or 9.0% to $28.2 million compared with $25.9 million
for the year ended December 31, 1996. The reduction in the net
interest margin was more than offset by the increased volume of
interest-earning assets. The following rate/volume analysis
reflects the impact of rate and volume changes in interest-earning
asset and interest-bearing liability categories on annual net
interest income.
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 Compared to 1996 1996 Compared to 1995
- --------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to Due to Due to
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans receivable $ (3,264) $ (396) $ (3,660) $(5,371) $ 1,007 $(4,364)
Federal funds sold 292 32 324 (138) (107) (245)
U.S. treasury securities (40) 25 (15) (530) 122 (408)
U.S. government agency obligations 4,570 66 4,636 3,000 74 3,074
REMIC's/CMO's 6,317 283 6,600 1,913 (141) 1,772
Non-agency REMIC's/CMO's 3,184 17 3,201 2,008 - 2,008
Mortgage-backed securities 140 220 360 2,046 (53) 1,993
Asset-backed securities 215 11 226 661 - 661
Other investments (62) 1 (61) (716) 142 (574)
Equity securities 7 - 7 (3) 1 (2)
Change due to mix in interest-earning assets (a) 1,702 (1,702) - 1,357 (1,357) -
- -------------------------------------------------------------------------------------------------------------------------
Total Interest Income 13,061 (1,443) 11,618 4,227 (312) 3,915
- -------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Deposits 8,514 1,502 10,016 2,846 758 3,604
FHLBB advances (502) (221) (723) (4) (184) (188)
- -------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 8,012 1,281 9,293 2,842 574 3,416
- -------------------------------------------------------------------------------------------------------------------------
Net Interest Income $ 5,049 $(2,724) $ 2,325 $ 1,385 $ (886) $ 499
=========================================================================================================================
<Fa> Represents the effects on interest income which are caused by
changes in the mix of interest-earning assets relative to
interest-earning assets in the aggregate.
</TABLE>
Lending Activities
Total loans equalled $374.0 million at December 31, 1997 and
represented 38.9% of total assets compared with total loans of
$400.2 million or 53.3% of total assets at December 31, 1996,
representing a decrease of $26.2 million or 6.5%. The decrease in
loans from year-end 1996 was caused primarily by the combination of
weak loan demand and asset/liability management policies which
continue to weigh the risk/reward ratio of potential loan requests
with opportunities available elsewhere. Highly competitive pricing
tempered loan production during the year as management believed that
the pricing necessary to sustain the loan portfolio during 1997 was
inconsistent with the risk presented. As a result, the Company
directed much of its focus to the investment securities portfolio.
Nevertheless, total loan orginations increased during 1997 by $28.8
million to $55.3 million.
Lending activities traditionally consisted of the origination of
conventional mortgage loans on residential real estate, the
origination of secured consumer loans and the origination of
commercial mortgage and other commercial and industrial loans. To
aid in asset/liability management, the Company offers adjustable
rate mortgage loans that reprice every one to three years and offers
adjustable rate hybrid products which offer a fixed rate at the
beginning of the loan term, from three to ten years, and then
reprice yearly after the initial term. The Company generally limits
the term of fixed rate mortgage loans it will accept for its own
portfolio to 15 years. Origination of fixed rate loans with a term
in excess of 15 years are generally sold on a loan by loan basis.
Consumer loans offered i nclude home equity term loans, home equity
lines of credit, automobile loans and education loans. Adjustable
rate loans equalled 47.4% of total loans at December 31, 1997
compared with adjustable rate loans which represented 47.8% of total
loans at December 31, 1996.
The Company experienced increased, yet still modest, loan production
during 1997. Local competition for a limited market of loans
presented competitive rate offerings which Dime was unwilling, in
many circumstances, to match. As a result, total loan originations,
in most portfolios, could not overcome normal amortization and
prepayments. During 1997 Dime originated $55.3 million of new
loans; $20.3 million of one to four family residential mortgages,
$17.0 million of home equity, education and other consumer type
loans and $18.0 million of commercial business and commercial real
estate loans.
BAR GRAPH INSERT (IN THOUSANDS)
TOTAL LOANS
1995 $456,443
1996 $400,222
1997 $374,010
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
In comparison, during 1996, Dime originated $26.5 million of new
loans; $9.7 million of one to four family mortgages, $10.0 million
of home equity and other consumer loans and $6.8 million of
commercial loans and commercial real estate loans.
The increase in commercial loan origination during 1997 was caused
primarily by the introduction of several third party equipment
leasing transactions. The Bank does not own the equipment and does
not have any exposure to the equipment's residual value. These
loans are fixed rate and are fully amortizing with terms from one
to seven years with payments generally assigned directly to the
Bank from the end user of the equipment.
The following table presents the loan portfolio by fixed and
variable components:
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Amount % Amount % Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Adjustable rate loans:
Mortgage loans:
Residential real estate:
owner occupied $107,966 28.9% $111,219 27.8% $130,823 28.7% $177,193 34.7% $194,626 38.2%
non-owner occupied (b) 27,032 7.2% 30,736 7.7% 26,649 5.8% -(a) - -(a) -
Commercial real estate 22,465 6.0% 28,141 7.0% 35,455 7.8% 46,860 9.2% 65,135 12.8%
Builders' & land 594 0.2% 115 0.0% 1,501 0.3% 4,276 0.8% 4,864 1.0%
Consumer loans 15,819 4.2% 18,598 4.6% 20,868 4.6% 19,067 3.8% 20,821 4.1%
Commercial loans 3,514 0.9% 2,596 0.7% 4,082 0.9% 6,292 1.2% 11,505 2.3%
- ----------------------------------------------------------------------------------------------------------------------------------
Total adjustable rate 177,390 47.4% 191,405 47.8% 219,378 48.1% 253,688 49.7% 296,951 58.4%
- ----------------------------------------------------------------------------------------------------------------------------------
Fixed rate loans:
Mortgage loans:
Residential real estate:
owner occupied 159,950 42.8% 176,783 44.2% 199,033 43.6% 217,004 42.5% 173,278 34.0%
non-owner occupied 408 0.1% 629 0.1% 1,050 0.2% -(a) - -(a) -
Commercial real estate 3,724 1.0% 5,307 1.3% 8,204 1.8% 10,076 2.0% 10,508 2.1%
Builders' & land - - 332 0.1% - - - - - -
Consumer loans 25,891 6.9% 25,493 6.4% 28,420 6.2% 28,965 5.7% 26,151 5.1%
Commercial loans 6,787 1.8% 406 0.1% 445 0.1% 751 0.1% 1,917 0.4%
- ----------------------------------------------------------------------------------------------------------------------------------
Total fixed rate 196,760 52.6% 208,950 52.2% 237,152 51.9% 256,796 50.3% 211,854 41.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Total loans 374,150 100.0% 400,355 100.0% 456,530 100.0% 510,484 100.0% 508,805 100.0%
- ----------------------------------------------------------------------------------------------------------------------------------
Less:
Allowance for loan losses 12,352 12,929 12,779 9,326 14,062
Unearned income - - - -
Deferred loan
origination fees, net 140 133 87 106 724
- ----------------------------------------------------------------------------------------------------------------------------------
Loans receivable, net $361,658 $387,293 $443,664 $501,052 $494,019
==================================================================================================================================
<Fa> Information for this period is not available, and is
included within "Residential real estate - owner occupied"
for prior periods.
<Fb> In 1996, approximately $8 million of loans
have been reclassified from "owner occupied" to "non-owner
occupied" based on updated information.
</TABLE>
Residential real estate loans decreased $24.0 million or 7.5% during
1997 and totalled $295.4 million or 78.9% of total loans outstanding
at December 31, 1997. Residential real estate loans at December 31,
1996 totalled $319.4 million and represented 79.8% of total loans
outstanding.
Commercial real estate and builders loans decreased $7.1 million or
21.0% from year-end 1996 and totalled $26.8 million or 7.2% of total
loans outstanding at December 31, 1997. Commercial real estate and
builders loans at December 31, 1996 totalled $33.9 million and
represented 8.5% of total loans outstanding.
Consumer loans, which include equity loans on residential real
estate, decreased $2.4 million or 5.4% during 1997 and totalled
$41.7 million or 11.1% of total loans outstanding at December 31,
1997. Consumer loans at December 31, 1996 totalled $44.1 million
and represented 11.0% of total loans outstanding.
Commercial loans increased $7.3 million or 243.1% from year-end 1996
and totalled $10.3 million or 2.8% of total loans outstanding at
December 31, 1997. Commercial loans at December 31, 1996 totalled
$3.0 million and represented less than 1.0% of total loans
outstanding.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
Investment Activities
Investment securities, excluding the investment in the Federal Home
Loan Bank of Boston, increased $228.2 million or nearly 75% during
1997 to total $533.4 million or 55.5% of total assets at December
31, 1997 compared with $305.2 million or 40.6% of total assets at
December 31, 1996. The increase in securities during 1997 was
primarily the result of a continued focus on investment securities
as loan opportunities with an acceptable risk versus reward ratio
were limited.
In addition to the substantial increase in the level of investment
securities, the composition of the portfolio changed as well.
Investments in loan related instruments continued as the portfolios
of collateralized mortgage obligations ("CMOs"), mortgage-backed
securities ("MBSs") and asset-backed securities ("ABSs") increased
to $391.4 million at December 31, 1997 compared with $173.1 million
at year-end 1996. The behavior of these instruments mirror, in many
ways, the reactions to market conditions of a traditional loan
portfolio yet do so without the same level of credit risk and costs
to service and, in addition, offer expanded marketability compared
with traditional whole loans. In addition, CMOs provide the ability
to structure the expected cash flow return so as to better manage
interest rate risk.
Periodically, the Company has sold call options on certain
qualifying owned investment securities in an effort to enhance
yield. Generally, option premiums received are deferred and
recognized as an adjustment to yield if the option expires
unexercised or are recognized as a gain on sale if the option is
exercised. Option premiums recognized as income during 1997
totalled $103,000. No option income was recorded during 1996.
There were no outstanding call options at December 31, 1997.
In the latter part of 1997, the Company began analyzing and
purchasing certain highly rated common and preferred stocks in an
effort to further diversify the portfolio and to take advantage of
preferential Federal and State income tax treatment of dividend
income received from those issues. Equity securities, excluding the
investment in Federal Home Loan Bank of Boston stock, totalled $1.5
million at December 31, 1997 compared with $12,000 at December 31,
1996.
The Company's investment policy provides guidelines under which
investments are purchased and sold. The Company's asset/liability
("ALCO") committee meets weekly and establishes loan and deposit
pricing. The investment policy coupled with price/risk monitoring
by the ALCO, provide the foundation from which investment security
transactions are completed. The portfolio is comprised of high
quality investments with many issues guaranteed or partially
guaranteed by the U.S. Government, a U.S. Government Agency or a
U.S. Government Sponsored Agency. All debt security investments
were rated Aaa at December 31, 1997.
The objectives of the investment securities portfolio include the
attainment of competitive yields on a risk-adjusted basis; the
management of the duration of assets for interest rate risk
purposes; to provide increased liquidity; to provide a source of
capital gain income as opportunities exist. During 1997 the Company
recorded net gains from the sale of investment securities totalling
$195,000 compared with net gains of $326,000 during 1996.
The following table comparatively illustrates the changes in the
composition of the investment security portfolio at December 31,
1995, 1996 and 1997.
<TABLE>
<CAPTION>
(Dollars in thousands)
Years Ended December 31, 1997 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C>
U.S. treasury securities $ 3,477 $ 3,452 $ 5,041
U.S. government-sponsored
agency obligations 136,964 128,620 46,886
Other bonds and notes - - 4,097
REMIC's/CMO's 332,090 134,867 47,278
Mortgage-backed securities 48,651 23,861 47,912
Asset-backed securities 10,673 14,406 -
Equity securities 1,528 12 12
-----------------------------------------------------------------
Total investment securities $533,383 $305,218 $151,226
=================================================================
</TABLE>
Investment securities classified as available for sale and held to
maturity under FAS #115 are combined in the presentation above.
For a complete presentation of securities and their appropriate
classifications under FAS #115 please refer to Note #4.
Deposits and Other Borrowings
Deposits have traditionally been the major source of funding for
investment purchases and loan originations, and should continue to
be in the foreseeable future. A wide variety of consumer savings,
time and demand deposit products designed to attract both short term
and long term funds are offered. In addition, Dime offers
commercial deposit products to meet the needs of business customers.
In an effort to provide funding flexibility and diversification,
Dime explored other avenues of funding during the latter part of
1996 and throughout 1997. Alternatives such as the sale of retail
brokered certificates of deposit and solicited municipal deposits
provided such diversification.
Total deposits increased $191.0 million or 30.5% during 1997 to
total $817.1 million at December 31, 1997 compared with total
deposits of $626.1 million at December 31, 1996. The growth in
deposits during 1997 was provided by a combination of competitive
pricing and the introduction or expansion of other avenues of
deposit gathering.
Retail brokered certificates of deposit, a relatively new funding
area for Dime, were first sold during the fourth quarter of 1996 and
totalled $3.0 million at December 31, 1996. During 1997, however,
this area grew substantially and totalled nearly $31.7 million at
December 31, 1997. Growth in this area was primarily generated by
attractive pricing when compared with other funding alternatives.
(1) BAR GRAPH (IN THOUSANDS)
INVESTMENT SECURITIES
1995 $151,226
1996 $305,218
1997 $533,383
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
Dime also utilized an additional new funding source through the
introduction of solicited municipal deposits. Periodically, local
municipalities seek bids from several financial institutions for
short-term deposits. Several factors are considered in determining
bid pricing for these deposits including the length of the deposit
and pricing available for alternative funds. The Bank first became
involved in this process in early 1997 and grew the portfolio to
total $21.5 million at December 31, 1997.
Dime is a member of the Federal Home Loan Bank of Boston (the
"FHLBB") and as a member may borrow from the FHLBB to secure
additional funds. FHLBB borrowings equalled $58.0 million at
December 31, 1997 unchanged from year-end 1996. If deposit growth
cannot meet increased liquidity requirements or loan demand,
additional funds may be derived from FHLBB borrowings or other
funding sources.
The asset/liability committee meets weekly to determine pricing
levels. In determining the rate of interest to pay for deposits,
many factors are considered including current treasury rates, cash
flow requirements, interest rate sensitivity position, rates paid by
competitors, cost of alternative funding sources and budgeted income
objectives. The following tables illustrate the changes within the
deposit structure during 1997. Lower cost savings type accounts
continued to decrease while higher cost certificates of deposit
increased. For additional deposit information please see "Note 8:
Deposits".
(Dollars in thousands)
Years Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------
Net increase (decrease)
in deposits
before interest $159,480 $61,257 $(2,335)
Interest credited 31,513 21,497 17,893
-----------------------------------------------------------------
Net increase (decrease)
in deposits $190,993 $82,754 $15,558
=================================================================
The net change in deposit accounts of various types, for the periods
indicated was:
(Dollars in thousands)
Years Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------
Regular savings and clubs $(14,355) $(17,976) $(45,636)
NOW accounts 2,734 (1,583) 362
Demand deposits 5,856 1,137 28
Money market accounts 44,532 14,776 (3,255)
Certificates of deposit 123,675 84,507 64,176
Retail brokered certificates
of deposit 28,777 2,969 -
Escrow deposits (226) (1,076) (117)
-----------------------------------------------------------------
Total $190,993 $ 82,754 $ 15,558
=================================================================
Other Operating Income
Other income is primarily generated through service charges and
other fee-based income derived from deposit and lending activities.
Other operating income for the years ended December 31, 1997 and
1996 totalled $2.0 million compared with other operating income of
$2.1 million for the year ended December 31, 1995.
The following table summarizes the categories of other income:
(Dollars in thousands)
Years Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------
Deposit account fees $1,650 $1,638 $1,578
Customer service fees 141 137 140
Fees from savings bank life
insurance sales 163 149 140
Loan and loan servicing fees 41 47 49
Other fees 43 78 173
-----------------------------------------------------------------
Total other income $2,038 $2,049 $2,080
=================================================================
Operating Expenses
The Company's operating expenses include salaries and employee
benefit costs, professional and other services, occupancy and
equipment costs, and FDIC insurance costs among other charges.
Total operating expenses for the year ended December 31, 1997 were
$13.4 million inclusive of a net charge from the operation of other
real estate owned and non-performing loans ("OREO operations")
totalling $80,000. Operating expenses for the year ended December
31, 1996 were $13.8 million including net restructure charges of
$77,000 and including a net gain from OREO operations of $117,000.
OREO operations includes expenses related to the maintenance of
OREO, including real estate taxes and property insurance. In
addition, charges related to the foreclosure process including
legal, appraisal, and other fees are included within OREO
operations. These expenses are reduced by gains recognized on the
sales of OREO.
The Company began a restructuring program in the second quarter of
1995 which resulted in significant staff reductions of approximately
30% of the workforce and the outsourcing of the Company's data
processing operations and other functions. Additional restructuring
was undertaken during 1996, though to a lessor degree, with gross
charges to operations of $340,000 primarily representing severance
charges related to the termination of approximately 15 employees or
approximately 9% of the total workforce at that time. These gross
charges were partially offset by the recognition of curtailment
gains of $263,000 in the non-contributory defined benefit plan and
the defined benefit postretirement plan. Net charges totalled
$77,000 for the year ended December 31, 1996. No restructure
charges were recorded during 1997.
Management concentrates heavily on the control of operating
expenses. The Company's efficiency ratio, a common measurement of
operating efficiency for financial institutions, equalled just
43.87% for the year ended December 31, 1997 compared with an
efficiency ratio of 49.55% for the year ended 1996. Simply put, for
each dollar that the Company generated in revenue, net of interest
expense, during 1997, it expended 43.87 cents. Total operating
expenses expressed as a percentage of average assets equalled 1.54%
for the year ended 1997 compared with 2.02% of average assets for
the year ended December 31, 1996.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
Income Taxes
During 1997, the Company provided income tax expense of $70,000 and
recognized $6.6 million of its deferred tax asset as a result of a
favorable earnings history.
The net deferred tax asset at December 31, 1997 totalled $6.7
million as compared with $5.2 million at December 31, 1996. At
December 31, 1997 the Company had gross deferred tax assets of $8.0
million and gross deferred tax liabilities of $1.3 million.
In assessing the realizability of the deferred tax assets,
management considers whether it is more likely than not that some
portion or all of the deferred tax asset will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which
those temporary differences become deductible. Management believes
that it is more likely than not that the Company will realize the
net deferred tax asset recognized at December 31, 1997.
During 1997, management continued to reassess the level of the
valuation allowance needed and determined that it was no longer
required due primarily to continued and projected earning levels.
Management anticipates that earnings in 1998 will be subject to a
combined federal and state effective tax rate of approximately 40%.
Liquidity, Sources and Uses of Funds,
and Capital Resources
Liquidity involves the ability to meet cash flow requirements of
depositors wanting to withdraw funds or of borrowers needing
assurance that sufficient funds will be available to meet their
credit needs. Cash on hand, deposits at other financial
institutions and federal funds sold are the principal sources of
liquidity. Cash and cash equivalents totalled $36.4 million at
December 31, 1997 compared with $31.9 million at December 31, 1996
and compared with $35.5 million at December 31, 1995. Cash and cash
equivalents were 3.79% of total assets at December 31, 1997 compared
with 4.24% of total assets at December 31, 1996 and compared with
5.39% of total assets at December 31, 1995.
The primary sources of funds include cash receipts from deposits,
loan principal and interest payments, proceeds from the sale of
investments, earnings from investments, and proceeds from amortizing
and maturing investments. The principal uses of funds include
disbursements to fund investment purchases, loan originations,
payment of interest on deposits, and payments to meet the operating
expenses of the Company and Dime.
Net cash used by investing activities totalled $198.2 million during
the year ended December 31, 1997 as the Company reinvested funds
provided by the decrease in the loan portfolio, deposit growth and
maturing investments to fund the purchase of mortgage-backed
securities and other investment securities. The net decrease in the
loan portfolio totalled $22.1 million while deposits increased by
$191.0 million and funds provided by maturing and amortizing
investments totalled $137.6 million. Funds provided from the sale
of investments totalled $64.6 million.
At December 31, 1997, FHLBB borrowings totalled $58.0 million,
unchanged from year-end 1996 and year-end 1995. The Company
believes that liquidity is sufficient to meet currently known
demands and commitments and may use FHLBB borrowings as a source of
new funds, if needed. The maximum amount that Dime may borrow is at
the discretion of the FHLBB. Based on the level of qualifying
collateral available to secure advances at December 31, 1997, Dime's
estimated borrowing limit was $715.2 million.
At December 31, 1997, there were $368.9 million of time certificates
of deposit maturing within one year compared with $338.4 million at
December 31, 1996 and compared with $242.9 million at December 31,
1995. The Company expects that substantially all of these
certificates will be renewed or replaced with new deposits.
The primary source of funds for the Company is the dividends
received from Dime. The liquidity and the capital resources of the
Company are largely dependent upon the liquidity, profitability and
capital position of Dime. At December 31, 1997, the Company's
equity to assets ratio was 8.25% compared with an equity to assets
ratio of 8.33% at December 31, 1996 and compared with an equity to
assets ratio of 7.85% at December 31, 1995. The Company must comply
with the capital ratio requirements set by the Board of Governors of
the Federal Reserve while Dime must comply with the capital ratio
requireme nts set by the FDIC. The following table presents the
Company's risk-based capital and leverage capital ratios:
<TABLE>
<CAPTION>
December 31, Required* 1997 1996
- -------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1 risk-based capital 6.00% 20.63% 17.93%
Total risk-based capital 10.00% 21.90% 19.21%
Leverage capital 5.00% 8.17% 8.44%
<F*> For an institution to be considered "well capitalized" a
capital ratio in excess of those shown is required.
</TABLE>
Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for
reporting and displaying comprehensive income, which is defined as
all changes to equity except investments by and distributions to
shareholders. Net income is a component of comprehensive income,
with all other components referred to in the aggregate as other
comprehensive income. This statement is effective for 1998 interim
and annual financial statements. The adoption of this statement is
not expected to have a material effect on the Company's consolidated
financial statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which
establishes standards for reporting information about operating
segments. This statement requires a company to disclose certain
income statement and balance sheet information by operating segment,
as well as provide a reconciliation of operating segment information
to the company's consolidated balances. An operating segment is
defined as a component of a business for which separate financial
information is available that is evaluated regularly by management
in determining how to allocate resources and evaluate performance.
This statement is effective for the 1998 annual financial statements
and is not expected to have an impact on the Company's disclosure
requirements.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," which
revises employers' disclosures about pension and other
postretirement benefit plans. This statement standardizes the
disclosure requirements for pensions and other postretirement
benefits, requires additional information on changes in the ben efit
obligations and fair values of plan assets, and eliminates certain
disclosures that are no longer useful under SFAS No. 87. This
statement is effective for 1998 annual financial statements. The
adoption of this statement is not expected to have a material effect
on the Company's consolidated financial statements.
Year 2000 Compliance
The Company is aware of the issues associated with the programming
code in existing computer systems as the year 2000 approaches. The
"year 2000" issue is pervasive and complex as virtually every
computer operation will be affected in some way by the rollover to
the two digit year value to 00. The issue is whether computer
systems will properly recognize date sensitive information when the
year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail.
The Company has completed its initial assessment relating to year
2000 compliance and has begun implementing a plan to ensure proper
date recognition.
The Bank is an FDIC insured institution and, as such, is subject to
and will adhere to the schedule required by its regulator. Under an
Interagency Statement on year 2000 project management awareness,
federal bank regulations strongly recommend that changes be largely
completed by December 31, 1998 and that testing be well underway.
Management expects that changes to mission-critical applications
will have been made and testing will be in process by December 31,
1998.
Management expects that expenses related to year 2000 compliance
will have an immaterial effect on the Companys earnings.
Year Ended December 31, 1996, Compared to Year Ended December
31, 1995.
Overview: Net income for the year ended December 31, 1996 totalled
$12.5 million or $2.42 per share on a diluted basis, compared with a
net income of $6.0 million or $1.20 per share on a diluted basis for
the year ended December 31, 1995. The change in net income was
primarily caused by a decrease in operating expenses, a reduction in
the provision for loan losses a nd an increase in interest-earning
assets and interest-bearing liabilities.
Interest Income: Interest income for the year ended December 31,
1996 totalled $51.4 million compared with interest income of $47.5
million for the year ended December 31, 1995. This increase of $3.9
million, or 8.25%, was due principally to an increase in the volume
of average interest-earning assets from $616.4 for the year ended
1995 to $672.0 million for the year ende d 1996, an increase of
$55.6 million. The significant increase in volume offset a decrease
in the weighted average yield on interest-earning assets from 7.70%
in 1995 to 7.65% in 1996.
Interest Expense: Interest expense totalled $25.5 million for the
year ended December 31, 1996 compared with interest expense of $22.1
million for the year ended December 31, 1995. This increase was
primarily caused by an increase in the levels of interest-bearing
liabilities and by a general increase in the rates paid on deposits,
the principal source of funding for the Bank. Total deposits
increased $82.8 million or 15.2% to $626.1 million at December 31,
1996 compared with total deposits of $543.3 million at December 31,
1995. The average cost of interest-bearing liabilities for the year
ended 1996 equalled 4.35% compared with an average cost of 4.05% for
the year ended 1995.
Provision for Loan Losses: The provision to the allowance for loan
losses for the year ended December 31, 1996 totalled $2.0 million
compared with a provision for the year ended December 31, 1995 of
$7.6 million. The decreased provision during 1996 was primarily the
result of a reduction in non-performing loans and a reduction in
total loans outstanding. At December 31, 1996, the Company
maintained an allowance for loan losses of $12.9 million
representing 3.23% of total loans outstanding. At December 31,
1995, the Company maintained an allowance for loan losses of $12.8
million representing 2.80% of total loans outstanding.
Investment Securities Gains: The Company recognized gains of
$326,000 on the sale of investment securities during the year ended
December 31, 1996 compared with net gains of $298,000 for the year
ended December 31, 1995.
Other Operating Income: Other operating income during 1996 decreased
by $31,000 or 1.49%, and totalled $2.0 million for the year ended
December 31, 1996 compared operating income of $2.1 million for the
year ended December 31, 1995. Other operating income consists
primarily of service charges and other fees generated from deposit
and lending activities.
Operating Expenses: Total operating expenses for 1996 were $13.8
million compared with $17.0 million for 1995, representing a
decrease of $3.2 million or 18.8%. Operating expenses, excluding
non-recurring items equalled $13.8 million for the year ended
December 31, 1996 compared with $16.1 million for the year ended
December 31, 1995. Non-recurring items excluded were from OREO
operations and net restructure charges.
Income Taxes: The Company provided only for minimum State income tax
during 1996 and 1995 because of tax loss carry forwards available to
offset regular Federal and State income tax provisions.
Additionally, the Company recognized $5.8 million of its deferred
tax asset during 1996 and $2.8 million of its deferred tax asset
during 1995, as a result of improved earnings projections.
<PAGE>
CONSOLIDATED STATEMENTS OF CONDITION DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
<TABLE>
<CAPTION>
(Dollars in thousands, except share data)
December 31, 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and amounts due from banks - Note 2 $ 9,016 $ 10,430
Interest bearing deposits 661 149
Federal funds sold 26,755 21,296
Investment securities available for sale
(amortized cost: $17,351 in 1997; $26,304 in 1996) - Note 4 17,605 26,233
Investment securities held to maturity (market value: $134,948 in 1997;
$119,238 in 1996) - Note 4 135,037 120,257
Mortgage-backed securities available for sale
(amortized cost: $380,010 in 1997; $160,124 in 1996) - Note 4 380,741 158,728
Investment in Federal Home Loan Bank of Boston stock - Note 9 7,192 7,192
Loans receivable - Notes 5 and 9 374,010 400,222
Allowance for loan losses (12,352) (12,929)
- -----------------------------------------------------------------------------------------------------------------------------
Loans receivable, net 361,658 387,293
Premises and equipment, net - Note 6 4,474 5,095
Accrued income receivable 6,586 5,214
Other real estate owned - Note 7 481 1,210
Deferred income taxes - Note 11 6,679 5,166
Other assets 2,483 622
Excess of cost over fair value of net assets acquired 2,068 2,418
- -----------------------------------------------------------------------------------------------------------------------------
Total Assets $961,436 $751,303
=============================================================================================================================
Liabilities and Shareholders' Equity
Liabilities
Deposits - Note 8 $817,091 $626,098
Federal Home Loan Bank of Boston advances - Note 9 58,000 58,000
Other liabilities 7,060 4,594
- -----------------------------------------------------------------------------------------------------------------------------
Total Liabilities 882,151 688,692
- -----------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity - Notes 12, 13 and 17
Preferred stock; no par; 1,000,000 shares authorized; none issued and outstanding - -
Common stock; $1.00 par value; authorized 9,000,000 shares;
issued 5,515,249 and 5,480,896 in 1997 and 1996 respectively;
outstanding 5,163,642 and 5,129,289 in 1997 and 1996 respectively 5,515 5,481
Additional paid-in capital 52,597 52,209
Retained earnings 23,477 8,788
Net unrealized gain (loss) on available for sale securities, net of taxes 594 (969)
Treasury stock - 351,607 shares at cost (2,898) (2,898)
- -----------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 79,285 62,611
- -----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $961,436 $751,303
=============================================================================================================================
</TABLE>
Commitments and contingencies - Notes 6, 12, 14 and 21
See accompanying notes to consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
Years ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Interest and fees on loans $31,757 $35,417 $39,781
Interest-bearing deposits 4 23 126
Federal funds sold 1,253 929 1,174
Interest and dividends on investment securities:
U. S. treasury securities 226 241 649
U. S. government agency obligations 10,025 5,389 2,315
REMIC/CMO's 9,752 3,152 1,380
Non-agency REMIC/CMO's 5,209 2,008 -
Mortgage-backed securities 3,422 3,062 1,069
Asset-backed securities 887 661 -
Other bonds and notes - 48 475
Equity securities 8 1 3
Dividends on Federal Home Loan Bank of Boston stock 466 460 504
- -----------------------------------------------------------------------------------------------------------------------
Total Interest Income 63,009 51,391 47,476
- -----------------------------------------------------------------------------------------------------------------------
Interest Expense
Interest to depositors 31,513 21,497 17,893
Interest on FHLBB advances 3,275 3,998 4,186
- -----------------------------------------------------------------------------------------------------------------------
Total Interest Expense 34,788 25,495 22,079
- -----------------------------------------------------------------------------------------------------------------------
Net Interest Income 28,221 25,896 25,397
Provision for loan losses - Note 5 200 2,000 7,550
- -----------------------------------------------------------------------------------------------------------------------
Net Interest Income after Provision for Loan Losses 28,021 23,896 17,847
Investment securities gains, net - Note 4 195 326 298
Deposit account fees 1,650 1,638 1,578
Other operating income 388 411 502
- -----------------------------------------------------------------------------------------------------------------------
Income before other operating expenses 30,254 26,271 20,225
- -----------------------------------------------------------------------------------------------------------------------
Other Operating Expenses
Salaries and employee benefits 6,771 6,770 7,763
Professional and other services 2,390 2,275 2,389
Bank occupancy and equipment expense 1,878 2,611 3,032
FDIC assessment 82 79 898
Net cost (earnings) of operation of other real estate owned - Note 7 80 (117) (1,029)
Other operating expenses 2,235 2,113 2,057
Restructure expense, net - Note 10 - 77 1,887
- -----------------------------------------------------------------------------------------------------------------------
Total Other Operating Expenses 13,436 13,808 16,997
- -----------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 16,818 12,463 3,228
Income taxes (benefit) - Note 11 70 (10) (2,813)
- -----------------------------------------------------------------------------------------------------------------------
Net Income $16,748 $12,473 $ 6,041
========================================================================================================================
Basic Earnings per share - Note 3 $ 3.25 $ 2.45 $ 1.21
Diluted Earnings per share - Note 3 $ 3.16 $ 2.42 $ 1.20
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
<TABLE>
<CAPTION>
(Dollars in thousands)
Years ended December 31, 1997, 1996 and 1995
Net
Unrealized
Gain (Loss)
Additional Retained on Available
Common Paid-In Earnings for Sale Treasury
Stock Capital (Deficit) Securities Stock Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $5,345 $50,846 $ (8,207) $ 110 $(2,898) $45,196
- --------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1995:
Options exercised 29 271 - - - 300
Net income - - 6,041 - - 6,041
Change in net unrealized gain on securities
available for sale - - - 131 - 131
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 5,374 51,117 (2,166) 241 (2,898) 51,668
Year ended December 31, 1996:
Options exercised 107 1,092 - - - 1,199
Net income - - 12,473 - - 12,473
Dividends paid - - (1,519) - - (1,519)
Change in net unrealized gain (loss) on
securities available for sale - - - (1,210) - (1,210)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 5,481 52,209 8,788 (969) (2,898) 62,611
Year ended December 31, 1997:
Options exercised 34 388 - - - 422
Net income - - 16,748 - - 16,748
Dividends paid - - (2,059) - - (2,059)
Change in net unrealized gain (loss)
on securities available for sale - - - 1,563 - 1,563
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $5,515 $52,597 $ 23,477 $ 594 $(2,898) $79,285
================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
<TABLE>
<CAPTION>
(Dollars in thousands)
Years ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 16,748 $ 12,473 $ 6,041
Adjustments to reconcile net income to net cash from operations:
Provision for loan losses 200 2,000 7,550
Provision for OREO losses 39 (74) -
Depreciation and amortization 837 963 1,483
Premises and equipment restructuring charges - - 1,107
Amortization/accretion of investment securities, net (1,054) (655) 147
Amortization of intangible assets 350 350 349
Amortization of net deferred loan fees (228) (63) (166)
Deferred income tax benefit (2,402) (531) (2,831)
Gain on sale of available for sale securities (195) (326) (298)
Other real estate owned gains, net (90) (431) (2,057)
Increase in accrued interest receivable (1,372) (763) (453)
(Increase) decrease in other assets (1,861) 1,608 473
Increase (decrease) in other liabilities 2,492 (716) 688
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 13,464 13,835 12,033
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Available for sale investment securities:
Investment securities purchased (24,864) (31,745) -
Proceeds from sales of investment securities 30,038 7,076 4,660
Proceeds from maturity of investment securities - - 4,000
Proceeds from principal payments on asset-backed securities 3,901 2,511 -
Available for sale mortgage-backed securities:
Mortgage-backed securities purchased (295,662) (202,368) (98,791)
Proceeds from principal payments on mortgage-backed securities 42,296 11,807 4,265
Proceeds from sale of mortgage-backed securities 34,517 126,155 -
Held to maturity investment securities:
Investment securities purchased (103,187) (94,680) (71,846)
Proceeds from maturity or call of investment securities 88,500 26,400 63,299
Held to maturity mortgage-backed securities:
Mortgage-backed securities purchased (2,956) - -
Proceeds from principal payments on mortgage-backed securities 148 - -
Proceeds from call of mortgage-backed securities 2,804 - -
Net decrease in loans 22,134 50,165 41,104
Proceeds from sale of loans 3,334 2,835 8,022
Purchase of premises and equipment, net (216) (377) (231)
Proceeds from sale of bank-owned buildings - 245 -
Proceeds from sale of other real estate owned 976 2,206 5,230
- --------------------------------------------------------------------------------------------------------------------------
Net cash (used) by investing activities (198,237) (99,770) (40,288)
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 190,993 82,754 15,558
Proceeds from exercise of stock options 396 1,086 226
Payments of FHLB of Boston advances - - (2,000)
Payments of cash dividends (2,059) (1,519) -
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 189,330 82,321 13,784
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 4,557 (3,614) (14,471)
- --------------------------------------------------------------------------------------------------------------------------
Cash & cash equivalents at beginning of period 31,875 35,489 49,960
- --------------------------------------------------------------------------------------------------------------------------
Cash & cash equivalents at end of period $ 36,432 $ 31,875 $ 35,489
==========================================================================================================================
Supplemental disclosures of cash flow information:
Non-cash investing activities:
Transfer of investment securities from held to maturity to available for sale $ - $ - $ 75,688
Transfer of loans to other real estate owned, net $ 196 $ 1,434 $ 878
Cash paid during the year for:
Interest to depositors $ 30,822 $ 21,407 $ 17,875
Interest on FHLBB advances $ 3,317 $ 4,022 $ 4,198
Income taxes $ 1,810 $ 311 $ 103
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
Note 1: Summary of Significant Accounting Policies
The significant accounting policies followed by Dime Financial
Corporation and subsidiary and the method of applying those policies
which materially affect the determination of financial position,
presentation of results of operations and cash flows are summarized
as follows:
Basis of Financial Statement Presentation: The consolidated
financial statements include the accounts of Dime Financial
Corporation (the "Company") and its wholly-owned subsidiary, The
Dime Savings Bank of Wallingford ("Dime"). The Company became the
holding company of Dime on December 2, 1988. Prior to August 15,
1992, the Company had another wholly-owned subsidiary, City Savings
Bank of Meriden ("City"). City merged with and into Dime at the
close of business on August 14, 1992. All significant intercompany
balances and transactions have been eliminated in the consolidated
financial statements.
The Company provides a full range of banking services to individual
and corporate customers through its subsidiary in the New Haven
County of Connecticut including savings and checking products,
mortgage loans, and consumer installment loans. Deposits are
insured by the FDIC up to certain limits under the law. The Company
is subject to competition from other financial institutions. The
Company is subject to the regulations of certain state and federal
agencies and undergoes periodic examinations by those regulatory
authorities.
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the statement of
condition and income and expenses for the period. Actual results
could differ from those estimates.
Material estimates that are particularly susceptible to change
relate to the determination of the allowance for loan losses, the
valuation of other real estate owned acquired in connection with
foreclosures or in satisfaction of loans, and net deferred tax asset
valuation allowance. In connection with the determination of the
allowance for loan losses, and the valuation of other real estate
owned, management obtains independent appraisals for significant
properties and uses independent market information.
The vast majority of the Company's loans are secured by real estate
in Connecticut. In addition, almost all of the other real estate
owned is located in those same markets. Accordingly, the ultimate
collectibility of a substantial portion of the Company's loans and
the recovery of a substantial portion of the carrying amount of
other real estate owned are susceptible to changes in market
conditions in Connecticut.
Management believes that the allowance for loan losses is adequate,
and other real estate owned is properly valued. While management
uses available information to recognize losses on loans, and other
real estate owned, future additions to the allowance for loan losses
or valuation adjustments for other real estate owned may be
necessary based on changes in economic conditions, particularly in
Connecticut. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
Company's allowance for losses on loans and valuation of other real
estate owned. Such agencies may require the Company to recognize
additions to the allowance or additional writedowns on other real
estate owned based on their judgments about information available to
them at the time of their examination.
Loans: Interest on loans is accrued and credited to operations based
upon principal amounts outstanding. The accrual of interest income
and the amortization of loan origination fees is discontinued when a
loan becomes 90 days past due, or earlier if there is doubt as to
the ultimate collection of principal or interest. When the accrual
of interest ceases, previously recognized and uncollected interest
is reversed against interest income. Interest income on non-accrual
residential and consumer loans is recognized to the extent payments
are received. Interest income on non-accrual commercial loans is
applied as a reduction of the carrying value to the extent payments
are received.
Loans that are impaired (due to the inability to collect all
contractual amounts due) are measured and valued based on (1) the
present value of expected future cash flows discounted at the loan's
effective rate of interest, (2) the loan's observable market price,
or (3) the fair value of supporting collateral if the loan is
collateral dependent. Interest income on impaired loans is
generally recognized in accordance with the Company's existing
income recognition policy. Management believes that the valuation
allowance for impaired loans is adequate.
Loan origination and commitment fees and certain direct loan
origination costs are deferred and the net amount is amortized as an
adjustment of the related loan's yield over the life of the loan
using a method which approximates the interest method.
Investment and Mortgage-backed Securities: The Company's securities
portfolio consists of debt and equity securities. The Company
classifies individual securities into one of three categories, held
to maturity, available for sale or trading. Securities held to
maturity are limited to debt securities for which the Company has
the positive intent and ability to hold to maturity. Trading
securities, if any, consist of securities bought principally for the
purpose of selling them in the near term. All other securities held
by the Company are classified as available for sale. Held to
maturity securities are carried at amortized cost; trading
securities are carried at fair value, with unrealized gains and
losses reported in earnings; and available for sale securities are
carried at fair value, with unrealized gains and losses excluded
from earnings and reported as a separate component of shareholders'
equity (net of taxes). The adjustments to shareholders' equi ty
will fluctuate in future periods reflecting changes in the
unrealized gains and losses on securities classified as available
for sale.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
The amortization of premiums and accretion of discounts is recorded
over the life of the security or, in the case of adjustable rate
securities, until the fully indexed yield is obtained using the
interest method.
The specific identification method is used in determining the cost
of investment securities sold. Investment securities transactions
are recorded based on the settlement date which does not differ
materially from the trade date. A decline in the value of a
security below cost that is deemed other than temporary is charged
to earnings, resulting in the establishment of a new cost basis for
the security.
Interest Rate Instruments: The Company utilizes interest rate cap
and interest rate floor contracts as part of its asset/liability
management strategy. Interest rate cap and floor contracts are
entered into as hedges against future interest rate fluctuations.
The Company's accounting policy relating to interest rate cap and
floor contracts is to amortize the cost of the contract through
interest income or interest expense over the life of the contracts.
Those agreements meeting the criteria for hedge accounting treatment
are designated as hedges and are accounted for as such. If a
contract is terminated, any unrecognized gain or loss is deferred
and amortized as an adjustment to the yield of the related asset or
liability over the remainder of the period that was being hedged.
If the linked asset or liability is disposed of prior to the end of
the period being managed, the related interest-rate contract is
marked to fair value, with any resulting gain or loss recognized in
current period income as an adjustment to the gain or loss on the
disposal of the related asset or liability.
Investment in Federal Home Loan Bank of Boston Stock: The investment
in Federal Home Loan Bank of Boston stock is stated at cost.
Premises and Equipment: Premises and equipment are stated at cost,
less accumulated depreciation and amortization. The provision for
depreciation and amortization is computed by the straight-line
method for financial reporting and under accelerated methods for
income tax purposes. Gains or losses on dispositions are reflected
in current income. Major improvements are capitalized and recurring
maintenance and repairs are charged to income as incurred. Asset
lives for bank premises are from 15 to 30 years and for furniture
and equipment from 3 to 7 years.
Other Real Estate Owned: Properties acquired through foreclosure or
deed in-lieu of foreclosure (known collectively as OREO), are
transferred to other real estate owned at the lower of cost or fair
market value, less selling costs, at the transfer date. Subsequent
valuation adjustments and writedowns are made if the fair value of
the property, less selling costs, falls below the carrying value.
Gains on the sale of OREO are recognized, to the extent allowable,
upon disposition of the property. Losses on the sale in excess of
amounts previously provided are charged to the allowance for OREO
losses.
Allowance for Loan Losses: The provision for losses on loans charged
to operations is the amount which, in the opinion of management, is
adequate to maintain the allowance for loan losses at a level
sufficient to absorb losses in the loan portfolio. Management's
determination is based upon an evaluation of current economic
conditions, analysis of the loan portfolio and other pertinent
indicators.
Excess of Cost Over Fair Value of Net Assets Acquired: The excess of
cost over fair value of net assets acquired is being amortized on
the straight-line method over a fifteen year period. Accumulated
amortization was $3,176,000 and $2,826,000 in 1997 and 1996,
respectively.
Income Taxes: Deferred income taxes are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred taxes of a change in
tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance related to deferred tax
assets is recognized when, in management's judgment, it is more
likely than not that all or a portion of such deferred tax assets
will not be realized.
Pension Plan: Dime has a non-contributory pension plan which covers
substantially all employees who meet certain age, service and
minimum hours per year requirements. Dime's policy is to fund
pension costs sufficient to meet the funding requirements set forth
in the Employee Retirement Income Security Act of 1974.
Postretirement Benefits: In December 1990, FASB issued Statement No.
106 "Employers Accounting for Postretirement Benefits Other Than
Pensions." This Statement requires employers to accrue the cost and
recognize the liability for benefits to be provided to retired
employ ees over each employee's service period. The Company adopted
the Statement on January 1, 1993 by recognizing the transition
obligation, net of tax, as the cumulative effect of a change in
accounting method in the consolidated statement of operations.
Cash Flows: For purposes of the statements of cash flows, the
Company considers cash on hand, demand deposits at other financial
institutions, interest-bearing deposits with an original maturity of
three months or less and federal funds sold to be cash and cash
equivalents.
Reclassifications: Certain reclassifications have been made to the
prior years' amounts to conform with the 1997 presentation.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
Note 2: Cash and Due From Banks
Dime is subject to requirements of the Federal Reserve Bank of
Boston to maintain certain average cash reserve balances. At
December 31, 1997 and 1996, these reserves were $2.4 million and
$1.4 million, respectively.
Note 3: Per Share Data
Effective for financial statements issued for periods ending after
December 15, 1997, SFAS No. 128, "Earnings Per Share" was
implemented. The Statement establishes standards for the
computation and presentation of earnings per share ("EPS"). It
simplifies the computation of EPS by replacing the presentation of
primary EPS with a presentation of basic EPS. Basic EPS should
result in a slightly higher EPS than the primary calculation
utilized prior to the implementation of SFAS No. 128. The
Statement also requires the dual presentation of basic and diluted
EPS on the face of the income statement. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15, the
prior practice.
Earnings per share have been computed on the basis of the following:
<TABLE>
<CAPTION>
(Net income in thousands)
1997 1996 1995
Basic Diluted Basic Diluted Basic Diluted
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equivalent shares:
Average shares outstanding 5,148,651 5,148,651 5,084,344 5,084,344 5,006,258 5,006,258
Additional shares due to:
Stock options - 149,763 - 60,183 - 19,503
- -------------------------------------------------------------------------------------------------------------------------------
Total equivalent shares 5,148,651 5,298,414 5,084,344 5,144,527 5,006,258 5,025,761
===============================================================================================================================
Earnings per share:
Net income $16,748 $16,748 $12,473 $12,473 $6,041 $6,041
- -------------------------------------------------------------------------------------------------------------------------------
Total equivalent shares 5,148,651 5,298,414 5,084,344 5,144,527 5,006,258 5,025,761
- -------------------------------------------------------------------------------------------------------------------------------
Earnings per share $ 3.25 $ 3.16 $ 2.45 $ 2.42 $ 1.21 $ 1.20
===============================================================================================================================
</TABLE>
Note 4: Investment and Mortgage-backed Securities
The amortized costs, approximate market values, and maturity
groupings of investment and mortgage-backed securities are as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1997
Yield on
Amortized Unrealized Unrealized Market Debt
Cost Gains Losses Value Securities
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment securities available for sale:
U.S. government sponsored agency obligations:
After 5 but within 10 years $ 5,425 - $ 21 $ 5,404 7.04%
Asset-backed securities:
After 10 years 10,472 201 - 10,673 7.30%
Equity securities 1,454 74 - 1,528
- -----------------------------------------------------------------------------------------------------------------
Total investment securities available for sale $ 17,351 $ 275 $ 21 $ 17,605 7.21%
=================================================================================================================
Mortgage-backed securities available for sale:
Mortgage-backed securities:
GNMA $ 48,105 $ 546 $ - $ 48,651 6.93%
REMIC/CMO's (includes non-agency) 331,905 693 508 332,090 6.93%
- -----------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities available for sale $380,010 $1,239 $508 $380,741 6.93%
=================================================================================================================
Investment securities held to maturity:
U.S. treasury securities:
After 1 but within 5 years $ 3,477 $ 65 $ - $ 3,542 6.50%
U.S. government-sponsored agency obligations:
Within 1 year 2,978 15 - 2,993 6.88%
After 1 but within 5 years 24,939 50 51 24,938 6.61%
After 5 but within 10 years 103,643 100 268 103,475 7.00%
- -----------------------------------------------------------------------------------------------------------------
Total investment securities held to maturity $135,037 $ 230 $319 $134,948 6.91%
=================================================================================================================
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1996
Yield on
Amortized Unrealized Unrealized Market Debt
Cost Gains Losses Value Securities
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment securities available for sale:
U.S. government sponsored agency obligations:
After 1 but within 5 years $ 4,000 $ - $ 45 $ 3,955 6.50%
After 5 but within 10 years 8,000 - 140 7,860 6.85%
Asset-backed securities:
After 10 years 14,292 114 - 14,406 7.30%
Equity securities 12 - - 12
- ----------------------------------------------------------------------------------------------------------------
Total investment securities available for sale $ 26,304 $114 $ 185 $ 26,233 7.04%
================================================================================================================
Mortgage-backed securities available for sale:
Mortgage-backed securities:
GNMA $ 20,516 $ 29 $ 63 $ 20,482 6.85%
FNMA 2,709 - - 2,709 6.49%
FHLMC 671 - 1 670 6.70%
REMIC/CMO's (includes non-agency) 136,228 39 1,400 134,867 6.79%
- ----------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities available for sale $160,124 $ 68 $1,464 $158,728 6.79%
================================================================================================================
Investment securities held to maturity:
U.S. treasury securities:
After 1 but within 5 years $ 3,452 $ 56 $ - $ 3,508 6.50%
U.S. government-sponsored agency obligations:
Within 1 year 9,000 - - 9,000 7.18%
After 1 but within 5 years 55,853 74 225 55,702 6.84%
After 5 but within 10 years 51,952 - 924 51,028 6.90%
- ----------------------------------------------------------------------------------------------------------------
Total investment securities held to maturity $120,257 $130 $1,149 $119,238 6.88%
================================================================================================================
</TABLE>
Proceeds from the sale of available for sale investment securities
were $30.0 million in 1997 and proceeds from the sale of available
for sale mortgage-backed securities were $34.5 million in 1997, with
gross gains of $198,000 partially offset by gross losses of $3,000
realized on those sales.
By comparison proceeds from the sale of available for sale
investment securities were $7.1 million in 1996, and proceeds from
the sale of available for sale mortgage-backed securities were
$126.2 million in 1996, with gross gains of $383,000 partially
offset by gross losses of $57,000 realized on those sales. Proceeds
from the sale of available for sale securities were $4.7 million in
1995. Net gains realized on these sales were $298,000 in 1995.
The expected average life of mortgage-backed securities at December
31, 1997 was approximately two to four years.
At December 31, 1997, Dime had $4.0 million in U.S. treasury and
agency securities pledged as collateral for public fund deposits.
An additional $2.5 million in U.S. treasury securities were pledged
as collateral for treasury, tax and loan deposits.
Note 5: Loans Receivable
Loans are summarized as follows:
(Dollars in thousands)
December 31, 1997 1996
- -----------------------------------------------------------------
Mortgage loans:
Residential:
Real estate owner occupied $267,916 $288,002
Real estate non-owner occupied 27,440 31,365
Commercial real estate 26,189 33,448
Builders' & land 594 447
Consumer loans 41,710 44,091
Commercial loans 10,301 3,002
Allowance for loan losses (12,352) (12,929)
Deferred loan origination fees, net (140) (133)
- -----------------------------------------------------------------
Total loans, net $361,658 $387,293
=================================================================
At December 31, 1997, 1996 and 1995, the total unpaid principal
balances of non-accrual loans were approximately $2.3 million, $2.6
million and $7.7 million, respectively. During 1997 and 1996, the
Company completed bulk sales of non-performing loans totalling $3.5
million and $3.7 million, respectively. These loans were written
down by $1.3 million to $2.2 million and $1.6 million to $2.1
million, respectively prior to sale. In the fourth quarter of 1995,
the Company completed a bulk sale of two packages of non-performing
assets, non-performing loans totalling $2.5 million and OREO
totalling $334,000, prior to writedowns. These assets were written
down by $1.4 million.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
If the non-accrual loans at December 31, 1997, 1996 and 1995 had
remained current in accordance with their contractual payment terms,
interest income of $250,000, $353,000 and $787,000, respectively
would have been recognized compared to interest income of $89,000,
$67,000 and $383,000 actually recognized.
At December 31, 1997 impaired loans totalled $2.8 million with a
related allowance of $465,000 as compared to $2.5 million with a
related allowance of $425,000 at December 31, 1996 and $5.2 million
with a related allowance of $668,000 at December 31, 199 5. All
impaired loans at December 31, 1997 and December 31, 1996 had a
related allowance. Approximately $1.4 million of impaired loans at
December 31, 1995 did not have a related allowance. The average
balance of impaired loans totalled approximately $2.9 million in
1997 as compared to $3.8 million and $6.1 million during 1996 and
1995, respectively. Income recognized during 1997 on these loans
totalled approximately $185,000, cash collected totalled
approximately $300,000, and approximately $115,000 of cash collected
was applied against principal. Income recognized during 1996 on
these loans t otalled approximately $22,000, cash collected totalled
approximately $110,000, and approximately $88,000 of cash collected
was applied against principal. Income recognized during 1995 on
these loans totalled approximately $173,000 which also approximated
the cash collected.
Impaired loans are commercial, commercial real estate, non-owner
occupied residential mortgage loans, and individually significant
mortgage and consumer loans for which it is probable that the
Company will not be able to collect all amounts due according to the
contractual terms of the loan agreement. The definition of
"impaired loans" is not the same as the definition of "nonaccrual
loans". Nonaccrual loans include impaired loans and are those loans
on which the accrual of interest is discontinued when collectibility
of principal or interest is uncertain or payments of principal or
interest have become contractually past due 90 days. The Company
may choose to place a loan on nonaccrual status while not
classifying the loan as impaired if it is probable that the Company
will collect all amounts due in accordance with the contractual
terms of the loan. Factors considered by management in determining
impairment include payment status and collateral value. The amount
of impairment for impaired loans is determined by the difference
between the fair value of underlying collateral securing the loan
and the recorded amount of the loans.
Mortgage and consumer loans which are not individually significant
are measured for impairment collectively. Loans that experience
insignificant payment delays and insignificant shortfalls in
payments generally are not classified as impaired. Management
determines the significance of payment delays and payment shortfalls
on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the
length of the delay, reasons for delay, the borrower's prior payment
record, and the amount of the shortfall in relation to the total
debt owed.
Changes in the allowance for loan losses are as follows:
(Dollars in thousands)
December 31, 1997 1996 1995
- -----------------------------------------------------------------
Balance at beginning
of year $12,929 $12,779 $ 9,326
Provision charged
to expense 200 2,000 7,550
Charge-offs (1,879) (3,767) (4,846)
Recoveries 1,102 1,917 749
- -----------------------------------------------------------------
Balance at end of year $12,352 $12,929 $12,779
=================================================================
The Company's loans receivable consist primarily of residential and
commercial real estate loans located within its primary market area
in Connecticut. The Company had $5.7 million of loans outstanding
with one borrower at December 31, 1997. At Decembe r 31, 1996, the
Company had loans outstanding with two borrowers totalling $8.3
million. The Company's policy for collateral requires that, at the
time of origination, the amount of the loan may not exceed 80% of
the appraisal value of the property. In cases where the loan
exceeds this percentage, private mortgage insurance is generally
required for that portion of the loan in excess of 80% of the
appraised value of the property.
Note 6: Premises and Equipment
The details of premises and equipment are as follows:
(Dollars in thousands)
December 31, 1997 1996
- -----------------------------------------------------------------
Bank premises, including land
of $1,038 $ 7,185 $ 7,174
Furniture and equipment 7,842 7,637
- -----------------------------------------------------------------
15,027 14,811
Accumulated depreciation
and amortization (10,553) (9,716)
- -----------------------------------------------------------------
Total premises and equipment, net $ 4,474 $ 5,095
=================================================================
Total rental expense under leases for branch locations for 1997,
1996 and 1995 was $106,000, $160,000 and $159,000, respectively.
Future minimum payments at December 31, 1997, under non-cancelable
operating leases (initial or remaining term greater than one year),
are shown in the following table. Renewal options are available for
the majority of leased properties for five year periods which have
not been included in the table.
(Dollars in thousands)
- -----------------------------------------------------------------
1998 $107
1999 99
2000 82
2001 -
2002 -
- -----------------------------------------------------------------
$288
=================================================================
<PAGE>
Note 7: Other Real Estate Owned
The net cost of operation of other real estate owned was as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net gain on sales of property $(175) $(431) $(2,057)
Provision for losses on OREO 39 (74) -
Net holding costs 216 388 1,028
- -----------------------------------------------------------------------------------------------------------------------------
Net OREO cost (gain) $ 80 $(117) $(1,029)
=============================================================================================================================
</TABLE>
Note 8: Deposits
Deposits are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31,
Weighted Weighted
Average Average
1997 Rate 1996 Rate
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Regular savings and clubs $156,537 2.31% $170,892 2.35%
Negotiable orders of withdrawal (NOW) 24,081 1.81% 21,347 1.74%
Non-interest bearing demand deposits 46,129 - 40,273 -
Money market accounts 67,392 4.70% 22,860 4.73%
Certificates of deposit 486,092 5.46% 362,417 5.35%
Retail brokered certificates of deposit 31,746 6.44% 2,969 6.23%
Escrow deposits 5,114 3.10% 5,340 3.10%
- -----------------------------------------------------------------------------------------------------------------------------
Total deposits $817,091 4.40% $626,098 4.03%
=============================================================================================================================
</TABLE>
Individual interest bearing accounts, including certificates of
deposit, with balances of $100,000 and greater totalled $93.9
million and $46.7 million at December 31, 1997 and 1996,
respectively.
Interest expense on certificates of deposit with balances of
$100,000 and greater totalled approximately $1,514,000, $1,005,000
and $674,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
Certificate maturities with balances of $100,000 and
greater are summarized as follows:
(Dollars in thousands)
December 31, 1997 1996
- -----------------------------------------------------------------
Within 3 months $30,858 $13,174
After 3 but within 6 months 9,532 7,880
After 6 but within 12 months 7,179 5,229
Over 12 months 9,043 968
- -----------------------------------------------------------------
Total certificates with balances
of $100,000 and greater $56,612 $27,251
=================================================================
The maturities of all certificates of deposit at December 31, 1997
follow:
(Dollars in thousands)
Maturity in:
1998 $368,883
1999 109,829
2000 19,528
2001 9,398
2002 10,200
- -----------------------------------------------------------------
Total $517,838
=================================================================
Interest expense on deposits is summarized as follows:
(Dollars in thousands)
1997 1996 1995
-----------------------------------------------------------------
Regular savings and clubs $ 3,958 $ 4,358 $ 4,886
Now accounts 347 339 340
Money market accounts 2,271 234 146
Certificates of deposits 23,573 16,426 12,417
Retail brokered certificates
of deposit 1,276 28 -
Escrow deposits 88 112 104
-----------------------------------------------------------------
Total $31,513 $21,497 $17,893
=================================================================
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
Note 9: Federal Home Loan Bank of Boston Advances
Federal Home Loan Bank of Boston ("FHLBB") advances consisted of the
following:
(Dollars in thousands)
December 31, 1997 1996
- -----------------------------------------------------------------
Short-term:
5.80% due 1998 $ 5,000 $ -
- -----------------------------------------------------------------
Total short-term $ 5,000 $ -
- -----------------------------------------------------------------
Long-term:
7.16% due 1997 $ - $25,000
6.05% due 1998 15,000 15,000
5.89% due 1998 5,000 -
6.66% due 1999 10,000 -
6.29% due 1999 10,000 10,000
6.04% due 1999 5,000 -
6.51% due 2000 8,000 8,000
- -----------------------------------------------------------------
Total long-term advances $53,000 $58,000
- -----------------------------------------------------------------
Total advances $58,000 $58,000
=================================================================
All stock in the FHLBB and first mortgage loans on residential
property are pledged as collateral to secure the FHLBB advances.
At December 31, 1997, the Company had available for its use a credit
line of $10.2 million with the FHLBB. At December 31, 1997, the
Company had no borrowings outstanding on the credit line.
Note 10: Restructure Expense, Net
The Company recognized net non-recurring restructuring charges of
$77,000 and $1.9 million during 1996 and 1995, respectively, as part
of a comprehensive restructuring program. The restructuring costs
resulted from severance and benefit charges associated with the
reduction in the Company's workforce and costs associated with the
disposition of data processing equipment based on a decision to
outsource the Company's data processing operations, disposition of
bank premises, and professional fees incurred to effect the
restructure. These charges were partially offset by the recognition
of curtailment gains in the Company's non-contributory defined
benefit plan and defined benefit postretirement plan as a result of
a decrease in projected benefit obligations due to a reduction in
the workforce. The accrued liability for restructure charges
equalled $4,000 and $115,000 at December 31, 1997 and 1996,
respectively.
The following table illustrates the components of the net
restructuring charges for the years ended December 31, 1996 and
December 31, 1995. There were no restructure charges recorded in
1997.
(Dollars in thousands)
December 31, 1997 1996 1995
- -------------------------------------------------------------------
Severance and benefit charges $- $340 $1,624
Writedown of data processing
equipment to estimated
salvage value - - 588
Other - - 624
- -------------------------------------------------------------------
Gross restructuring charges - 340 2,836
Less: curtailment gains - 263 949
- -------------------------------------------------------------------
Restructuring charges, net $- $ 77 $1,887
===================================================================
Note 11: Income Taxes
Income tax expense (benefit) is comprised of the following:
(Dollars in thousands)
December 31, 1997 1996 1995
- -------------------------------------------------------------------
Income tax expense
attributable to income:
Current:
Federal $ 2,471 $ 521 $ -
State - - 18
- -------------------------------------------------------------------
2,471 521 18
- -------------------------------------------------------------------
Deferred:
Federal 2,749 3,180 871
State 1,424 2,089 1,108
Change in valuation (6,574) (5,800) (4,810)
- -------------------------------------------------------------------
(2,401) (531) (2,831)
- -------------------------------------------------------------------
Total $ 70 $ (10) $(2,813)
===================================================================
The principal reasons for the income tax expense (benefit) differing
from the amount of such tax computed by applying a Federal Statutory
tax rate of approximately 34% to reported income (loss) before
income taxes are as follows:
(Dollars in thousands)
Years ended December 31, 1997 1996 1995
- -------------------------------------------------------------------
Computed expected federal
income taxes (benefit)
based upon statutory rates $ 5,718 $ 4,241 $ 1,098
State income taxes
(net of federal tax effect) 940 1,379 742
Effect of dividends received
deduction (2) - (1)
Change in the valuation
allowance for deferred
tax assets (6,574) (5,800) (4,810)
Goodwill 119 119 119
Other, net (131) 51 39
- -------------------------------------------------------------------
Total income tax
expense (benefit) $ 70 $ (10) $(2,813)
===================================================================
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1997 and December 31, 1996 are presented
below:
(Dollars in thousands)
1997 1996
- -------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses
and related items $6,077 $ 6,952
Accrued compensation and pension 462 494
Accrued postretirement expense 342 334
Deferred loan origination fees 56 53
Net operating loss carryforward 777 3,433
Tax credit carryforwards 36 549
Premises and equipment 173 178
FASB No. 115 Unrealized loss - 498
Other 50 339
- -------------------------------------------------------------------
Total gross deferred tax assets 7,973 12,830
Less: valuation allowance - 6,574
- -------------------------------------------------------------------
Deferred tax asset, net 7,973 6,256
Deferred tax liabilities:
Net unrealized gain on investments
available for sale 389 -
Excess of tax bad debt reserve over
base year reserve 598 747
Basis in FHLBB stock 56 56
Other 251 287
- -------------------------------------------------------------------
Total gross deferred tax liabilities 1,294 1,090
- -------------------------------------------------------------------
Net deferred tax asset $6,679 $ 5,166
===================================================================
At December 31, 1997, the Company had net operating loss
carryforwards to offset future state taxable income of $10.8 million
and $3.0 million expiring in 1999 and 2000. The net change in the
total valuation allowance for the years ended December 31, 1997 and
1996 were decreases of $6.6 million and $5.8 million, respectively.
The Company has not provided deferred income taxes for Dime's tax
reserve for bad debts that arose in tax years beginning before
December 31, 1987, because it is not expected that this difference
will reverse in the foreseeable future. The cumulative net amount
of income tax temporary difference related to the reserve for bad
debts for which deferred taxes have not been provided was
approximately $12.7 million at December 31, 1997. This potential
liability for which no deferred income taxes have been provided was
approximately $5.2 million as of December 31, 1997. Legislation was
enacted in 1996 which eliminated the Company's ability to compute
its tax bad debt deduction utilizing the percentage-of-taxable
income method or the reserve method based upon experience. The
legislation does require the recapture of the post-1987 tax bad debt
reserves over a six year period. Since Dime previously recognized a
deferred tax liability with respect to post 1987 reserves, its
income tax expense for financial reporting purposes will not be
affected by the recapture requirement.
Based on the Company's projected pre-tax earnings and estimated
reversal of taxable temporary differences, management believes it is
more likely than not that the Company will realize the benefit of
the net deferred tax asset and that the existing net deductible
temporary differences will reverse during periods in which the
Company generates net taxable income. The Company would need to
generate approximately $17 million of future taxable income to
realize such deferred tax assets. There can be no assurance that
the Company will generate any earnings or any specific level of
continuing earnings.
Note 12: Shareholders' Equity
The Company's ability to pay dividends to shareholders is
substantially dependent on funds received from Dime, subject to
regulatory and State of Connecticut statutory requirements.
The principal source of revenue for the Company is dividends
received from the Bank. The total of all dividends declared by the
Bank in a given calendar year cannot exceed the total of the Bank's
net profits for that year, plus the Bank's retained profits from the
preceding two years. Also, the Bank cannot pay any dividends that
would cause it to have insufficient capital under regulatory
guidelines. These limitations did not affect the dividends paid by
the Bank to the Company or the dividends paid by the Company to the
shareholders during 1997.
Note 13: Regulatory Matters
Dime is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the financial
statements . Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, Dime must meet specific
capital guidelines that involve quantitative measures of the Bank's
assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. The Bank's
capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and
other factors. Quantitative measures established by regulation to
ensure capital adequacy require the Bank to maintain minimum amounts
and ratios (set forth in the table below) of total Tier 1 Capital to
risk-weighted assets, and of Tier 1 Capital to average assets.
Management believes, as of December 31, 1997, that the Bank meets
all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the FDIC
categorized the Bank as "well capitalized" under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table.
There are no conditions or events since that notification that
management believes have changed the institution's category.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
The Bank's actual capital amounts and ratios are also presented in
the following table:
<TABLE>
<CAPTION>
(Dollars in thousands)
As of December 31, 1997:
To be Well
Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets)
Company $81,361 21.90% $29,720 8.00% $37,150 10.00%
Bank $81,337 21.89% $29,720 8.00% $37,150 10.00%
Tier 1 Capital (to Risk Weighted Assets)
Company $76,622 20.63% $14,860 4.00% $22,290 6.00%
Bank $76,598 20.62% $14,860 4.00% $22,290 6.00%
Tier 1 Capital (to Average Assets)
Company $76,622 8.17% $37,521 4.00% $46,901 5.00%
Bank $76,598 8.17% $37,521 4.00% $46,901 5.00%
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands)
As of December 31, 1996:
To be Well
Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets)
Company $65,534 19.21% $27,297 8.00% $34,121 10.00%
Bank $65,491 19.19% $27,297 8.00% $34,121 10.00%
Tier 1 Capital (to Risk Weighted Assets)
Company $61,161 17.93% $13,648 4.00% $20,472 6.00%
Bank $61,119 17.91% $13,648 4.00% $20,472 6.00%
Tier 1 Capital (to Average Assets)
Company $61,161 8.44% $28,995 4.00% $36,243 5.00%
Bank $61,119 8.43% $28,995 4.00% $36,243 5.00%
</TABLE>
Note 14: Financial Instruments with
Off-Balance Sheet Risk
Dime is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest
rates. These financial instruments include commitments to extend
credit and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in excess
of the amounts recognized in the balance sheet.
The following table summarizes these financial instruments and other
commitments at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Financial instruments whose
credit risk is represented
by contract amounts:
Commitments to extend credit:
Future loan commitments $ 1,028 $ 745
Unadvanced equity lines of credit 6,978 10,577
Unadvanced commercial
lines of credit 3,362 551
Amounts due to mortgagors 830 313
Standby letters of credit 172 172
- ----------------------------------------------------------------------
Total off-balance sheet
financial instruments $12,370 $12,358
======================================================================
</TABLE>
At December 31, 1997 and 1996, Dime had no outstanding commitments
to purchase mortgages.
Dime uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since
commitments may be expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. Dime evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained if deemed
necessary by Dime upon extension of credit is based on management's
credit evaluation of the counterparty. Collateral held varies but
may include accounts receivable, inventory, property, plant and
equipment and income-producing commercial properties.
Standby letters of credit are written conditional commitments issued
by Dime to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending
loans to customers.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
Note 15: Employee Benefit Plan
Dime's pension plan (the "Plan") is a noncontributory defined
benefit plan, which is qualified under the Employment Retire-ment
Income Security Act of 1974, as amended ("ERISA"). The plan covers
employees who have in one year completed at least 1,000 hours of
service with the Company or Dime and have attained the age of 21
years. The benefits are based on years of service and the
employee's average compensation for the five consecutive years of
employment during which compensation is the highest. The Company
uses the services of enrolled actuaries to calculate the amount of
pension expense and contributions to trustees of the Plan. Assets
of the Plan are maintained in separate accounts with Connecticut
General Life Insurance Company.
The following table sets forth the pension plan's funded status at
December 31, based on September 30 information:
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation,
including vested benefits of $5,646
in 1997 and $5,148 in 1996 $5,646 $5,148
Projected benefit obligation for
service rendered to date 6,261 5,370
Plan assets at fair value 8,853 8,027
- -----------------------------------------------------------------
Projected benefit obligation
compared to plan assets 2,592 2,657
Unrecognized net (gain) loss (992) (1,181)
Prior service cost not yet recognized
in net periodic pension cost (584) (628)
Unrecognized net asset (292) (326)
- -----------------------------------------------------------------
Prepaid pension cost $ 724 $ 522
=================================================================
</TABLE>
Assumptions used in the accounting for pension cost are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.5% 8.0% 7.5%
Average wage increase 4.3% 4.3% 4.5%
Expected long-term rate
of return 8.5% 8.5% 8.8%
</TABLE>
Net periodic pension cost included the following components as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 114 $ 171 $308
Interest cost on projected
benefit obligation 420 414 490
Actual return on plan assets (1,106) (571) (839)
Net amortization and deferral 370 (150) 193
- --------------------------------------------------------------
Net periodic pension
cost (benefit) $ (202) $(136) $152
==============================================================
</TABLE>
During 1995 and continuing into 1996, the Company implemented a
restructuring program which reduced the total workforce by
approximately 39%. This program resulted in significant changes to
the projected benefit obligation due to a reduction in the size of
the workforce. In the fourth quarter of 1996, the Company recorded
a curtailment gain totalling $182,000 and in the second quarter of
1995 a curtailment gain totalling $839,000 as the result of these
changes. The curtailment gains were recorded as a reduction of
restructuring charges. No curtailment gains were recorded during
1997.
Note 16: Postretirement Benefits other than Pensions
Dime sponsors one defined benefit postretirement plan that covers
all employees hired before January 1, 1992. Employees hired on or
after January 1, 1992 are not eligible. The plan provides health
(medical and dental) benefits, and life insurance benefits. The
cost of the plan is shared by the Company and employees retiring
after January 1, 1992. Dime contributions for eligible retired
employees over age 50 on December 31, 1991, equal 75% of the medical
and dental premium and 100% of the life insurance premium up to a
combined maximum of $5,500 per year. Dime contributions (premiums)
for all other eligible retired employees will be the same as
provided for active employees up to a maximum of $3,000 per year.
Employees who retired as of December 31, 1991, are grandfathered
under the prior plan provisions. There are no Dime contributions
during retirement prior to age 65. Dime does not advance fund its
postretirement healthcare and life insurance plans.
The following table sets forth the plan's combined funded status
reconciled with the amount shown in the statement of financial
position at:
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $(546) $(507)
Fully eligible active plan participants (34) (28)
Other active plan participants (131) (103)
- ------------------------------------------------------------------
Accumulated postretirement benefit
obligation in excess of plan assets (711) (638)
Unrecognized net gain from
past experience different from that
assumed and from changes in assumptions (153) (214)
Adjustment for contributions between
measurement date and fiscal year end 9 8
- -----------------------------------------------------------------
Accrued postretirement benefit cost $(855) $(844)
=================================================================
Net periodic postretirement benefit cost
included the following components:
Service cost $ 11 $ 19
Interest cost 51 56
Net amortization and deferral (9) (3)
- -----------------------------------------------------------------
Net periodic postretirement benefit cost $ 53 $ 72
=================================================================
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
For measurement purposes, an average 8% annual rate of increase in
the per capita cost of covered healthcare benefits was assumed. Due
to the dollar cap on Company contributions, the healthcare cost
trend rate assumption has a minimal effect on the amounts reported.
To illustrate, increasing the assumed healthcare cost trend rates by
1 percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1997, by
$37,854 (approximately 5%).
The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.5% for December
31, 1997 and 8.0% for December 31, 1996.
During 1995 and 1996, the Company implemented a restructuring
program which reduced the total workforce by approximately 39%.
This program resulted in significant changes to the projected
benefit obligation due to a reduction in the size of the workforce.
In the fourth quarter of 1996, the Company recorded a curtailment
gain of $81,000 and in the second quarter of 1995, the Company
recorded a curtailment gain totalling $110,000 as the result of
these changes. The curtailment gain was recorded as a reduction of
restructuring charges. No curtailment gains were recorded during
1997.
Note 17: Stock Option and Incentive Plan
In connection with the conversion to a stock institution in July of
1986, Dime's Board of Directors adopted a Stock Option and Incentive
Plan (the "Stock Plan") which provided for incentive stock options
and non-qualified stock options and stock appreciation rights
("SARs"). The maximum number of shares issued pursuant to the Stock
Plan is 360,000 shares. The seven outside directors serving on
Dime's Board of Directors at the time of the conversion each
received options to purchase 10,000 shares of Dime Common Stock
under a separate 1986 Stock Option Plan for Outside Directors. The
Stock Plan and Outside Directors Plan expired in July of 1996. No
additional options may be granted under these plans.
In connection with the acquisition of City Savings Bank of Meriden
in 1988, all options outstanding at the time under the City Savings
Bank of Meriden 1986 Stock Option Plan ("City Plan") were converted
into options to purchase shares of Company common stock in
accordance with the provisions of the Internal Revenue Code. No
additional shares may be granted under the City Plan.
In April of 1996, shareholders approved the 1996 Stock Option and
Incentive Plan which provides for a maximum issuance of 390,000
common shares. In addition, shareholders approved a non-qualified
stock option agreement for 10,000 common shares for the Company's
Chairman of the Board in consideration of extraordinary services
rendered by him to the Company. Shareholders also approved the 1996
Stock Option Plan for Outside Directors. The maximum number of
shares of common stock to be issued pursuant to this plan is
110,000.
The following is a summary of data involving outstanding options
and SARs:
<TABLE>
<CAPTION>
1997 1996 1995
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 513,518 $12.60 345,352 $10.24 319,904 $10.30
Granted 110,000 27.08 304,000 14.43 111,500 9.86
Exercised (38,263) 11.50 (115,534) 10.22 (29,602) 7.99
Canceled or expired (4,000) 15.45 (20,300) 13.51 (56,450) 11.00
- -------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 581,255 $15.39 513,518 $12.60 345,352 $10.24
- -------------------------------------------------------------------------------------------------------------------------------
Options exercisable at year-end 450,905 306,568 258,852
Weighted average fair value per share
of options granted during the year $10.14 $5.83 $4.29
</TABLE>
(Stock options with stock appreciation rights totalled 6,000, 9,910,
and 19,130 at December 31, 1997, 1996, and 1995, respectively.
Remaining SARs are currently exercisable at $11.00 per share.)
The following table summarizes information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Weighted Average
Number Remaining Weighted Number Weighted
Outstanding Contractual Average Exercisable Average
Range at 12/31/97 Life (in years) Exercise Price at 12/31/97 Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$5.38 to $9.00 12,000 4.99 $ 6.29 12,000 $ 6.29
$9.01 to $11.50 172,910 5.78 $10.24 172,910 $10.24
$11.51 to $14.75 187,670 7.59 $13.45 155,920 $13.44
$14.76 to $19.00 100,175 8.75 $16.25 81,450 $16.21
$19.01 to $24.00 53,750 9.43 $23.41 22,625 $23.50
$24.01 to $31.00 54,750 9.96 $30.92 6,000 $31.00
- ---------------------------------------------------------------------------------------------------------------------------
581,255 7.59 $15.39 450,905 $13.26
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
All options with SARs outstanding at December 31, 1997 were
exercisable at that date. At December 31, 1997, 444,905 options
without SARs outstanding were exercisable at that date. The
remaining 130,350 options without SARs outstanding at December 31,
1997 become exercisable between January, 1998 and December, 1999.
Note 18: Stock-Based Compensation Plans
The Company applies Accounting Principles Board ("APB") Opinion No.
25 and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its fixed
stock option plans. Had compensation cost for the Company's stock
based compensation plans been determined consistent with FASB
Statement No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(In thousands, except share data)
1997 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income
As Reported $16,748 $12,473 $6,041
Pro forma $15,739 $11,461 $5,837
Diluted earnings per share
As Reported $3.16 $2.45 $1.21
Pro forma $2.97 $2.25 $1.17
Assumptions:
Dividend Yield 1.80% 1.80% 1.80%
Estimated volatility 23.47% 28.11% 28.11%
Risk-free interest rate 5.5% - 7.5% 5.5% - 7.5% 5.5% - 7.5%
Average life of grant 10 years 10 years 10 years
</TABLE>
The fair value of each option grant was estimated on the date of
grant using the Black-Scholes option pricing model using the
assumptions above for grants in 1995, 1996, and 1997. All options
outstanding at December 31, 1995, December 31, 1996, and December
31, 1997 were assumed to vest. Grants made prior to January 1, 1995
are excluded from these calculations.
Note 19: Disclosures of Fair Value of Financial Instruments
Fair value estimates were made at a specific point in time, based on
relevant market conditions and information about the instrument and
may not be reflective of current or future fair values. Due to the
highly subjective nature of the assumptions utilized in valuing some
of the financial instruments and the fact that assets and
liabilities that are not considered financial instruments were
excluded, the fair values presented should not be interpreted as the
aggregate current value of the Company.
These estimates do not reflect any premium or discount that may
result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Additionally, the
tax ramifications relating to the realization of the unrealized
gains and losses may have a significant effect on fair value
estimates and have not been considered in these estimates.
Fair value estimates, methods, and assumptions are set forth below
for the Company's financial instruments:
Assets for Which Fair Value Approximates Book Value: The fair value
of cash and amounts due from banks, interest bearing deposits,
federal funds sold, and accrued income receivable were estimated to
equal their respective book values.
Securities: The fair value of securities was based on quoted market
prices published in financial newspapers or bid quotations received
from securities dealers. The fair value of Federal Home Loan Bank
of Boston stock was estimated to equal its book value due to the
historical experience that these stocks are redeemed at par.
Loans: The fair values of loans were estimated for portfolios of
loans with similar financial characteristics. The loans were
grouped by type, such as residential mortgage, commercial mortgage,
commercial loan and consumer loan. Each category was then further
segmented into fixed and adjustable rate interest terms and by
performing and non-performing categories. The fair value of
performing fixed rate loans was then calculated by discounting
contractual cash flows through their estimated maturity, adjusting
for prepayment assumptions where relevant, using estimated market
discount rates that reflect the credit and interest rate risk
inherent in the loan. Performing variable rate loans were valued by
the same method however, cash flows were discounted using the
repricing period rather than the remaining term. The fair value of
non-performing loans was estimated by the same method using a rate
commensurate with the risk associated with the estimated cash flows.
Liabilities for Which Fair Value Approximates Book Value: The fair
value of deposits with no stated maturity, such as non-interest
bearing demand deposits, savings deposits, escrow deposits,
negotiable orders of withdrawal (NOW accounts), and money market
deposits was equal to the amount payable on demand.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
Time Deposits: The fair value of certificates of deposits and
brokered deposits was based on the discounted value of contractual
cash flows, using current offering rates or market rates that would
be paid for deposits of similar remaining maturities.
Borrowed Funds: The fair value of Federal Home Loan Bank of Boston
advances was derived from the cost of paying off the advance at the
reporting date.
Letters of Credit: The fair values of commitments to extend credit
were estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties.
For fixed rate loan commitments, fair value also considers the
difference between current levels of interest rates and the
committed rates. The fair value of letters of credit is based on
fees currently charged for similar agreements or on the estimated
cost to t erminate or otherwise settle the obligations with the
counterparties. The fair value of items with off-balance sheet risk
was approximately $4,000 at December 31, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and amounts due from banks $ 9,016 $ 9,016 $ 10,430 $ 10,430
Interest bearing deposits 661 661 149 149
Federal funds sold 26,755 26,755 21,296 21,296
Investment in FHLB of Boston stock 7,192 7,192 7,192 7,192
Investment securities available for sale 17,605 17,605 26,233 26,233
Mortgage-backed securities available for sale 380,741 380,741 158,728 158,728
Investment securities held to maturity 135,037 134,949 120,257 119,238
Loans receivable, net 361,658 376,232 387,293 404,428
Accrued income receivable 6,586 6,586 5,214 5,214
Purchased interest rate contracts 196 145 - -
-----------------------------------------------------------------------------------------------------------------
Liabilities
Regular savings and clubs $156,537 $156,537 $170,892 $170,892
NOW accounts 24,081 24,081 21,347 21,347
Non-interest bearing demand deposits 46,129 46,129 40,273 40,273
Money market accounts 67,392 67,392 22,860 22,860
Certificate of deposits 486,092 486,752 362,417 362,794
Retail brokered certificates of deposit 31,746 32,346 2,969 3,009
Escrow deposits 5,114 5,114 5,340 5,340
-----------------------------------------------------------------------------------------------------------------
Total Deposits $817,091 $818,351 $626,098 $626,515
FHLBB long term borrowings $ 58,000 $ 58,267 $ 58,000 $ 58,418
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
Note 20: Dime Financial Corporation Condensed Parent Company Only
Financial Information Condensed Statements of Condition
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1997 1996
-----------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 24 $ 70
Investment in Dime 79,261 62,569
Other assets - -
-----------------------------------------------------------------
Total assets $79,285 $62,639
=================================================================
Liabilities and Shareholders' Equity
Liabilities
Other liabilities $ - $28
-----------------------------------------------------------------
Total liabilities - 28
-----------------------------------------------------------------
Total shareholders' equity 79,285 62,611
-----------------------------------------------------------------
Total liabilities and
shareholders' equity $79,285 $62,639
=================================================================
</TABLE>
Condensed Statements of Operations
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1997 1996 1995
-----------------------------------------------------------------
<S> <C> <C> <C>
Dividends from subsidiary $ 1,617 $ 100 $ -
Other expenses, net (2) 7 (38)
-----------------------------------------------------------------
Income before taxes and equity
in earnings of subsidiary 1,619 93 38
Income tax expenses - - 1
-----------------------------------------------------------------
Income before equity in
earnings of subsidiary 1,619 93 37
Equity in earnings
of subsidiary 15,129 12,380 6,004
-----------------------------------------------------------------
Net income $16,748 $12,473 $6,041
=================================================================
<CAPTION>
Condensed Statements of Cash Flows
(Dollars in thousands)
December 31, 1997 1996 1995
-----------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from
operating activities:
Net income $16,748 $12,473 $6,041
Adjustments to reconcile
net income to cash provided
by operating activities:
Equity in earnings
of subsidiary (15,129) (12,380) (6,004)
Other, net (2) 1 81
-----------------------------------------------------------------
Cash provided by
operating activities 1,617 94 118
-----------------------------------------------------------------
Cash flows from
financing activities:
Proceeds from exercise of
stock options 396 1,086 226
Payments of cash dividends (2,059) (1,519) -
-----------------------------------------------------------------
Cash used by financing
activities (1,663) (433) 226
-----------------------------------------------------------------
Net increase (decrease) in cash
and due from banks (46) (339) 344
-----------------------------------------------------------------
Cash and cash equivalents
at beginning of year 70 409 65
-----------------------------------------------------------------
Cash and cash equivalents
at end of year $ 24 $ 70 $ 409
==================================================================
</TABLE>
Note 21: Legal Proceedings
The Company is party to various legal proceedings normally incident
to the kind of business conducted. After reviewing such proceedings
with counsel, management believes that no material liability will
result from such proceedings.
<PAGE>
INDEPENDENT AUDITORS' REPORT
DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
The Board of Directors and Shareholders
Dime Financial Corporation:
We have audited the accompanying consolidated statements of
condition of Dime Financial Corporation and subsidiary (the
"Company") as of December 31, 1997 and 1996, and the related
consolidated statements of operations, changes in shareholders'
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 Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Dime Financial 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
Hartford, Connecticut
January 21, 1998
<PAGE>
CORPORATE INFORMATION AS OF JANUARY 31, 1998
DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
Directors of Dime Financial Corporation
Judge Ralph D. Lukens
Chairman of the Board
Dime Financial Corporation
Retired Probate Court Administrator
State of Connecticut
Richard H. Dionne
President and
Chief Executive Officer
Dime Financial Corporation
Fred A. Valenti
President
Valenti Auto Sales, Inc.
Rosalind F. Gallagher
President and Co-Owner
Gallagher Travel Shoppe
Robert Nicoletti, Ph.D.
Retired Superintendent of Schools
Shepaug Valley Regional
School District 12
M. Joseph Canavan
President and
Chief Executive Officer
Vision Medical Imaging, Inc.
William J. Farrell
President, William J. Farrell, CPA
A Professional Corp.
Richard D. Stapleton
Executive Vice President,
Secretary and General Counsel
The Lane Construction Corporation
Gary O. Olson
Of Counsel to the law firm of
Luby, Olson, Mango, Gaffney and De Frances
Theodore H. Horwitz
President and
Chief Executive Officer
Veterans Memorial Medical Center
Officers of Dime Financial Corporation
Richard H. Dionne
President and
Chief Executive Officer
Albert E. Fiacre, Jr.
Executive Vice President and
Chief Financial Officer
Timothy R. Stanton
Senior Vice President - Retail Operations
Frank P. LaMonaca
Senior Vice President - Lending
Senior Loan and Credit Officer
Robert L. Carmody
Senior Vice President - Lending
Robert P. Simon
Vice President and Comptroller
Peter F. Lenkoski
Vice President - Credit Administration
James T. Masters
Vice President - Mortgage Origination
James A. Peters
Vice President - Operations
Kevin J. King
Vice President - Commercial Lending
Richard S. Dawson
Vice President - Commercial Lending
Laura J. Yurczyk
Vice President - Retail Banking
Eleanor M. Tolla
Corporate Secretary
Corporate Headquarters
95 Barnes Road
P.O. Box 700
Wallingford, Connecticut 06492
General Counsel
Day, Berry & Howard
CityPlace
Hartford, Connecticut 06103-3499
Transfer Agent
BankBoston
c/o Boston EquiServe
Investor Relations
Mail Stop: 45-02-64
P.O. Box 8040
Boston, Massachusetts 02266-8040
Shareholder Inquiries:
(800) 733-5001
Independent Certified
Public Accountants
KPMG Peat Marwick LLP
CityPlace II
Hartford, Connecticut 06103-4103
Shareholder Relations
Eleanor M. Tolla
Corporate Secretary
Dime Financial Corporation
P.O. Box 700
Wallingford, Connecticut 06492
Phone: (203) 269 - 8881
Stock Listing
Dime Financial Corporation is traded in the over-the-counter market
and is quoted on the NASDAQ National Market System under the symbol
"DIBK." It is found in newspaper stock tables as "Dime Fin'l Corp.
- - Connecticut" or an abbreviation thereof, alphabetized in the "D's."
Annual Meeting
April 29, 1998, 10:00 a.m.
Yankee Silversmith Inn
1033 North Colony Road
Wallingford, Connecticut 06492
Form 10-K and Annual Report
The Company's Form 10-K is filed with the Securities and Exchange
Commission, a copy of which is available without charge from:
Shareholder Relations
Dime Financial Corporation
95 Barnes Road
P.O. Box 700
Wallingford, Connecticut 06492
Common Stock Information
The stock is traded on the
NASDAQ National Market
System (the "NMS") under the symbol "DIBK."
On December 31, 1997, there
were 1,589 shareholders of record.
The Company Has Paid Quarterly Dividends as follows:
<TABLE>
<CAPTION>
Payment Date Dividend per share
<S> <C>
February 24, 1997 $0.09
May 23, 1997 $0.10
August 15, 1997 $0.10
November 18, 1997 $0.11
February 25, 1998 $0.12
</TABLE>
The Company currently expects to continue paying regular quarterly
dividends to its shareholders, dependent upon future earnings.
Quarterly Trading Data
<TABLE>
<CAPTION>
Price (Quote) Range*
1997 High Low
<S> <C> <C>
Quarter ended March 31 $21 1/4 $17 1/4
Quarter ended June 30 26 1/4 17 1/2
Quarter ended September 30 32 1/8 24 7/8
Quarter ended December 31 32 1/4 28
<CAPTION>
1996 High Low
<S> <C> <C>
Quarter ended March 31 $14 $12 1/4
Quarter ended June 30 15 1/4 12 3/4
Quarter ended September 30 17 3/4 14 1/2
Quarter ended December 31 18 3/4 16 1/2
- ------------------------------------------------------------
<FN>
<F*> Information provided by the National Association of Securities
Dealers, Inc.
</FN>
</TABLE>
<PAGE>
CORPORATE INFORMATION AS OF JANUARY 31, 1998
DIME FINANCIAL CORPORATION
1997 ANNUAL REPORT
Corporate Headquarters
Dime Financial Corporation
95 Barnes Road
P.O. Box 700
Wallingford, Connecticut 06492
(203) 269-8881
Branch Offices
Barnes Park Office
95 Barnes Road
Wallingford, Connecticut 06492
(203) 269-8881
Manager: Kathleen Larkin
Assistant Vice President
Main Street Office
2 North Main Street
Wallingford, Connecticut 06492
(203) 284-4080
Manager: John Mattingly
Assistant Vice President
East Side Office
841 East Center Street
Wallingford, Connecticut 06492
(203) 265-5689
Manager: Linda Blakeslee
Assistant Treasurer
Turnpike Office
7 North Turnpike Road
Wallingford, Connecticut 06492
(203) 265-5654
Manager: Elaine Sheahan
East Main Street Office
733 East Main Street
Meriden, Connecticut 06450
(203) 639-5007
Manager: Gail Benigni
Assistant Vice President
Harbor Brook Office
100 Hanover Street
Meriden, Connecticut 06451
(203) 639-5005
Manager: Gregory Rosa
Assistant Treasurer
Washington Avenue Office
90 Washington Avenue
North Haven, Connecticut 06473
(203) 239-6497
Manager: Kim Jones
Assistant Vice President
Montowese Office
47 Middletown Avenue
North Haven, Connecticut 06473
(203) 865-1133
Manager: Thomas Flynn
Assistant Treasurer
Mt. Carmel/Hamden Office
3300 Whitney Avenue
Hamden, Connecticut 06518
(203) 287-8115
Manager: Laura Yurczyk
Vice President
Cheshire Office
595 Highland Avenue
Cheshire, Connecticut 06410
(203) 272-1601
Manager: Leila Graber
Assistant Vice President
Northford Office
859 Forest Road
Northford, Connecticut 06472
(203) 484-0414
Manager: Christopher Krauchick
Exhibit 23
Consent of Independent Auditors
The Board of Directors
Dime Financial Corporation:
We consent to incorporation by reference in the Registration Statement (No.
33-23054) on Form S-8 of Dime Financial Corporation of our report dated
January 21, 1998 relating to the consolidated statements of condition of
Dime Financial Corporation and subsidiary as of December 31, 1997 and 1996
and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997, which report appears in the December 31,
1997 annual report on Form 10-K of Dime Financial Corporation.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
March 31, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 9,016
<INT-BEARING-DEPOSITS> 661
<FED-FUNDS-SOLD> 26,755
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 388,446
<INVESTMENTS-CARRYING> 135,037
<INVESTMENTS-MARKET> 134,948
<LOANS> 374,010
<ALLOWANCE> 12,352
<TOTAL-ASSETS> 961,436
<DEPOSITS> 817,091
<SHORT-TERM> 5,000
<LIABILITIES-OTHER> 7,060
<LONG-TERM> 53,000
0
0
<COMMON> 5,515
<OTHER-SE> 73,770
<TOTAL-LIABILITIES-AND-EQUITY> 961,436
<INTEREST-LOAN> 31,757
<INTEREST-INVEST> 29,529
<INTEREST-OTHER> 1,723
<INTEREST-TOTAL> 63,009
<INTEREST-DEPOSIT> 31,513
<INTEREST-EXPENSE> 34,788
<INTEREST-INCOME-NET> 28,221
<LOAN-LOSSES> 200
<SECURITIES-GAINS> 195
<EXPENSE-OTHER> 13,436
<INCOME-PRETAX> 16,818
<INCOME-PRE-EXTRAORDINARY> 16,748
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,748
<EPS-PRIMARY> 3.25
<EPS-DILUTED> 3.16
<YIELD-ACTUAL> 3.33
<LOANS-NON> 2,288
<LOANS-PAST> 82
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,929
<CHARGE-OFFS> 1,879
<RECOVERIES> 1,102
<ALLOWANCE-CLOSE> 12,352
<ALLOWANCE-DOMESTIC> 9,189
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,163
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 10,430 11,172
<INT-BEARING-DEPOSITS> 149 2,983
<FED-FUNDS-SOLD> 21,296 21,334
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 184,961 103,316
<INVESTMENTS-CARRYING> 120,257 47,898
<INVESTMENTS-MARKET> 119,238 48,245
<LOANS> 400,222 456,443
<ALLOWANCE> 12,929 12,779
<TOTAL-ASSETS> 751,303 658,373
<DEPOSITS> 626,098 543,344
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 4,594 5,361
<LONG-TERM> 58,000 58,000
0 0
0 0
<COMMON> 5,481 5,374
<OTHER-SE> 57,130 46,294
<TOTAL-LIABILITIES-AND-EQUITY> 751,303 658,373
<INTEREST-LOAN> 35,417 39,781
<INTEREST-INVEST> 14,562 5,891
<INTEREST-OTHER> 1,412 1,804
<INTEREST-TOTAL> 51,391 47,476
<INTEREST-DEPOSIT> 21,497 17,893
<INTEREST-EXPENSE> 25,495 22,079
<INTEREST-INCOME-NET> 25,896 25,397
<LOAN-LOSSES> 2,000 7,550
<SECURITIES-GAINS> 326 298
<EXPENSE-OTHER> 13,808 16,997
<INCOME-PRETAX> 12,463 3,228
<INCOME-PRE-EXTRAORDINARY> 12,473 6,041
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 12,473 6,041
<EPS-PRIMARY> 2.45 1.21
<EPS-DILUTED> 2.42 1.20
<YIELD-ACTUAL> 3.85 4.12
<LOANS-NON> 2,570 7,682
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 885
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 12,779 9,326
<CHARGE-OFFS> 3,767 4,846
<RECOVERIES> 1,917 749
<ALLOWANCE-CLOSE> 12,929 12,779
<ALLOWANCE-DOMESTIC> 12,929 11,724
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 2,778 1,055
</TABLE>
