SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
-------------------------------------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (set forth the amount on which the filing
fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
ONE CENTER AVENUE
LITTLE FALLS, NEW JERSEY 07424
(973) 256-2100
December 29, 1998
Dear Fellow Stockholder:
On behalf of the Board of Directors, I want to extend to you a cordial
invitation to attend a Special Meeting of Stockholders ("Meeting") of First
Savings Bancorp of Little Falls, Inc. (the "Company"). The Meeting will be held
at the main office of the Company, located at One Center Avenue, Little Falls,
New Jersey on Tuesday, January 19, 1999 at 11:00 a.m., local time.
The purpose of the Meeting is to vote on a proposal to approve the
Agreement and Plan of Merger, dated September 4, 1998 (the "Merger Agreement"),
by and among Greater Community Bancorp ("Greater Community"), GCB Acquisition
Corp. ("Newco"), and the Company, pursuant to which the Company would merge with
Newco (the "Corporate Merger") with the Company surviving, and First Savings
Bank of Little Falls, F.S.B. (the "Savings Bank") would merge with Great Falls
Bank (the "Bank Merger" and together with the Corporate Merger, the "Mergers").
Newco is a newly-formed subsidiary of Greater Community.
Upon consummation of the Corporate Merger, each outstanding share of
the Company's common stock would be converted into the right, subject to
adjustment, to receive a cash payment of $52.26 from Greater Community. Each
share of the Company's common stock held as treasury stock by the Company will
be canceled and retired. Consummation of the Mergers is subject to certain
conditions, including approval of the Merger Agreement by the Company's
stockholders and approval of the Mergers by various regulatory agencies.
Approval of the Merger Agreement requires the affirmative vote by the holders of
a majority of the outstanding common stock of the Company.
The accompanying Notice of Special Meeting and Proxy Statement contain
information about the Mergers. We urge you to review carefully such information,
and the information in the Company's 1997 Annual Report to Stockholders, and
Quarterly Report on Form 10-QSB, as amended, for the period ended September 30,
1998, copies of which are attached to the Proxy Statement.
The Board of Directors of the Company has unanimously approved the
Merger Agreement and unanimously recommends that the stockholders of the Company
approve the Merger Agreement. A failure to vote, either by not returning the
enclosed proxy or by checking the "Abstain" box thereon, will have the same
effect as a vote against approval of the Merger Agreement. Even if you plan to
attend the Meeting in person, please complete the enclosed proxy, sign, date and
mail it promptly in the enclosed postage-paid, return addressed envelope. You
may revoke your proxy by attending the Meeting and voting in person.
Sincerely,
/s/Dr. Haralambos S. Kostakopoulos
--------------------------------------
Dr. Haralambos S. Kostakopoulos
President and Chief Executive Officer
Please do not send your common stock certificates at this time. If the
Corporate Merger is consummated, you will be sent instructions regarding the
surrender of your stock certificates.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
ONE CENTER AVENUE
LITTLE FALLS, NEW JERSEY 07424
(973) 256-2100
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 19, 1999
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of First
Savings Bancorp of Little Falls, Inc. (the "Company") will be held at 11:00
a.m., Eastern Time, on Tuesday, January 19, 1999, or any adjournment or
adjournments thereof, at the main office of the Company, located at One Center
Avenue, Little Falls, New Jersey for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and
Plan of Merger, dated as of September 4, 1998 (the "Merger
Agreement"), by and among Greater Community Bancorp ("Greater
Community"), GCB Acquisition Corp. ("Newco"), and the Company,
pursuant to which (i) the Company would merge with Newco (the
"Corporate Merger") with the Company surviving, and First Savings
Bank of Little Falls, F.S.B. (the "Savings Bank") would merge
with Great Falls Bank with Great Falls Bank surviving (the "Bank
Merger" and together with the Corporate Merger, the "Mergers"),
and (ii) each outstanding share of the Company common stock would
be converted into the right, subject to adjustment, to receive a
cash payment of $52.26 from Greater Community upon completion of
the Corporate Merger, subject to the terms and conditions
contained in the Merger Agreement; and
2. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
A copy of the Merger Agreement is set forth in ANNEX A to the
accompanying Proxy Statement. Stockholders are urged to read the Merger
Agreement in its entirety.
The Board of Directors of the Company has fixed December 4, 1998, as
the record date for the determination of stockholders entitled to notice of and
to vote at the Meeting, and accordingly, only holders of record of the Company
common stock at the close of business on that date will be entitled to notice of
and to vote at the Meeting or any adjournment or adjournments thereof. Approval
of the Merger Agreement requires the affirmative vote of a majority of the
holders of the outstanding common stock of the Company.
The Board of Directors of the Company unanimously recommends that
stockholders vote "For" approval of the Merger Agreement.
By Order of the Board of Directors of
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
/s/Sarina Matos
---------------------------------------------
Sarina Matos
Secretary
Stockholders are urged to complete, date, sign and return promptly the enclosed
proxy in the accompanying envelope, which requires no postage if mailed in the
United States. Your cooperation is appreciated. Your proxy will be voted with
respect to the matters identified thereon in accordance with any specifications
on the proxy. A failure to vote, either by not returning the enclosed proxy or
by checking the "Abstain" box thereon, will have the same effect as a vote
against approval of the Merger Agreement.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
ONE CENTER AVENUE
LITTLE FALLS, NEW JERSEY 07424
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 19, 1999
This Proxy Statement is being furnished by First Savings Bancorp of
Little Falls, Inc., a New Jersey corporation (the "Company"), to the holders of
the Company common stock, par value $1.00 per share (the "Company Common
Stock"), in connection with the solicitation of proxies by the Company's Board
of Directors for use at a Special Meeting of Stockholders of the Company to be
held at 11:00 a.m., Eastern Time, on Tuesday, January 19, 1999, at the main
office of the Company, located at One Center Avenue, Little Falls, New Jersey
(the "Meeting"), and at any adjournment or adjournments thereof.
This Proxy Statement, the accompanying Notice of Special Meeting and
form of proxy are first being mailed to the stockholders of record of the
Company on or about December 29, 1998.
The primary purpose of the Meeting is to consider and vote upon a
proposal to approve the Agreement and Plan of Merger, dated as of September 4,
1998 (the "Merger Agreement"), by and among Greater Community Bancorp ("Greater
Community"), GCB Acquisition Corp. ("Newco"), and the Company, pursuant to which
(i) the Company would merge with Newco (the "Corporate Merger") with the Company
surviving, and First Savings Bank of Little Falls, F.S.B. (the "Savings Bank")
would merge with Great Falls Bank with Great Falls Bank surviving (the "Bank
Merger" and together with the Corporate Merger, the "Mergers"), and (ii) each
outstanding share of the Company common stock would be converted into the right,
subject to adjustment, to receive a cash payment of $52.26 from Greater
Community upon completion of the Corporate Merger, subject to the terms and
conditions contained in the Merger Agreement. See "SUMMARY," "THE MERGERS", "THE
MERGER AGREEMENT" and a copy of the Merger Agreement attached as ANNEX A to this
Proxy Statement.
Upon consummation of the Corporate Merger each outstanding share of the
Company Common Stock would be converted into the right to receive a cash payment
of $52.26 from Greater Community, subject to adjustment as specified in the
Merger Agreement.
The Company Common Stock is not listed on any stock exchange or on the
National Association of Securities Dealers Automated Quotations System. The
market for the Company Common Stock is not liquid, with few purchases and sales
of stock. The last known sale of the Company Common Stock involved 500 shares at
$14.00 a share on May 6, 1994.
THE DATE OF THIS PROXY STATEMENT IS DECEMBER 29, 1998
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Securities and
Exchange Commission (File No. 0-23194) under Section 13(a) or 15(d) of the
Exchange Act are hereby incorporated by reference in this Proxy Statement:
(i) the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997;
(ii) the Company's Quarterly Reports on Form 10-QSB for the
quarters ended March 31, 1998, June 30, 1998, and September
30, 1998;
(iii) the Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1998, as amended; and
(iv) the Company's Current Report on Form 8-K, dated September 8,
1998.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Proxy
Statement to the extent that a statement contained herein modifies or supersedes
that earlier statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this Proxy
Statement.
(ii)
<PAGE>
TABLE OF CONTENTS
PAGE
----
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ ii
SUMMARY.................................................................... 1
SELECTED CONSOLIDATED FINANCIAL DATA....................................... 5
MARKET PRICE OF STOCK AND RELATED SECURITY HOLDER MATTERS.................. 5
THE MEETING................................................................ 7
General................................................................. 7
Record Date: Vote Required.............................................. 7
PROPOSAL I - THE MERGER.................................................... 8
General................................................................. 8
Background of the Merger................................................ 8
The Company's Reasons for the Merger.................................... 9
Opinion of Financial Advisor............................................ 10
Federal Income Tax Consequences......................................... 14
THE MERGER AGREEMENT....................................................... 15
The Mergers............................................................. 15
Effective Date.......................................................... 16
Possible Adjustment to Cash Consideration............................... 16
Exchange of the Company Common Stock Certificates....................... 16
Interests of Certain Persons............................................ 17
Post-Merger Benefits to Employees and Officers.......................... 18
No Appraisal Rights..................................................... 19
Business Pending Consummation........................................... 20
Accounting Treatment.................................................... 21
Regulatory Approvals.................................................... 21
Conditions to Consummation; Termination................................. 23
Waiver; Amendment....................................................... 23
Expenses; Termination Fees.............................................. 24
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING.............................. 24
LEGAL OPINIONS............................................................. 24
ACCOUNTANTS................................................................ 24
OTHER MATTERS.............................................................. 25
FINANCIAL INFORMATION...................................................... 25
ANNEXES
Annex A - Agreement and Plan of Merger ................................. A-1
Annex B - Opinion and Letter of Ryan, Beck & Co., Inc................... B-1
EXHIBITS
Exhibit 1 - 1997 Annual Report to Stockholders
Exhibit 2 - Quarterly Report on Form 10-QSB for the quarter ended September
30, 1998, as amended
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY PROVIDES CERTAIN INFORMATION RELATING TO THE
MERGERS. THIS SUMMARY IS NOT INTENDED TO BE A SUMMARY OF ALL MATERIAL
INFORMATION RELATING TO THE MERGERS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT, INCLUDING THE ANNEXES HERETO, AND IN THE DOCUMENTS INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT. A COPY OF THE MERGER AGREEMENT IS ATTACHED AS
ANNEX A TO THIS PROXY STATEMENT. STOCKHOLDERS ARE URGED TO READ CAREFULLY THE
ENTIRE PROXY STATEMENT, INCLUDING THE ANNEXES. AS USED IN THIS PROXY STATEMENT,
THE TERMS "GREATER COMMUNITY," "NEWCO," "GREAT FALLS BANK," "THE COMPANY" AND
"THE SAVINGS BANK" REFER TO SUCH ORGANIZATIONS, AND, UNLESS THE CONTEXT
OTHERWISE REQUIRES, SUCH ORGANIZATIONS AND THEIR RESPECTIVE SUBSIDIARIES.
Greater Community Bancorp ("Greater Community")
Greater Community is a New Jersey business corporation. It is
registered as a bank holding company with the Board of Governors of the Federal
Reserve System under the Federal Bank Holding Company Act of 1956, as amended.
Greater Community was incorporated in 1984. Greater Community's principal
business activity is the ownership and operation of Great Falls Bank and Bergen
Commercial Bank, which Greater Community acquired in 1985 and 1995,
respectively. Greater Community also (a) owns a majority interest in Greater
Community Financial, L.L.C., which was formed in 1996 to engage in the business
of providing securities brokerage services, (b) is the sole stockholder of
Highland Capital Corp., a leasing company which was organized in 1998 and (c)
owns, directly and indirectly, 100% of GCB Reality, L.L.C., which was formed in
1997 to acquire and manage real estate properties. The principal executive
office of Greater Community is located at 55 Union Boulevard, Totowa, New Jersey
07512 and the telephone number at that address is (973) 942-1111.
At September 30, 1998, Greater Community had consolidated assets of
$369.0 million, deposits of $286.5 million and shareholders' equity of $30.4
million.
GCB Acquisition Corp. ("Newco")
Newco is a wholly-owned subsidiary of Greater Community. Newco is a New
Jersey-chartered corporation formed in August 1998 to acquire the shares of the
Company. Newco owns no assets. The principal executive office of Newco is
located at 55 Union Boulevard, Totowa, New Jersey 07512 and the telephone number
at that address is (973) 942-1111.
The Company and the Savings Bank
The Company is a New Jersey corporation organized in March 1993 and
became a unitary savings and loan holding company upon the completion of the
reorganization of the Savings Bank into the holding company form of ownership.
At that time the Company acquired all of the outstanding common stock of the
Savings Bank. The Savings Bank's common stock was originally issued in
connection with the Savings Bank's conversion from mutual to stock form in
September 1992. The Company's principal asset is the stock of the Savings Bank
which is a community-oriented institution offering a variety of financial
services in Little Falls, New Jersey. As of September 30, 1998, the Company
reported assets of $184.5 million, net loans of $109.9 million, deposits of
$172.4 million, and
<PAGE>
stockholders' equity of $10.3 million, and as of such date the Company operated
through three offices two of which are located in Passaic County and one of
which is located in Bergen County. For the fiscal year ended December 31, 1997,
and for the nine months ended September 30, 1998, the Company reported net
income of $794,112 and $614,786, respectively. The principal executive offices
of the Company and the Savings Bank are located at One Center Avenue, Little
Falls, New Jersey 07424, and their telephone number is (973) 256-2100.
The Meeting; Record Date
The Meeting will be held on January 19, 1999, at 11:00 a.m., Eastern
Time, at the main office of the Company, located at One Center Avenue, Little
Falls, New Jersey, for the purpose of considering and voting upon a proposal to
approve the Merger Agreement.
The Board of Directors of the Company has fixed December 4, 1998, as
the record date for determining stockholders entitled to notice of and to vote
at the Meeting (the "Record Date"). As of such date, there were 440,100 shares
of the Company Common Stock outstanding and entitled to be voted at the Meeting.
The Mergers
Under the terms of the Merger Agreement, the Company would merge with
Newco, with the Company surviving, and the Savings Bank would merge with Great
Falls Bank. Upon consummation of the Corporate Merger, each outstanding share of
the Company Common Stock would be converted into the right to receive a cash
payment of $52.26 (the "Cash Consideration") from Greater Community, subject to
adjustment. The merger of the Savings Bank with and into Great Falls Bank, with
Great Falls Bank surviving, is expected to occur immediately after the Corporate
Merger.
Vote Required
Approval of the Merger Agreement requires the affirmative vote of a
majority of the holders of the outstanding common stock of the Company. Each
owner of Company Common Stock on the Record Date will be entitled to one vote
for each share held of record upon each matter properly submitted at the Meeting
or any adjournment or adjournments thereof.
The directors and executive officers of the Company (including certain
of their related interests) beneficially owned, as of the Record Date, and are
entitled to vote at the Meeting, 396,600 shares of the Company Common Stock,
which represents 90.1% of the outstanding shares of the Company Common Stock
entitled to be voted at the Meeting. Accordingly, assuming that the directors
and executive officers of the Company vote their shares of the Company Common
Stock in favor of approval of the Merger Agreement, approval of the Merger
Agreement will not require the affirmative vote of the holders of any additional
outstanding shares of the Company Common Stock entitled to be voted at the
Meeting in order for the Merger Agreement to be approved at the Meeting.
The favorable vote of unaffiliated stockholders of the Company will not
be required to approve the Merger Agreement. In addition, any stockholder voting
in favor of the Merger Agreement may be prevented from challenging such
transaction in the future.
2
<PAGE>
Notwithstanding the amount of Company Common Stock held by the
directors and executive officers of the Company or the manner in which such
individuals intend to vote, pursuant to Section 14A:10-3 of the New Jersey
Business Corporation Act, the Company is still required to submit for
stockholder vote a proposal to approve the Merger Agreement and obtain an
affirmative vote of a majority of the votes cast before consummating the
Corporate Merger or Bank Merger.
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY
CHECKING THE "ABSTAIN" BOX THEREON, WILL HAVE THE SAME EFFECT AS A VOTE AGAINST
APPROVAL OF THE MERGER AGREEMENT.
Effective Date
Unless the Merger Agreement is terminated, a closing is to be held as
soon as practicable after the satisfaction or waiver of the conditions to the
obligations of the parties to consummate the Mergers and in no event later than
the last to occur of January 1, 1999 or the 45th day following receipt of all
required regulatory approvals. At the closing, the proper officers of the
Company and Newco will execute a Certificate of Merger, which is to be filed
with the State of New Jersey not later than the first business day following the
closing. The Corporate Merger will become effective at 11:59 p.m. on the date
that the Certificate of Merger is filed. It is currently anticipated that the
closing will take place, and the Mergers will become effective, during the first
calendar quarter of 1999.
Recommendation of the Company's Board of Directors
The Board of Directors of the Company has approved the Merger Agreement
by unanimous vote, believes it is in the best interests of the Company and its
stockholders and unanimously recommends its approval by the Company's
stockholders.
Opinion of Financial Advisor
Ryan, Beck & Co., Inc. ("Ryan Beck") rendered its oral opinion to the
Company's Board of Directors on September 4, 1998, and subsequently rendered an
additional formal written updated opinion dated December 29, 1998 (the
"Opinion") that, as of the respective dates of such opinions and subject to the
assumptions set forth therein, the Cash Consideration is fair to the holders of
the Company's Common Stock from a financial point of view. For information
concerning the matters reviewed, assumptions made and factors considered by Ryan
Beck see "PROPOSAL I - THE MERGER - Opinion of Financial Advisor" and ANNEX B to
this Proxy Statement, which sets forth a copy of Ryan Beck's written fairness
opinion dated December 29, 1998. Holders of the Company's Common Stock are urged
to, and should, read the Opinion in its entirety.
Based upon the estimated aggregate purchase price to be paid in
connection with the Merger, Ryan Beck's aggregate fees will be approximately
$345,000. Ryan Beck was paid approximately $115,000 of such advisory fee upon
the signing of the Merger Agreement and the remainder will be paid upon the
closing of this transaction. In addition, the Company has agreed to reimburse
Ryan Beck for its reasonable out-of-pocket expenses, which shall not exceed
$10,000 without the prior consent of the Company.
3
<PAGE>
Federal Income Tax Consequences
Stockholders are urged to consult their own tax advisors as to the
specific consequences to them of the Corporate Merger under applicable tax laws.
The receipt of cash by a stockholder of the Company in exchange for
shares of the Company Common Stock pursuant to the Merger Agreement will be a
taxable transaction to such stockholder for federal income tax purposes. In
general, a stockholder will recognize gain or loss upon the surrender of the
stockholder's Company Common Stock equal to the difference, if any, between (i)
the sum of the cash payment of $52.26 per share (subject to adjustment) received
in exchange for the shares of the Company Common Stock and (ii) the
stockholder's tax basis in such Company Common Stock.
Interests of Certain Persons
Certain directors or executive officers of the Company have interests
in the Mergers in addition to their interests as stockholders of the Company
generally. These interests include, among others, provisions in the Merger
Agreement relating to indemnification and maintenance of director and officer
liability insurance coverage. These interests also relate to certain benefits
available as a result of a "change in control" of the Company, such as the
Corporate Merger, including, among others, the payment of certain severance
benefits under an existing employment agreement to President Kostakopoulos. The
estimated aggregate amount of payments to Dr. Kostakopoulos expected to be made
in connection with the Corporate Merger due to acceleration of benefits from an
employment agreement is $712,136.
In addition, the Savings Bank has entered into a Change in Control
Severance Agreement with Brian J. McCourt, the Vice President, Treasurer and
Controller of the Company and the Savings Bank, pursuant to which, among other
things, Mr. McCourt will receive a payment of $135,000, and the costs of
maintaining his medical and dental insurance for one year, in the event that his
employment is involuntarily terminated without just cause within 24 months after
a change in control of the Company or the Savings Bank; under certain
circumstances which are described in his agreement, Mr. McCourt shall also be
entitled to the aforementioned payment and benefits if he voluntarily terminates
his employment within 24 months after a change in control.
No Appraisal Rights
No stockholders of the Company are entitled to appraisal rights in
connection with, or as a result of, the Merger. See "Proposal I - The Merger --
No Appraisal Rights."
Business Pending Consummation
The Company has agreed in the Merger Agreement to carry on its business
in substantially the same manner its business was conducted prior to the date of
the Merger Agreement, and has agreed not to take certain actions relating to the
operation of the Company pending consummation of the Mergers, without the prior
written consent of Greater Community, except as otherwise permitted by the
Merger Agreement.
4
<PAGE>
Regulatory Approvals
The Mergers are subject to the prior approval of the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board"), the Federal Deposit
Insurance Corporation (the "FDIC"), the Commissioner of the Department of
Banking and Insurance of New Jersey (the "New Jersey Commissioner"), the Office
of Thrift Supervision (the "OTS") and other regulatory authorities, if any.
Applications or waiver requests have been either filed with each of such
regulatory authorities for such approvals or will be filed in the near future.
There can be no assurance that the necessary regulatory approvals will be
obtained or as to the timing or conditions of such approvals. See "THE MERGER
AGREEMENT -- Regulatory Approvals."
Conditions to Consummation; Termination
Consummation of the Mergers is subject, among other things, to: (i)
approval of the transactions contemplated by the Merger Agreement by the
requisite vote of the stockholders of the Company; (ii) receipt of the
regulatory approvals referred to under "THE MERGER AGREEMENT -- Regulatory
Approvals;" (iii) there being in effect no order, decree or injunction of any
court or agency of competent jurisdiction that enjoins or prohibits the Mergers
or which would limit or otherwise affect in a material respect the operation of
the Savings Bank and Great Falls Bank as a single entity, or the operation of
the Company and Newco as a single entity, following the Mergers; and (iv) there
being no suit, action or proceeding pending or, in the case of governmental
bodies, threatened, which challenge the validity or legality, or seeks to
restrain the consummation, of the Mergers or which seeks to limit or otherwise
affect in a material respect the operation of the Savings Bank and Great Falls
Bank as a single entity, or the operation of the Company and Newco as a single
entity, following the Mergers.
The Merger Agreement may be terminated by mutual agreement of the
Boards of Directors of Newco and the Company. The Merger Agreement may also be
terminated by the Board of Directors of the Company if the Corporate Merger does
not occur on or before July 29, 1999, or if certain conditions set forth in the
Merger Agreement are not met.
Expenses; Termination Fees
In the event the Mergers are not consummated, all expenses incurred by
or on behalf of the parties in connection with the Merger Agreement and the
transactions contemplated thereby shall be borne by the party incurring the
same.
The Company will be entitled to receive $500,000 if the Merger
Agreement is terminated because of Greater Community's breach of a
representation, warranty, covenant or agreement under the Merger Agreement and
fails to cure the breach within 30 days following written demand. Generally,
Greater Community will be entitled to receive $500,000 if the Merger Agreement
is terminated because (i) the Company receives a superior offer from another
potential acquiror, (ii) the Company fails to obtain stockholder approval by
January 2, 1999 (the Company will have 30 days to cure such breach within 30
days following written demand), or (iii) the Company breaches a representation,
warranty, covenant or agreement under the Merger Agreement and fails to cure the
breach within 30 days following written demand.
5
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial and other data for the
last five fiscal years are derived in part from the audited consolidated
financial statements of the Company. The consolidated financial and other data
for the nine-month periods ended September 30, 1998 and 1997, are derived from
unaudited consolidated financial statements. The unaudited consolidated
financial statements include all adjustments, consisting of normal recurring
accruals, which the Company considers necessary for a fair presentation of the
financial position and the results of operations of these periods. Operating
results for the nine months ended September 30, 1997 and 1998, are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending December 31, 1998. The data for the nine months ended September 30,
1997 and 1998, are annualized where applicable. The data should be read in
conjunction with the audited consolidated financial statements, related notes
and other financial information incorporated by reference herein.
6
<PAGE>
UNAUDITED SELECTED FINANCIAL DATA
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
At or For
Nine Months Ended
September 30, At or for the year ended December 31,
---------------------- ---------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL AMOUNTS OF:
Total Assets $ 184,512 $ 176,780 $ 178,144 $ 166,734 $ 154,635 $ 133,730 $ 130,574
Loans Receivable 109,933 108,360 105,467 94,733 85,836 74,277 76,918
Securities Available for Sale 25,576 33,802 31,226 37,507 35,964 -- 15,893
Mortgage-Backed Securities
Held to Maturity 8,943 10,235 10,415 12,805 2,545 18,289 4,035
Investment Securities,
Held to Maturity 24,147 8,613 19,644 2,000 19,000 28,120 10,443
Cash & Cash Equivalents 7,463 7,390 3,683 10,673 1,128 3,559 12,345
Deposits 172,400 165,279 166,759 156,596 131,636 123,656 115,494
Borrowed Money 520 558 551 -- 12,600 -- 5,000
Stockholders Equity 10,287 9,854 9,864 9,332 9,597 9,177 9,041
Net Interest Income 3,397 3,384 4,603 4,270 4,116 3,922 3,980
Net Income (Loss) 615 600 794 (120) 363 499 2,500
Diluted Earnings Per
Common Shares 1.40 1.36 $ 1.80 $ (0.27) $ 0.82 $ 1.13 $ 5.68
Common Stock Dividends
Declared Per Share 1.50 1.00 $ 1.00 -- $ 0.50 $ 0.50 --
Return on Average Assets 0.48 0.47% 0.46% -0.08% 0.26% 0.38% 1.90%
Return on Average Equity 8.71 8.25% 8.19% -1.24% 3.86% 5.43% 32.22%
Dividend Payout Ratio (1) 107.38 73.34% 55.42% -- 25.95% 15.20% 0.00%
Average Equity to Average
Assets Ratio 5.61 5.60% 5.60% 6.13% 6.65% 6.94% 5.88%
Book Value Per Share 23.37 22.39 22.41 21.20 21.81 20.85 20.54
</TABLE>
(1) Common stock dividends declared as a percentage of net income applicable to
common shares.
MARKET PRICE OF STOCK AND RELATED SECURITY HOLDER MATTERS
The Company's Common Stock is not listed on any stock exchange or on
the National Association of Securities Dealers Automated Quotations System
("NASDAQ"). Approximately 90% of the Common Stock is held by current officers
and directors of the Company including an investor group consisting of
Haralambos S. Kostakopoulos - President of the Savings Bank, Emanuel M.
Kontokosta Chairman of the Board, and Vice Chairman Nikos P. Mouyiaris and
Frederick J. Tedeschi. There is no active trading market for the Common Stock,
with few purchases and sales of stock. The last known sale of the Common Stock
involved 500 shares at $14.00 a share on May 6, 1994.
The ability of the Company to pay dividends on its Common Stock is
dependent upon the ability of the Savings Bank to pay dividends, since the
Company's main asset is the stock of the Savings Bank. The ability of the
Savings Bank to pay dividends is restricted by the regulations of the OTS and
tax considerations. The Savings Bank may not pay dividends that would reduce the
regulatory capital of the Savings Bank below the level required for institutions
insured by SAIF or the liquidation account created in connection with the mutual
to stock conversion of the Savings Bank. During 1997, a dividend of $1.00 per
share was declared to the owners of Common Stock, and during 1998, a $0.50
dividend was declared in March, June, and September.
There are 43 holders of the Common Stock of the Company as of December
29, 1998.
7
<PAGE>
THE MEETING
General
This Proxy Statement is being furnished by the Company to its
stockholders in connection with the solicitation of proxies by the Board of
Directors of the Company for use at the Meeting to be held on January 19, 1999,
and any adjournment or adjournments thereof, to consider and vote upon a
proposal to approve the Merger Agreement and any other business as may properly
come before the Meeting.
After having been submitted, the enclosed proxy may be revoked by the
person giving it, at any time before it is exercised, by: (i) submitting written
notice of revocation of such proxy to the Secretary of the Company; (ii)
submitting a proxy having a later date; or (iii) such person appearing at the
Meeting and revoking the proxy. All shares represented by valid proxies will be
exercised in the manner specified thereon. If no specification is made, such
shares will be voted in favor of approval of the Merger Agreement.
Directors, officers, and employees of the Company may solicit Proxies
from Company stockholders, either personally or by telephone, telegraph or other
form of communication. Such persons will receive no additional compensation for
such services. The Company has retained no third party to assist in soliciting
proxies or to send proxy materials to brokerage houses and other custodians,
nominees and fiduciaries for transmittal to their principals. All expenses
associated with the solicitation of proxies will be paid by the Company.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT, BELIEVES IT IS IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS ITS APPROVAL BY THE COMPANY'S
STOCKHOLDERS.
Record Date; Vote Required
The Board of Directors of the Company has fixed December 4, 1998, as
the Record Date for determining stockholders entitled to notice of and to vote
at the Meeting, and accordingly, only holders of the Company Common Stock of
record at the close of business on that day will be entitled to notice of and to
vote at the Meeting. The number of shares of the Company Common Stock
outstanding on the Record Date was 440,100, each of such shares being entitled
to one vote.
As to the approval of the Merger Agreement by checking the appropriate
box, a stockholder may: (i) vote "FOR" approval of the Merger Agreement (ii)
vote "AGAINST" the Merger Agreement, or (iii) "ABSTAIN." The Merger Agreement
must be approved by a vote of a majority of the shares of the Common Stock
entitled to vote, without regard to (a) Broker Non-votes, or (b) proxies marked
"ABSTAIN" as to that matter.
The directors and executive officers of the Company (including certain
of their related interests) beneficially owned, as of the Record Date, and are
entitled to vote at the Meeting 396,600 shares of the Company Common Stock,
which represents 90.1% of the outstanding shares of Company Common Stock
entitled to be voted at the Meeting. Accordingly, assuming that the directors
and executive officers of the Company vote their shares of the Company Common
Stock in favor of approval of the Merger Agreement, approval of the Merger
Agreement will not require the affirmative vote of any additional
8
<PAGE>
outstanding shares of the Company Common Stock entitled to be voted at the
Meeting in order for the Merger Agreement to be approved at the Meeting.
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY
CHECKING THE "ABSTAIN" BOX THEREON, WILL HAVE THE SAME EFFECT AS A VOTE AGAINST
APPROVAL OF THE MERGER AGREEMENT.
PROPOSAL I - THE MERGER
A COPY OF THE MERGER AGREEMENT IS ATTACHED AS ANNEX A TO THIS PROXY STATEMENT
AND REFERENCE IS MADE THERETO FOR A COMPLETE DESCRIPTION OF THE TERMS OF THE
MERGERS. STOCKHOLDERS OF THE COMPANY ARE URGED TO READ THE MERGER AGREEMENT
CAREFULLY.
General
Under the terms of the Merger Agreement, the Company and Newco would
merge and the Savings Bank would subsequently merge with and into Great Falls
Bank. Upon consummation of the Corporate Merger, each outstanding share of the
Company Common Stock would be converted automatically and without any action on
the part of the holder thereof, into the right to receive a cash payment of
$52.26 from Greater Community subject to adjustment.
Background of the Merger
In January and February of 1998 the Board of Directors of the Company
(the "Board") determined to address the strategic options available to the
Company. Options explored included the acquisition of another institution and an
initial public offering of the Company's Common Stock. At that time the Board
was not considering a sale of the Company. In early March, the Company received
an unsolicited verbal offer from a third party to acquire the Company for $20
million, or $45.44 per share, in cash. This offer was subsequently presented in
writing. The Board, with the assistance of Ryan Beck, reviewed this offer. The
Company elected to reject this offer because of concerns that the bidder would
have difficulty receiving regulatory approval for the transaction. However, the
value offered indicated to the Board that there might be an opportunity to
maximize shareholder value through the sale of the institution. A result of
their analysis the Board decided that it was in the best interests of the
shareholders to consider the sale of the Company. On March 11, 1998 the Company
engaged Ryan Beck as its financial advisor to conduct a due diligence review of
the Company, identify potential acquirors, assist in the preparation of a
confidential offering memorandum and assist in any discussions and negotiations
with potential acquirors.
Beginning in May 1998 Ryan Beck contacted 43 financial institutions to
determine their level of interest in the Company. A confidential offering
memorandum containing March 31, 1998 data was sent to 29 of these companies
after execution of a confidentiality agreement and they were instructed to
provide their preliminary indications of interest to Ryan Beck in early June
1998. Nine companies, including the party which had previously contacted the
Company, provided preliminary indications of interest which were presented to
the Board of Directors of the Company. Four companies contemplated a stock for
stock exchange, three companies contemplated an exchange of a combination of
cash and securities, one company contemplated an all cash transaction and one
company presented the option of either a stock for stock exchange or a
combination of cash and stock. Ryan Beck reviewed with the
9
<PAGE>
Board the financial aspects of the proposals, specifically reviewing the key
financial components of comparable transactions. The indications of interest by
four of the companies were not considered to be competitive based upon the
indicated price, and the Company elected not to continue discussions with these
parties.
The remaining five prospective acquirors conducted a due diligence
review of the Company during June and July of 1998. Three of these companies
submitted revised proposals, which were reviewed by the Board on July 24, 1998.
The revised indication by Greater Community contemplated a combination of cash
and stock at a price in excess of the all cash proposal ultimately accepted by
the Company. Subsequent to the Board's review of these proposals, the Board
began negotiations on a stock for stock exchange with another party. Although
the value of this proposed offer was below the combination proposal from Greater
Community, the Board believed this offer was in the best interests of the
Company's shareholders due to liquidity and ownership concentration issues, as
well as the future appreciation potential of this party's stock. Following
discussions with the President of Greater Community, the Board received a
revised indication for an all cash transaction at a price level lower than the
combination proposal. The value of Greater Community's revised offer was in
excess of the values of the other two revised indications received by the
Company. In addition, this offer did not entail the same market and liquidity
risk perceived in Greater Community's earlier offer. The Board considered that
the cash received would be immediately taxable to shareholders and weighed that
against the fact that, given the turmoil in the markets, the after tax value to
be received was significantly more secure than accepting an all stock offer at a
fixed exchange ratio from another bidder. During the first week of August, in
light of the revised proposal and a decline in the market value of the stock of
the other potential acquiror which had a negative impact on the value of its
proposed offer, the Board reviewed their options. At that time the Board
authorized management and the Company's representatives to negotiate the terms
of a definitive agreement with Greater Community, believing the all cash offer
provided a more secure value to the Company's shareholders.
Management reviewed and revised several drafts of the definitive
agreement with the assistance of the Company's legal counsel and investment
banker. On September 4, 1998, the Board met again to consider the proposed
definitive merger agreement that had been negotiated with Greater Community,
including the proposed final all cash purchase price. At that meeting Ryan Beck
orally gave the Board its opinion that the consideration to be received by the
stockholders of the Company from Greater Community was fair from a financial
point of view. After extensive discussion the Board determined that the proposed
merger is in the best interests of the Company and its stockholders and the
Board unanimously voted to approve the Merger Agreement.
The Company's Reasons for the Merger and Recommendation
The terms of the Merger Agreement, including the Cash Consideration to
be received by the Company's stockholders, were the result of arm's length
negotiations between the representatives of the Company and Greater Community
after a thorough auction process. The factors of the Merger that the Board of
Directors of the Company considered material in deciding to approve and
recommend the terms of the Merger were (i) the cash to be received by the
Company's stockholders of $52.26 was equivalent to 230% of tangible book value
and 22.5 times the latest twelve months earnings and compared favorably to
acquisition prices paid for comparable companies, (ii) the taxable nature of a
cash transaction versus the pricing risk associated with taking stock, (iii)
information concerning the financial condition, results of operations, capital
levels, asset quality and future prospects of the Company, (iv) industry and
economic conditions, (v) the impact of the Merger on the depositors, employees,
customers and
10
<PAGE>
communities served by the Company through expanded commercial, consumer and
retail banking products and services, (v) the opinion of the Company's financial
advisor as to the fairness of the consideration to be received by the holders of
the Company's Common Stock from a financial point of view, (vii) the general
structure of the transaction and the compatibility of management and business
philosophy, (viii) the likelihood of receiving the requisite regulatory
approvals in a timely manner, and (ix) the ability of the combined enterprise to
compete in relevant banking and non-banking markets. In making its
determination, the Board did not ascribe relative weights to the factors which
it considered.
The Board of Directors of the Company believes that the Merger is in
the best interest of the Company and its shareholders. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER
AGREEMENT.
Opinion of Financial Advisor
On March 11, 1998, the Company formally retained Ryan Beck to act as
the Company's financial advisor with respect to the acquisition of the Company.
Ryan Beck is regularly engaged in the valuation of banks, bank holding
companies, savings and loan associations, savings banks and savings and loan
holding companies in connection with mergers, acquisitions and other
securities-related transactions. Ryan Beck has knowledge of, and experience
with, the Mid-Atlantic banking market and banking organizations operating within
this market, and was selected by the Company because of its knowledge of,
experience with, and reputation in the financial services industry.
In its capacity as the Company's financial advisor, Ryan Beck
participated in the negotiations with respect to the pricing and other terms and
conditions of the Merger, but the decision as to whether to accept the Greater
Community proposal and the final pricing of the Merger was ultimately made by
the Board of Directors of the Company. Ryan Beck rendered its oral opinion to
the Company Board of Directors on September 4, 1998, and rendered an additional
formal written opinion dated as of December 29, 1998 that, based on and subject
to the assumptions, factors, and limitations as set forth in the Opinion and as
described below, the Cash Consideration of $52.26 (subject to adjustment) per
share of the Company is "fair" to the Company's stockholders from a financial
point of view. No limitations were imposed by the Company's Board of Directors
upon Ryan Beck with respect to the investigations made or procedures followed by
it in arriving at its opinion.
The full text of the Opinion of Ryan Beck dated as of December 29,
1998, which sets forth assumptions made and matters considered, is attached as
Annex B to this Proxy Statement. Stockholders of the Company are urged to read
this Opinion in its entirety. Ryan Beck's Opinion is directed only to the
financial fairness of the Cash Consideration and does not constitute a
recommendation to any Company stockholder as to how such stockholder should vote
at the Meeting. The summary of the Opinion set forth in this Proxy Statement is
qualified in its entirety by reference to the full text of such Opinion. Ryan
Beck's oral opinion as of September 4, 1998 was to the same effect as such
Opinion.
In connection with its analysis, Ryan Beck: (i) reviewed the Merger
Agreement and related documents; (ii) reviewed this Proxy Statement; (iii)
reviewed Greater Community's Annual Reports to Stockholders and Annual Reports
on Form 10-K for the years ended December 31, 1997, 1996, and 1995, and Greater
Community's Quarterly Reports on Form 10-Q for the periods ended March 31, 1998,
June 30, 1998 and September 30, 1998; (iv) reviewed internal analyses prepared
by Greater Community's
11
<PAGE>
management; (v) reviewed the Company's Annual Reports to Stockholders and Annual
Reports on Form 10-KSB for the years ended December 31, 1997, 1996, and 1995,
and the Company's Quarterly Reports on Form 10-QSB for the periods ended March
31, 1998, June 30, 1998 and September 30, 1998; (vi) reviewed publicly available
financial data of commercial banking organizations which Ryan Beck deemed
generally comparable to Greater Community; (vii) reviewed publicly available
financial data of thrift organizations which Ryan Beck deemed generally
comparable to the Company; (viii) reviewed terms of recent acquisitions of
thrift organizations which Ryan Beck deemed generally comparable in whole or in
part to the Company; (ix) reviewed the potential pro-forma impact of the Merger
on Greater Community's financial condition, operating results and capital
ratios; and (x) conducted such other studies, analyses, inquiries and
examinations as Ryan Beck deemed appropriate. Ryan Beck also reviewed certain
projections provided by the Company and Greater Community for the year ending
December 31, 1998 and met with certain members of the Company and certain
internal budgets prepared by Greater Community's senior management to discuss
the Company and Greater Community's past and current business operations,
financial condition, strategic plan and future prospects, including any
potential operating efficiencies and synergies which may arise from the Merger.
Ryan Beck as part of its review of the Merger, also analyzed Greater Community's
financial ability to consummate the Merger and considered the future prospects
of the Company in the event it remained independent.
In connection with its review, Ryan Beck relied upon and assumed,
without independent verification, the accuracy and completeness of the financial
and other information regarding the Company and Greater Community provided to
Ryan Beck by the Company and Greater Community and their representatives. Ryan
Beck is not an expert in the evaluation of allowances for loan losses.
Therefore, Ryan Beck has not assumed any responsibility for making an
independent evaluation of the adequacy of the allowances for loan losses set
forth in the balance sheets of the Company and Greater Community at June 30,
1998, and Ryan Beck assumed such allowances were adequate and complied fully
with applicable law, regulatory policy and sound banking practice as of the date
of such financial statements. Ryan Beck has reviewed certain historical
financial data and financial projections (and the assumptions and basis
therefor) provided by the Company and certain financial data and internal
budgets prepared by Greater Community. Ryan Beck assumed that such forecasts and
projections reflected the best currently available estimates and judgments of
the respective managements. In certain instances, for the purposes of its
analyses, Ryan Beck made adjustments to such financial and operating forecasts
which in Ryan Beck's judgment were appropriate under the circumstances. Ryan
Beck was not retained to nor did it make any independent evaluation or appraisal
of the assets or liabilities of the Company or Greater Community nor did Ryan
Beck review any loan files of the Company, Greater Community or their respective
subsidiaries. Ryan Beck also assumed that the Merger in all respects is, and
will be, undertaken and consummated in compliance with all laws and regulations
that are applicable to the Company and Greater Community.
The preparation of a fairness opinion on a transaction such as the
Merger involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances and, therefore, the Opinion is not readily susceptible
to summary description. In arriving at its opinion, Ryan Beck performed a
variety of financial analyses. Ryan Beck believes that its analyses must be
considered as a whole and the consideration of portions of such analyses and the
factors considered therein, without considering all factors and analyses, could
create an incomplete view of the analyses and the process underlying Ryan Beck's
Opinion. No one of the analyses was assigned a greater significance than any
other.
12
<PAGE>
The projections and/or budgets furnished to Ryan Beck were prepared by
the respective managements of the Company and Greater Community, without input
or guidance by Ryan Beck. The Company and Greater Community do not publicly
disclose internal management projections of the type provided to Ryan Beck in
connection with the review of the Merger. Such projections were not prepared
with a view towards public disclosure. The public disclosure of such projections
could be misleading since the projections were based on numerous variables and
assumptions which are inherently uncertain, including, without limitation,
factors related to general economic and competitive conditions. Accordingly,
actual results could vary significantly from those set forth in such
projections.
In its analyses, Ryan Beck made numerous assumptions with respect to
industry performance, business and economic conditions, and other matters, many
of which are beyond the control of the Company or Greater Community. Any
estimates contained in Ryan Beck's analyses are not necessarily indicative of
future results or values, which may be significantly more or less favorable than
such estimates. Estimates of values of companies do not purport to be appraisals
nor do they necessarily reflect the prices at which companies or their
securities may actually be sold. The following is a brief summary of the
analyses and procedures performed by Ryan Beck in the course of arriving at its
Opinion.
Analysis of Selected Companies: Ryan Beck compared the Company's
financial data as of June 30, 1998 to a peer group of thirty-three selected
thrifts located in the Mid Atlantic region with assets between $100 million and
$300 million. Ryan Beck deemed this group to be generally comparable to the
Company. The following table lists the reported results of the Company at or for
the twelve months ended June 30, 1998, and the peer group at or for the twelve
months ended March 31, 1998.
First of Little Falls Peer Median
--------------------- -----------
Equity as % Assets 5.52% 9.98%
Return on Average Assets 0.48% 0.78%
Return on Average Equity 8.77% 7.22%
Net Interest Margin 2.73% 3.53%
Loans as % Deposits 64.47% 84.78%
Non-performing Loans as % Total Loans 2.60% 1.18%
Reserves as % Non-performing Assets 14.45% 49.32%
Non-interest Income % Average Assets 0.10% 0.35%
Non-interest Expense as % Average Assets 1.88% 2.28%
Efficiency Ratio 69.41% 66.76%
Ryan Beck noted that the Company's performance as measured by return on
average assets was weaker than that of the peer group, due to the lower level of
loans, a lower net interest margin and a lower level of non-interest income at
the Company as compared to the peer group. Ryan Beck also noted that the
Company's non-interest expenses as a percent of average assets was lower than
that of the peer group. However, the Company's efficiency ratio was slightly
higher than the peer group. In addition, the Company had higher non-performing
loans relative to its portfolio and a lower level of loan loss reserves relative
to non-performing assets than the peer.
Ryan Beck also compared Greater Community's reported financial data as
of June 30, 1998 with that of a group of twenty-nine selected commercial banking
organizations with assets between $300 million and $500 million and which are
located in the Mid Atlantic region of the United States for which public trading
and pricing information was available. Ryan Beck deemed this group to be
generally
13
<PAGE>
comparable to Greater Community. Greater Community data was presented as
reported at June 30, 1998. Ryan Beck noted that Greater Community reported total
assets of $357 million at June 30, 1998. At or for the twelve months ended June
30, 1998, Greater Community and the Peer Group reported to following results:
Greater Community Peer Median
----------------- -----------
Equity as % Assets 8.37% 9.61%
Return on Average Assets 0.90% 1.17%
Return on Average Equity 10.99% 12.56%
Dividend Yield 2.18% 4.45%
Net Interest Margin 4.22%(1) 4.45%
Non-performing Assets as % Total Assets 0.59% 0.83%
Reserves as % Non-performing Loans 167.13% 159.60%
(1) Based on the 12 months ended March 31, 1998.
Ryan, Beck noted that Greater Community's earnings were marginally
below the peer level, primarily due to a lower net interest margin, and that
Greater Community compared favorably to the peer group in terms of asset quality
and loan loss reserve coverage.
Analysis of Selected Transactions: Ryan Beck compared the Company's
financial data as of June 30, 1998 with that of a group of ten selected thrift
organizations being acquired in transactions announced since October 1, 1997 and
for which pricing data pertaining to the transactions was publicly available.
The criteria for this group was thrifts throughout the United States with assets
between $100 million and $400 million, an equity to assets ratio less than 9.00%
and a positive return on average assets. Ryan Beck deemed this group to be
generally comparable to the Company. The median ratios of the ten selected
companies, as calculated, represented a 5.96% tangible equity to tangible assets
ratio, a non-performing assets to assets ratio of 1.42%, an annualized
year-to-date return on average assets of 0.55% and an annualized year-to-date
return on average equity of 8.85%.
Ryan Beck also calculated certain ratios based on the Cash
Consideration and the median ratios for the ten selected thrift acquisitions
("Comparable Transactions").
<TABLE>
<CAPTION>
Comparable Transactions
-----------------------
First of Little Falls Median Average
--------------------- ------ -------
<S> <C> <C> <C>
Price % Diluted Book Value 229.68% 180.75% 219.60%
Price % Diluted Tangible Book Value 230.75% 180.75% 224.44%
Price x Latest 12 Months Earnings 26.84x 22.46x 26.43x
Core Deposit Premium %
Tangible Book Value 8.53% 7.16% 12.15%
</TABLE>
The imputed value of the Company based on the median ratios of the
above mentioned acquisition peer group was $41.13 based on price to stated book
value, $40.94 based on price to tangible book value, $43.74 based on latest
twelve months diluted earnings, $47.49 based on the core deposit premium over
tangible book value. The Cash Consideration is $52.26 per share of the Company.
No company or transaction used in the "Analysis of Selected Publicly
Traded Companies" and "Analysis of Selected Transactions" sections above is
identical to the Company, Greater Community or
14
<PAGE>
the Merger. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics of the companies involved
and other factors that could affect the trading values of the securities of the
company or companies to which they are being compared.
Discounted Dividend Analysis: Using a discounted dividend analysis,
Ryan Beck estimated the present value of the future dividend streams that the
Company could produce in perpetuity. Projection ranges for the Company's
five-year balance sheet and income statement were provided by the Company's
management. Management's projections were based upon various factors and
assumptions, many of which are beyond the control of the Company. These
projections are, by their nature, forward-looking and may differ materially from
the actual values or actual future results which may be significantly more or
less favorable than suggested by such projections. In producing a range of per
share values, Ryan Beck utilized the following assumptions: discount rates range
from 11.0% to 13.0%, terminal price/earnings multiples range from 14.0x to 16.0x
(which when applied to terminal year estimated earnings produces a value which
approximates the net present value of the dividends in perpetuity, given certain
assumptions regarding growth rates and discount rates) and earnings that include
estimated savings in the Company's non-interest expense equal to 35% in 1999 and
40% in 2000, with an assumed 5% growth in synergies in years thereafter. The
discounted dividend analysis produced a range of net present values per share of
the Company's Common Stock from $41.34 to $51.46, as indicated in the following
table:
Discount Rate
-------------------------
11.00% 12.00% 13.00%
Terminal Year 14.00 $45.80 $43.50 $41.34
Multiple of 15.00 $48.63 $46.19 $43.90
Earnings 16.00 $51.46 $48.88 $46.45
These analyses do not purport to be indicative of actual values or expected
values or an appraisal range of the shares of the Company's Common Stock. Ryan
Beck noted that the discounted dividend analysis is a widely used valuation
methodology, but noted that it relies on numerous assumptions, including expense
savings levels, dividend payout rates, terminal values and discount rates, the
future values of which may be significantly more or less than such alternatives.
Any variation from these assumptions would most likely produce different
results. In connection with its written Opinion dated as of December 29, 1998,
Ryan Beck confirmed the appropriateness of its reliance on the analyses used to
render its September 4, 1998 opinion by performing procedures to update certain
of such analyses and by reviewing the assumptions and conclusions contained in
the Opinion.
Ryan Beck's written Opinion dated December 29, 1998 was based solely
upon the information available to it and the economic, market and other
circumstances as they existed as of the date of such Opinion. Events occurring
after such date could materially affect the assumptions and conclusions
contained in such Opinion. Ryan Beck has not undertaken to reaffirm or revise
its Opinion or otherwise comment upon any events occurring after the date
thereof.
The summary set forth above does not purport to be a complete
description, but is a brief summary of the material analyses and procedures
performed by Ryan Beck in the course of arriving at its Opinion. With regard to
Ryan Beck's services in connection with the financial advisory agreement and the
Merger Agreement, the Company has agreed to pay Ryan Beck an advisory fee equal
to 1.50% of the aggregate dollar value of the consideration received by the
Company's stockholders in the Merger.
15
<PAGE>
Based upon the estimated aggregate purchase price to be paid in connection with
the Merger, Ryan Beck's aggregate fees will be approximately $345,000. Ryan Beck
was paid approximately $115,000 of such advisory fee upon the signing of the
Merger Agreement and the remainder will be paid upon the closing of this
transaction. In addition, the Company has agreed to reimburse Ryan Beck for its
reasonable out-of-pocket expenses, which shall not exceed $10,000 without the
prior consent of the Company. The Company has also agreed to indemnify Ryan Beck
and certain related persons against certain liabilities, including liabilities
under federal securities law, incurred in connection with its services. The
amounts of Ryan Beck's fees were determined by negotiation between the Company
and Ryan Beck.
Ryan Beck has had an investment banking relationship with the Company
for a number of years. Additionally, Ryan Beck has also acted as financial
advisor to the Company with respect to various other matters from time to time.
During the past two years, Ryan Beck has received approximately $20,500 from the
Company for services rendered. Ryan Beck has had no prior advisory or similar
relationship with Greater Community. Ryan Beck's research department does not
follow Greater Community. Ryan Beck is a market maker in Greater Community's
common stock and, in such capacity, may from time to time own Greater Community
securities.
Federal Income Tax Consequences
The following is a discussion of the material federal income tax
consequences of the Corporate Merger. The discussion of the material federal
income tax consequences may not apply to special situations, such as the
Company's stockholders, if any, who received their Company Common Stock upon the
exercise of employee stock options or otherwise as compensation, and the
Company's stockholders that are insurance companies, securities dealers,
financial institutions or foreign persons.
The receipt of cash by a stockholder of the Company in exchange for
shares of the Company Common Stock pursuant to the Merger Agreement will
constitute a taxable transaction to such stockholder for federal income tax
purposes. In general, a stockholder will recognize gain or loss upon the
surrender of the stockholder's Company Common Stock equal to the difference, if
any, between (i) the sum of the cash payment per share received in exchange for
the shares of the Company Common Stock, and (ii) the stockholder's tax basis in
such Company Common Stock. Any gain or loss will generally be treated as capital
gain or loss if the Company Common Stock exchanged was held as a capital asset
in the hands of the stockholder.
The cash payments due to the holders of the Company Common Stock upon
the exchange thereof pursuant to the Merger Agreement (other than certain exempt
entities and persons) will be subject to a 31% backup withholding tax by the
exchange agent under federal income tax law unless certain requirements are met.
Generally, the exchange agent will be required to deduct and withhold the tax if
(i) the stockholder fails to furnish a taxpayer identification number ("TIN") to
the exchange agent or fails to certify under penalty of perjury that such TIN is
correct, (ii) the Internal Revenue Service ("IRS") notifies the exchange agent
that the TIN furnished by the stockholder is incorrect, (iii) the IRS notifies
the exchange agent that the stockholder has failed to report interest, dividends
or original issue discount in the past, or (iv) there has been a failure by the
stockholder to certify under penalty of perjury that such stockholder is not
subject to the 31% backup withholding tax.
No ruling has been or will be requested from the IRS as to any of the
tax effects of any of the transactions discussed in this Proxy Statement to
stockholders of the Company, and no opinion of counsel
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has been or will be rendered to the Company with respect to any of the tax
effects of the Corporate Merger to the Company's stockholders. There is no
assurance that applicable tax laws will not change, on a current or retroactive
basis, prior to the Effective Date.
Because the tax consequences of the Corporate Merger may vary depending
upon the particular circumstances of each stockholder and other factors, each
stockholder of the Company is urged to consult such holder's own tax advisor to
determine the particular tax consequences to such holder of the Corporate Merger
(including the application and effect of state and local income and other tax
laws).
THE MERGER AGREEMENT
THE FOLLOWING IS A BRIEF SUMMARY OF THE PROVISIONS OF THE MERGER
AGREEMENT. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE MERGER AGREEMENT WHICH IS ATTACHED AS ANNEX A TO THIS PROXY
STATEMENT.
The Mergers
Under the terms of the Merger Agreement, Newco would merge with the
Company and the Savings Bank would merge with Great Falls Bank. Upon
consummation of the Corporate Merger, each outstanding share of the Company
Common Stock would be converted, by virtue of the Corporate Merger,
automatically and without any action on the part of the holder thereof, into the
right to receive a cash payment of $52.26, subject to adjustment, from Great
Community.
Effective Date
Unless the Merger Agreement is terminated, a closing is to be held as
soon as practicable after the satisfaction or waiver of the conditions to the
obligations of the parties to consummate the Mergers and in no event later than
the last to occur of January 1, 1999 or the 45th day following receipt of all
required regulatory approvals. At the closing, the proper officers of the
Company and Newco will execute a Certificate of Merger, which is to be filed
with the State of New Jersey not later than the first business day following the
closing. The Corporate Merger will become effective at 11:59 p.m. on the date
that the Certificate of Merger is filed. It is currently anticipated that the
closing will take place, and the Mergers will become effective, during the first
calendar quarter of 1999.
Possible Adjustment to Cash Consideration
The Cash Consideration ($52.26) to be paid for each share of Company
Common Stock is subject to the following adjustments: (a) If the stockholders'
equity of the Company as of the end of the month preceding the closing (the
"Closing") of the Mergers (the "Adjusted Net Worth") is less than $10,050,785,
the aggregate Cash Consideration to be paid to all the Company's stockholders
("Total Cash Consideration") will be reduced by the amount of the shortfall and
the Cash Consideration will be reduced by the reduction in the Total Cash
Consideration divided by 440,100 (the number of outstanding shares of Company
Common Stock); and (b) if total merger expenses ("Transaction Expenses")
incurred by the Company and its subsidiaries exceed $557,500, then the Total
Cash Consideration will be reduced by the amount by which such expenses exceed
$557,500 and the Cash Consideration shall be reduced by
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the reduction in the Total Cash Consideration divided by 440,100 (the number of
outstanding shares of Company Common Stock).
"Transaction Expenses" includes, but is not limited to, the following,
regardless of whether such expenses have been paid or accrued as of the date of
Closing: Investment banking expenses, legal expenses, accounting expenses, costs
of preparing and printing the proxy, proxy solicitation costs, costs of the
meeting of stockholders of the Company related to the stockholder approval of
the Merger Agreement, and costs of regulatory filings; but specifically does not
include amounts payable to Dr. Kostakopoulos under his employment agreement,
amounts which may become payable to Mr. McCourt under his change In control
severance agreement, obligations of Greater Community to pay retention bonuses
under the Merger Agreement and certain other costs incurred to allow the Bank
Merger to occur.
Exchange of the Company Common Stock Certificates
Greater Community will designate a bank or other institution to act as
an exchange agent. Greater Community will, not less than twenty-four hours prior
to the Closing, deposit with the exchange agent an amount equal to 100% of the
Cash Consideration. The Company may submit to its shareholders instructions for
submitting their stock certificates to the Company prior to Closing. All stock
certificates submitted to the Company prior to Closing will be delivered by the
Company to Greater Community at the Closing. At Closing, the Company and Greater
Community will jointly execute a letter of direction to the exchange agent with
respect to the Company stockholders who have submitted their stock certificates
prior to Closing and the amount to be paid to each. The exchange agent shall, in
accordance with the aforementioned letter of direction, pay to the Company
shareholders specified in such letter of direction an amount equal to 100% of
the Cash Consideration for their shares within twenty-four (24) hours following
the Effective Date by check or electronic funds transfer.
Within one (1) business day following the Closing, Greater Community
will send instructions for submitting their stock certificates to the exchange
agent to any the Company shareholders who did not submit their stock
certificates. The exchange agent will pay, by check or electronic funds
transfer, to the Company shareholders who submit their stock certificates
pursuant to these instructions subsequent to Closing an amount equal to 100% of
the Cash Consideration for their shares within one (1) business day following
receipt of the stock certificate.
Notwithstanding the tender or non-tender of the stock certificates,
effective as of the Effective Date all shares of the Company shall be and become
void and will cease to evidence any ownership interest in the Company and will
instead be converted into the right to receive a cash payment equal to the Cash
Consideration.
THE COMPANY'S STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS.
The Cash Consideration into which such holder's shares are converted on
the Effective Date will be delivered by or on behalf of Greater Community, to
such holder only upon delivery to First City Transfer Company (the "Exchange
Agent") of the certificates formerly representing all of such shares owned by
such holder (or a lost stock certificate and indemnity bond satisfactory to
Greater Community and the Exchange Agent, in their judgment, if any of such
certificates are lost, stolen or destroyed). No interest will be paid on such
Cash Consideration which such holder shall be entitled to receive upon such
delivery.
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After the Closing, the stock transfer books of the Company will be
closed and there will be no further transfers on the transfer books of the
Company of the shares of the Company Common Stock that were outstanding
immediately prior to the Effective Date.
Interests of Certain Persons
Certain members of the Company's management and its Board may be deemed
to have interests in the Mergers in addition to their interests, if any, as
stockholders of the Company. These interests are described in more detail below.
Employment Agreement. President Kostakopoulos has an employment
agreement with the Savings Bank that provides for certain payments and benefits
in the event his employment with the Savings Bank is terminated following a
change of control as defined in the employment agreement. The execution of the
terms of the Merger Agreement would constitute a change of control for purposes
of this agreement and the employment of President Kostakopoulos will be
terminated upon the consummation of the Mergers. The amount of payments to
President Kostakopoulos upon termination of his employment as of the Effective
Date will be $712,136.
Key Man Life Insurance. In the event that Dr. Kostakopoulos dies prior
to the Effective Date, the Company, the Savings Bank, Greater Community, or
Great Falls Bank, as the case may be, will pay to the estate of Dr.
Kostakopoulos, out of the aggregate proceeds received from the key man life
insurance currently held by the Company and the Savings Bank on the life of Dr.
Kostakopoulos, the sum that would have otherwise been payable under his
Employment Agreement upon the Effective Date but for his prior death, without
regard to the stated limitation of $712,136, and no sums will be further payable
to Dr. Kostakopoulos or his estate.
Further, in the event that Dr. Kostakopoulos dies prior to the
Effective Date, the Company will pay a special cash dividend on the Company
Common Stock in the aggregate amount equal to the amount, if any, by which the
aggregate proceeds received from the key man life insurance exceeds the sum of
(a) the payments made to the estate of Dr. Kostakopoulos as described herein and
(b) the aggregate amount of all premiums paid by the Company and the Savings
Bank in respect of such key man life insurance; provided, however, that the
aggregate special cash dividend payable on the Company Common Stock will be
reduced by the amount the Adjusted Net Worth is less than $10,050,785.
Insurance Coverage. The Company currently has an insurance policy for
its directors and officers that covers these individuals in the event they are
subject to a lawsuit in connection with their duties as officers and directors.
Pursuant to the Merger Agreement, Greater Community will cause the officers and
directors of the Company and the Savings Bank immediately prior to the Effective
Date to be covered for a period of six years from the Effective Date by the
directors' and officers' liability insurance policy maintained by the Company
and the Savings Bank (provided that Greater Community may substitute an
insurance policy of at least the same coverage and amounts containing terms and
conditions which are not less advantageous than the current insurance policy).
This insurance is intended to provide coverage following the Mergers for actions
of officers and directors taken prior to the Mergers. This insurance coverage
reduces the potential exposure of officers and directors for actions taken by
them prior to the Mergers.
Change in Control Agreement. The Savings Bank has previously entered
into a Change in Control Severance Agreement with Brian J. McCourt, the Vice
President, Treasurer and Controller of
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the Company and the Savings Bank. Under the terms of Mr. McCourt's Change in
Control Severance Agreement, Mr. McCourt will receive a payment of $135,000, and
the costs of maintaining his medical and dental insurance for one year, in the
event that his employment is involuntarily terminated without just cause within
24 months after a change in control of the Company or the Savings Bank. Under
certain circumstances, Mr. McCourt will also be entitled to the $135,000 payment
and benefits if he should voluntarily terminate his employment within 24 months
after a change in control of the Company or the Savings Bank. Following the
Effective Date, Greater Community shall cause Great Falls Bank to honor in
accordance with its terms the Change in Control Severance Agreement between Mr.
McCourt and the Savings Bank.
Post-Merger Benefits to Employees and Officers
In accordance with the Merger Agreement, Greater Community will cause
Great Falls Bank to allow the employees of the Bank who are offered and who
accept employment by Great Falls Bank (the "Bank Employees") to participate in
any of Great Falls Bank's employee benefit plans in which similarly situated
employees of Great Falls Bank participate, to the same extent as comparable
employees of Great Falls Bank. As of the Effective Date, Great Falls Bank will
permit the Bank Employees to participate in Great Falls Bank's group
hospitalization, medical, life and disability insurance plans on the same terms
and conditions as applicable to comparable employees of Greater Community and
its subsidiaries; provided, however, that all Bank Employees and their
dependents will be eligible to participate in the medical insurance plan(s)
covering employees of Great Falls Bank as of the Effective Date without regard
to pre-existing conditions or exclusions and with no uninsured waiting periods.
As of the next entry date following the Effective Date, Great Falls Bank will
permit the Bank Employees to participate in Great Falls Bank's defined
contribution plan; provided, that the Bank Employees must wait one year to be
entitled to participate in the profit sharing portion of this plan. The Bank
Employees will be given credit for their years of service with the Savings Bank
or the Company for eligibility and vesting purposes under Great Falls Bank's
defined contribution retirement plan. The Bank Employees will generally retain
all accrued vacation and sick leave benefits. All participants of the Savings
Bank's defined contribution plan will become 100% vested in their participant
accounts. With respect to its vacation, sick leave and severance policies, Great
Falls Bank will recognize, for purposes of eligibility to participate, vesting
and benefits accrual purposes, all prior years of service that any Bank Employee
had with the Savings Bank or the Company, except that any Bank Employees who are
involuntarily terminated within six months following the Effective Date will not
be entitled to receive severance benefits under Greater Community's severance
policies.
Greater Community will pay Sarina Matos, John Christensen, Fran
Sgambellone, and Pamela Skurata a retention bonus if such Bank Employees shall
either (a) remain in the employ of Greater Community or a subsidiary of Greater
Community for a period of three (3) months following the Effective Date or (b)
be terminated from such employment within three (3) months following the
Effective Date by Greater Community or a subsidiary of Greater Community without
cause. The aggregate pretax cost of the retention bonuses will not exceed
$90,748.
Greater Community and Great Falls Bank will pay the cost of
out-placement services for any Bank Employees that are terminated without cause
within the six month period following the Effective Date. Bank Employees who are
entitled to receive a retention bonus shall not be entitled to any severance
benefits until they have been employed by Greater Community for six months;
provided, that such Bank Employees shall be entitled to one month's advance
notice of termination during such six month period or to one month's pay in lieu
of such notice.
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Any employee of Company or the Savings Bank as of the Effective Date,
other than Dr. Kostakopoulos, Mr. McCourt or any employee who is entitled to
receive a retention bonus, who is involuntarily terminated for any reason, or
whose job or terms of employment is substantially changed (and who thereafter
terminates his or her employment), other than terminations or changes made for
just cause, within six months after the Effective Date will receive the
severance benefits set forth in the following sentence. Such severance benefits
will be paid in a lump-sum payment equal to one (1) week's salary for every year
or partial year of employment service with the Company or the Bank, with a
minimum severance benefit equal to two (2) weeks of salary and the maximum
severance benefit payable shall be twenty-six (26) weeks of salary.
No Appraisal Rights
Pursuant to Article 14A:11-1 of the New Jersey Business Corporations
Act, the stockholders of a corporation in a merger generally are not entitled to
appraisal rights if pursuant to a plan of merger such stockholders will receive
(i) cash, (ii) shares of stock which are either listed on a national securities
exchange or held of record by more than 1,000 stockholders, or (iii) cash and
such securities. The stockholders of the Company are not entitled to appraisal
rights in connection with the Mergers because cash will be paid to stockholders
pursuant to the Merger Agreement.
Business Pending Consummation
The Company and the Savings Bank have agreed in the Merger Agreement to
carry on their business in substantially the same manner their business was
conducted prior to the date of this Merger Agreement, and have agreed not to
take certain actions relating to the operation of the Company pending
consummation of the Mergers, without the prior written consent of Greater
Community, except as otherwise permitted by the Merger Agreement. These actions
include, without limitation:
(i) amending their Charter or By-Laws;
(ii) issuing, selling or delivering, or agreeing to issue, sell or
deliver, any shares of any class of capital stock of the Company or the Savings
Bank or any securities convertible into any such shares, or any options,
warrants, or other rights calling for the issuance, sale or delivery of any such
shares or convertible securities;
(iii) borrowing, or agreeing to borrow, any funds or voluntarily incur,
assume or become subject to, whether directly or by way of guarantee or
otherwise, any obligation or liability (absolute or contingent), except in the
ordinary course of business;
(iv) canceling or agreeing to cancel any debts or claims, except in the
ordinary course of business;
(v) distributing, leasing, selling or transferring, agreeing to lease,
sell or transfer, or grant or agreeing to grant any preferential rights to lease
or acquire, any of its assets, property or rights, except in the ordinary course
of business;
(vi) making or permitting any amendment to or termination of any
material contract or agreement, license or other right to which it is a party,
except in the ordinary course of business;
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(vii) mortgaging or pledging any of its assets, tangible or intangible,
except in the ordinary course of business;
(viii) granting any bonus or increase in compensation, other than
increases given in conformity with past practice; provided, that in no event
shall (I) any increase be given to Haralambos S. Kostakopoulos or any other
employee who has received an increase after October 15, 1997 or (II) any other
employee be given an increase in excess of 4% of his or her base pay;
(ix) entering into or making any change in any employee benefit
program, except as required by law;
(x) acquiring voting securities or any other ownership interest in any
corporation, association, joint venture, mutual savings association,
partnership, business trust or other business entity, or acquire control or
ownership of all or a substantial portion of the assets of any of the foregoing,
or merge, consolidate or otherwise combine with any other entity, or acquire any
branch of any entity engaged in the business of banking, or directly or
indirectly solicit or authorize the solicitation of or enter into any agreement
providing for any of the foregoing;
(xi) soliciting or authorizing the solicitation of or entering into any
agreement or understanding or, subject to the fiduciary duties of the directors
of the Company, engage in any discussions with, or furnish any non-public
information concerning the Company to, any third party with respect to any offer
or possible offer from a third party (I) to purchase shares of any class of
capital stock of the Company or any subsidiary or any securities convertible
into any such shares, or to acquire any option, warrant or other right to
purchase or otherwise acquire any such shares or convertible securities, (II) to
make a tender or exchange offer for any shares of any class of capital stock of
the Company or any subsidiary, (III) to purchase, lease or otherwise acquire all
or a substantial portion of the assets of the Company or any subsidiary, or (IV)
to merge, consolidate or otherwise combine with the Company or any subsidiary;
(xii) making any capital expenditure in excess of $10,000;
(xiii) making, extending or rolling over any loan or loan commitment
which, together with all other outstanding loans and loan commitments to the
same borrower and affiliates of such borrower, exceeds (x) $300,000, in the case
of loans secured by first mortgages on one to four family residential dwellings
or (y) $150,000 (exclusive of guarantees by agencies of the United States or the
State of New Jersey) for loans which are not secured by first mortgages on one
to four family residential dwellings;
(xiv) purchasing any securities (whether for sale or to be held to
maturity) having a maturity in excess of five years from the date hereof; or
purchasing more than $2,000,000 of any issue of securities issued by the United
States Treasury or any other agency of the United States Government ("Government
Securities"); or purchase any securities which are not Government Securities if
the cost of such securities, together with the cost of all other securities then
owned by the Company or any subsidiary, and issued by the same issuer or any
affiliate thereof, exceeds $2,000,000;
(xv) offering to pay interest on accounts at the Savings Bank at rates
which exceed the historical relationship of the Savings Bank's rates for such
accounts to the prevailing rates for such accounts in the Savings Bank's primary
market area;
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(xvi) entering into or agreeing to enter into any other agreement or
transaction not in the ordinary course of business; or
(xvii) taking action which would or is likely to (I) adversely affect
the ability of either Greater Community or the Company to obtain any necessary
approvals of governmental authorities required for the Mergers; (II) adversely
affect First Saving's ability to perform its covenants and agreements under the
Merger Agreement; (III) result in any of the conditions to the Mergers not being
satisfied; or (IV) agree in writing or otherwise to do any of the foregoing.
Accounting Treatment
Greater Community is expected to use the purchase method of accounting
with respect to its acquisition of the Company in the Merger.
Regulatory Approvals
The Mergers are subject to the prior approval of the OTS, FDIC, New
Jersey Commissioner and the Federal Reserve Board.
The Bank Merger is, and therefore the Mergers are, subject to the prior
approval by the OTS and the New Jersey Commissioner. The Bank Holding Company
Act of 1956, as amended (the "BHC Act"), governs the Federal Reserve Board's
approval process. The BHC Act provides that the Federal Reserve Board may not
approve any transaction (i) which would result in a monopoly or which would be
in furtherance of any combination or conspiracy to monopolize or to attempt to
monopolize the business of banking in any part of the United States, or (ii) the
effect of which in any section of the country may be to substantially lessen
competition, or tend to create a monopoly, or which in any other manner might
restrain trade, unless the Federal Reserve Board finds that the anti-competitive
effects of the proposed transaction are clearly outweighed in the public
interest by the probable effect of the transaction in meeting the convenience
and needs of the communities to be served.
In conducting its review of any application for approval under the BHC
Act, the Federal Reserve Board must consider the financial and managerial
resources and future prospects of the institutions involved, and the convenience
and needs of the communities that the institutions will serve. The Federal
Reserve Board may deny an application if it determines that the financial or
managerial resources of the acquiring bank holding company are inadequate. The
BHC Act also provides that a transaction approved by the Federal Reserve Board
may not be consummated for 30 days after approval to allow for review by the
Department of Justice under the federal antitrust laws. If, however, the
Department of Justice does not commence a legal action during this 30-day
period, it may not thereafter challenge the transaction except in an action
commenced under Section 2 of the Sherman Antitrust Act.
Consummation of the Mergers are also subject to approval by the New
Jersey Commissioner under the New Jersey banking statutes. The New Jersey
Commissioner must consider whether (i) the Merger would result in a monopoly, or
would be in furtherance of any combination or conspiracy to monopolize or to
attempt to monopolize the business of banking in any section of New Jersey, (ii)
the Merger would have the effect in any section of New Jersey of substantially
lessening competition, or would tend to create a monopoly or in any other manner
would be in restraint of trade, unless the anti- competitive effects of the
proposed merger are clearly outweighed in the public interest by the probable
effect of the Merger in meeting the convenience and needs of the communities to
be served or (iii) the
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merger would be contrary to the best interests of the shareholders or customers
of the Company and the Savings Bank.
The BHC Act and New Jersey law provide for the publication of notice
of, and the opportunity of administrative hearings relating to, the respective
applications for approval noted and described above. Interested parties may
intervene in the approval proceedings. If an interested party intervenes, such
intervention could substantially delay the regulatory approvals required for
consummation of the Merger.
Applications seeking approval of the Mergers are expected to be filed
with the OTS and the New Jersey Commissioner in December 1998. The required
regulatory approvals had not been received as of the date of mailing of this
Proxy Statement but the Company and the Savings Bank have no reason to believe
that such approvals will not be received.
The Mergers cannot proceed in the absence of the requisite regulatory
approvals. There can be no assurance that such regulatory approvals will be
obtained, and, if the Mergers are approved, there can be no assurance as to the
date of any such approvals. There can also be no assurance that any such
approvals will not contain a condition or requirement which causes such
approvals to fail to satisfy the conditions set forth in the Merger Agreement
and described below under "-- Conditions to Consummation; Termination." There
can likewise be no assurance that the U.S. Department of Justice or a state
Attorney General will not challenge the Mergers or, if such a challenge is made,
as to the result thereof.
Conditions To Consummation; Termination
Consummation of the Mergers is subject, among other things, to: (i)
approval of the transactions contemplated by the Merger Agreement by the
requisite vote of the stockholders of the Company; (ii) receipt of the
regulatory approvals referred to under "-- Regulatory Approvals"; (iii) there
being in effect no order, decree or injunction of any court or agency of
competent jurisdiction that enjoins or prohibits the Mergers, or which would
limit or otherwise affect in a material respect the operation of the Savings
Bank and Great Falls Bank as a single entity, or the operation of the Company
and Newco as a single entity, following the Mergers; and (iv) there being no
suit, action or proceeding pending or, in the case of governmental bodies,
threatened, which challenge the validity or legality, or seeks to restrain the
consummation, of the Mergers or which seeks to limit or otherwise affect in a
material respect the operation of the Savings Bank and Great Falls Bank as a
single entity, or the operation of the Company and Newco as a single entity,
following the Mergers.
Consummation of the Mergers is also subject to the satisfaction or
waiver of various other conditions specified in the Merger Agreement, including,
among others, the delivery by the Company and Greater Community, each to the
other, of (a) opinions of their respective counsel reasonably satisfactory to
the addressees of such opinions, and (b) certificates executed by certain of
their respective executive officers as to due performance and compliance in all
material respects with the agreements and covenants in the Merger Agreement and
the truth and correctness of the representations and warranties. The Company's
adjusted net worth must not be below $9,045,707 as of the end of the month
preceding the month in which the Closing occurs. The Merger Agreement provides
that prior to the Effective Date, either before or after receipt of the required
stockholder approval, the Merger Agreement may be terminated: (i) by mutual
consent of Greater Community and the Company; or (ii) by either Greater
Community or the Company in the event of a breach by the other party of any
representation, warranty,
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or covenant contained in the Merger Agreement, which breach cannot or is not
cured within 30 days after written notice thereof is given to the party
committing such breach.
Section 9.1 of the Merger Agreement provides that the Company may
terminate the Merger Agreement if (i) the Company receives an unsolicited offer
to purchase or otherwise acquire the Company and, pursuant to the Board's
fiduciary duties to the Company and its stockholders, the Board decides to
terminate the Merger Agreement to pursue such other offer; or (ii) the approval
of the stockholders of the Company is not be obtained. The Company may also
terminate the Merger Agreement if (i) any Greater Community representation or
warranty is not true and correct in all material respects; (ii) Greater
Community or Newco breaches any covenant or agreement and such breaching party
fails to cure within 30 days of written demand to cure; or (iii) any condition
required by the Merger Agreement is not satisfied by July 29, 1999. The Merger
Agreement allows Greater Community to terminate the Merger Agreement if (i) the
approval of the stockholders of the Company is not be obtained by January 2,
1999 (the Company will have 30 days to cure such breach within 30 days following
written demand); (ii) any representation or warranty of the Company is not true
and correct in all material respects; (iii) the Company breaches any covenant or
agreement and such breaching party fails to cure within 30 days of written
demand to cure; or (iv) any condition required by the Merger Agreement is not
satisfied by July 29, 1999.
Waiver; Amendment
Prior to the Effective Date, any provision of the Merger Agreement may
be: (i) waived in writing by the party benefitted by the provision; or (ii)
amended or modified at any time (including the structure of the transaction)
only by an agreement in writing among the parties thereto.
Expenses; Termination Fees
In the event the Mergers are not consummated, all expenses incurred by
or on behalf of the parties in connection with the Merger Agreement and the
transactions contemplated thereby shall be borne by the party incurring the
same.
The Company will be entitled to receive $500,000 if the Merger
Agreement is terminated because of Greater Community's breach of a
representation, warranty, covenant or agreement under the Merger Agreement and
fails to cure the breach within 30 days following written demand. Generally,
Greater Community will be entitled to receive $500,000 if the Merger Agreement
is terminated because (i) the Company receives a superior offer from another
potential acquiror, (ii) the Company fails to obtain stockholder approval by
January 2, 1999 (the Company will have 30 days to cure such breach within 30
days following written demand), or (iii) the Company breaches a representation,
warranty, covenant or agreement under the Merger Agreement and fails to cure the
breach within 30 days following written demand.
LEGAL OPINIONS
Certain legal matters associated with the Mergers will be passed upon
by Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C., as counsel for the
Company and the Savings Bank, and by Williams, Caliri, Miller & Otley as counsel
for Greater Community, Newco, and Great Falls Bank.
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ACCOUNTANTS
The consolidated balance sheets of the Company as of December 31, 1997
and 1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the two-year period ended
December 31, 1997, included in the Company's 1997 Annual Report to Stockholders
which is incorporated by reference in the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1997, have been incorporated herein in
reliance on the report of Radics & Co., L.L.C. independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing. The Company's independent certified public accountants are not
expected to attend the Meeting and therefore will not be available to make a
statement or respond to stockholders' questions.
OTHER MATTERS
As of the date of this Proxy Statement, the Board knows of no matters
which will be presented for consideration at the Meeting other than as set forth
in the Notice of Meeting accompanying this Proxy Statement. However, if any
other matters shall come before the meeting or any adjournments thereof and be
voted upon, the enclosed Proxy shall be deemed to confer discretionary authority
to the individuals named as proxies therein to vote the shares represented by
such Proxy as to any such matters.
FINANCIAL INFORMATION
The following documents are included as Exhibit 1 and Exhibit 2,
respectively, to this Proxy Statement: (1) the Company's 1997 Annual Report to
Stockholders, and (2) the Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1998.
By Order of the Board of Directors
/s/Sarina Matos
--------------------------------------------
Sarina Matos
Secretary
Little Falls, New Jersey
December 29, 1998
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ANNEX A -- AGREEMENT AND PLAN OF MERGER
(WITHOUT SCHEDULES)
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement"), made this 4th day of
September, 1998, by and between GREATER COMMUNITY BANCORP, a corporation duly
organized and validly existing under the laws of the State of New Jersey
(hereinafter referred to as "GCB"), having an address for purposes of this
Agreement located at 55 Union Boulevard, Totowa, New Jersey 07512; GCB
ACQUISITION CORP., a corporation duly organized and validly existing under the
laws of the State of New Jersey (hereinafter referred to as "Newco"), and a
wholly owned subsidiary of GCB, having an address for purposes of this Agreement
located at 55 Union Boulevard, Totowa, New Jersey 07512; and FIRST SAVINGS
BANCORP OF LITTLE FALLS, INC., a corporation duly organized and validly existing
under the laws of the State of New Jersey (hereinafter referred to as "First
Savings"), having an address for purposes of this Agreement located at 115 Main
Street, Little Falls, New Jersey 07424. This Agreement contemplates a
transaction in which GCB will acquire all of the outstanding capital stock of
First Savings for cash by means of a reverse subsidiary merger of Newco with and
into First Savings.
W I T N E S S E T H :
WHEREAS, the Boards of Directors of GCB, Newco and First Savings,
deeming it advisable for the mutual benefit of GCB, First Savings and Newco and
their respective stockholders, that First Savings merge with Newco upon the
terms and conditions hereinafter set forth (hereinafter sometimes referred to as
the "Merger" and sometimes referred to as the "Holding Company Merger"), have
each by duly adopted resolutions approved this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1. The Corporations Proposing to Merge. The names of the
corporations proposing to merge are GCB ACQUISITION CORP.
("Newco") and FIRST SAVINGS BANCORP OF LITTLE FALLS, INC. ("First
Savings"). Newco and First Savings are both business
corporations organized and existing under the New Jersey Business
Corporation Act (the "Act").
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1.2. Merger; Effect of Merger; Surviving Corporation.
(a) Upon performance in all material respects of all covenants and
obligations of the parties contained herein and upon fulfillment in all material
respects or waiver of all conditions to the obligations of the parties contained
herein, at the effective date of the Merger (the "Effective Date"), Newco shall
be merged with and into First Savings, which shall be the surviving corporation
and which shall continue to exist as the surviving corporation under its present
name pursuant to the provisions of the Act. First Savings is hereinafter
sometimes referred to as the "Surviving Corporation". The separate corporate
existence of Newco shall cease upon the Effective Date in accordance with the
provisions of the Act.
(b) The Certificate of Incorporation of First Savings upon the
Effective Date shall be the Certificate of Incorporation of the Surviving
Corporation and said Certificate of Incorporation shall continue in full force
and effect until amended in the manner prescribed by the provisions of the Act.
(c) The Bylaws of Newco upon the Effective Date shall become the Bylaws
of the Surviving Corporation and said Bylaws shall continue in full force and
effect until changed, altered or amended in the manner prescribed by such Bylaws
and the provisions of the Act.
(d) The directors and officers of Newco upon the Effective Date shall
be the directors and officers of the Surviving Corporation and shall continue to
hold their respective offices until the election and qualification of their
respective successors or until their tenure is otherwise terminated in
accordance with the Bylaws of the Surviving Corporation.
1.3. Conversion of Newco Shares Into Shares of Surviving Corporation.
Each share of Common Stock of Newco outstanding on the Effective Date shall
remain outstanding immediately after the merger as an identical share of Common
Stock of the Surviving Corporation.
1.4. Conversion of First Savings Shares Into Right to Receive Cash.
Each share of Common Stock of First Savings outstanding immediately prior to the
Effective Date shall, upon the Effective Date by virtue of the Merger and
without any action on the part of any holder thereof, be converted into a right
to receive $52.26, subject to adjustment as provided in Section 1.5 and subject
to the provisions of Section 1.6. The amount of $52.26, as adjusted pursuant to
Section 1.5, is hereinafter referred to as the "Conversion Amount"; the amount
obtained by multiplying (a) the Conversion Amount by (b) the number of shares of
First Savings Common Stock outstanding on the Effective Date (which number of
shares shall be 440,100) is hereinafter referred
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to as the "Total Conversion Amount." In no event shall the Total Conversion
Amount exceed $23,000,000.00.
Each share of Common Stock of First Savings which, immediately prior to
the Effective Date, was issued and held as treasury stock by First Savings will
be canceled and retired.
1.5. Adjustment to Conversion Amount. The Conversion Amount shall be
subject to the following adjustments: (a) If the stockholders' equity of First
Savings as of the end of the month preceding the closing contemplated by Article
VIII hereof (the "Closing"), adjusted as provided in the following paragraph of
this Section 1.5 (the "Adjusted Net Worth") shall be less than $10,050,785 (the
stockholders' equity of First Savings, less Unrealized Gain on Securities
Available for Sale, as of June 30, 1998), the Total Conversion Amount shall be
reduced by the amount of the shortfall and the Conversion Amount shall be
reduced by the reduction in the Total Conversion Amount divided by the number of
shares of First Savings Common Stock outstanding on the Effective Date (which
number of shares shall be 440,100); and (b) if total expenses ("Transaction
Expenses") incurred by First Savings and the FS Subsidiaries in connection with
the transactions contemplated by this Agreement exceed $557,500, then the Total
Conversion Amount shall be reduced by the amount by which such expenses exceed
$557,500 and the Conversion Amount shall be reduced by the reduction in the
Total Conversion Amount divided by the number of shares of First Savings Common
Stock outstanding on the Effective Date (which number of shares shall be
440,100). For purposes of this Agreement, "Transaction Expenses" shall include,
but shall not be limited to, the following, regardless of whether such expenses
shall have been paid or accrued as of the date of Closing: Investment banking
expenses, legal expenses, accounting expenses, costs of preparing and printing
the proxy, proxy solicitation costs, costs of the meeting of stockholders of
First Savings contemplated in Section 1.8 hereof and costs of SEC filings; but
shall not include amounts payable to Dr. Kostakopoulos pursuant to Section 5.7
or 5.12 hereof, amounts which may become payable to Brian McCourt under the
Change In Control Severance Agreement between Mr. McCourt and the Bank,
obligations to pay Retention Bonuses (as that term is defined in Section 5.9
hereof) and costs of converting the Bank incurred pursuant to Section 5.2
hereof.
For purposes hereof, "Adjusted Net Worth" as of a given date shall mean
the net worth of First Savings, excluding Unrealized Gain (or Loss) on
Securities Available for Sale, on such date as shown on a consolidated statement
of financial condition of First Savings and the FS Subsidiaries as of such date,
subject to the following adjustments: (w) up to $557,500 of Transaction Expenses
incurred (and recorded as expenses) prior to such date by First Savings in
connection with the transactions contemplated hereby shall be added to the
consolidated book net worth of First
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Savings; (x) all gains, on an after tax basis, on sales of securities made
subsequent to June 30, 1998 shall be subtracted from the consolidated book net
worth of First Savings; (y) the effect, on an after tax basis, of all changes
made by First Savings at the request of GCB pursuant to Section 5.10 hereof
shall be excluded from the consolidated book net worth of First Savings; and (z)
all costs of converting the Bank incurred pursuant to Section 5.2 hereof shall
be added to the consolidated book net worth of First Savings. The aforementioned
consolidated statement of financial condition of First Savings and the FS
Subsidiaries shall (i) be prepared in accordance with the books of First Savings
and the FS Subsidiaries, (ii) be prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied between June 30, 1998 and
such date and (iii) fairly presents the consolidated financial position of First
Savings and the FS Subsidiaries at such date.
1.6. Payment of Conversion Amount.
(a) GCB shall designate a bank or other institution with fiduciary
powers to act as Exchange Agent hereunder. Such designation shall be subject to
approval by First Savings, which approval shall not be unreasonably withheld or
delayed. The fees of the Exchange Agent shall be paid by GCB.
(b) GCB shall, not less than twenty-four hours prior to the Closing
Date, deposit with the Exchange Agent an amount equal to 100% of the Total
Conversion Amount. The Exchange Agent shall distribute such funds in accordance
with the following subsections of this Section 1.6.
(c) First Savings may submit to its shareholders instructions for
submitting their stock certificates to First Savings prior to Closing. All stock
certificates submitted to First Savings prior to Closing shall be delivered by
First Savings to GCB at the Closing. All stock certificates submitted to First
Savings prior to Closing shall be delivered by First Savings to GCB at Closing.
At Closing, First Savings and GCB shall jointly execute a letter of direction to
the Exchange Agent with respect to the First Savings shareholders who have
submitted their stock certificates prior to Closing and the amount to be paid to
each. The Exchange Agent shall, in accordance with the aforementioned letter of
direction, pay to the First Savings shareholders specified in such letter of
direction an amount equal to 100% of the Conversion Amount for their shares
within twenty-four (24) hours following the Effective Date by check or
electronic funds transfer.
(d) Within one (1) business day following the Closing, GCB shall send
instructions for submitting their stock certificates to the Exchange Agent to
any First Savings shareholders who did not submit their stock certificates
pursuant to subsection (a)
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above. The Exchange Agent shall pay, by check or electronic funds transfer, to
the First Savings shareholders who submit their stock certificates pursuant to
these instructions subsequent to Closing an amount equal to 100% of the
Conversion Amount for their shares within one (1) business day following receipt
of the stock certificate.
(e) All payments to First Savings shareholders pursuant to clauses (c)
and (d) of this Section 1.6 shall be sent to the shareholder's address as shown
on the stock records of First Savings, or to such other address as a shareholder
may specify in a written instruction submitted with the shareholder's stock
certificates.
(f) Notwithstanding the tender or non-tender of the stock certificates,
effective as of the Effective Date all shares of First Savings shall be and
become void and shall cease to evidence any ownership interest in First Savings,
Newco or GCB and shall instead be converted into the right to receive a cash
payment equal to the Conversion Amount as detailed in Section 1.4 hereof, as
adjusted pursuant to Section 1.5 hereof. Notwithstanding anything herein to the
contrary, this Section 1.6(f) shall be construed as an agreement as to which the
shareholders of First Savings are intended to be third party beneficiaries and
shall be enforceable by such persons and their heirs and representatives.
(g) Notwithstanding anything to the contrary in this Section 1.6, if
any holder of First Savings stock shall be unable to surrender his or her
certificate for shares of First Savings Stock because such certificate has been
lost or destroyed, such holder may deliver in lieu thereof a lost stock
certificate affidavit and indemnity bond in form and substance and with surety
satisfactory to GCB.
1.7. Certificate of Merger; Effective Date. At the Closing, the proper
officers of First Savings and Newco, respectively, shall execute and file a
Certificate of Merger as prescribed by the Act. Such Certificate of Merger shall
provide that the Effective Date of the merger shall be 11:59 p.m. on the day the
Certificate of Merger is filed with the State of New Jersey. If practicable,
such Certificate of Merger will be filed on the date of Closing; if that is not
practicable, then the Certificate of Merger shall be filed on the first business
day following the date of Closing.
1.8. Meeting of Stockholders of First Savings. Promptly following
execution of this Agreement and Plan of Merger, the Board of Directors of First
Savings shall direct and cause this Agreement to be submitted to the
stockholders of First Savings, at a meeting of the stockholders of First
Savings, for the purpose of adopting and approving the same. Such meeting shall
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take place not later than the 120th day following the date of this Agreement.
The Board of Directors of First Savings shall, subject to the exercise of their
fiduciary duties, recommend that the stockholders of First Savings vote to adopt
and approve this Agreement and Plan of Merger. First Savings shall comply with
all applicable laws and regulations, including the proxy rules promulgated by
the Securities and Exchange Commission, applicable to the calling and conduct of
such meeting.
1.9. Voting Agreement by Shareholders. First Savings shall, upon
execution of this Agreement, deliver a certificate in the form of Exhibit D
hereto signed by each shareholder who also serves as a director of First Savings
as of the date of such certificate, indicating the intention of each such person
to vote in favor of the transaction at the stockholder meeting of First Savings
at which meeting a vote on the Agreement will be taken.
1.10. Approval by Sole Stockholder of Newco. Upon execution of this
Agreement, GCB, as sole stockholder of Newco, shall adopt a resolution adopting
and approving this Agreement and Plan of Merger.
1.11. Stock Transfer Books. At the Effective Date, the stock transfer
books of First Savings shall be closed and no transfer of First Savings Stock
shall thereafter be made.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF FIRST SAVINGS
First Savings hereby represents and warrants to GCB as follows:
2.1. Organization; Good Standing; Power; and Qualification. First
Savings is a corporation duly organized, validly existing and in good standing
under the laws of the State of New Jersey, has all requisite corporate power and
authority to own, lease and operate its properties, and to conduct its business
as it is now being conducted. Item 2.1(a) of the First Savings Disclosure
Schedule contains a list of all of First Saving's direct and indirect
subsidiaries (the "FS Subsidiaries"). Each FS Subsidiary other than First
Savings Bank of Little Falls, F.S.B. (the "Bank") is duly organized, validly
existing and in good standing under the laws of the State of New Jersey. The
Bank is a federal savings bank duly organized, validly existing and in good
standing under the laws of the United States of America. Each FS Subsidiary
(unless otherwise indicated, all references to the FS Subsidiaries include the
Bank) has all requisite corporate power and authority to own, lease and operate
its properties, and to conduct its business as it is now being conducted. First
Savings has heretofore delivered to GCB true and complete copies
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of the Certificates of Incorporation and By-Laws, as amended to the date hereof,
of First Savings and each FS Subsidiary. Each of First Savings and the FS
Subsidiaries is duly qualified or licensed to do business and is in good
standing as a foreign corporation in each state or other jurisdiction in which
the nature of its business or operations requires such qualification or
licensing. Item 2.1(b) of the First Savings Disclosure Schedule contains a list
of all foreign jurisdictions in which First Savings and each FS Subsidiary is
qualified or licensed to do business.
2.2. Capitalization. The authorized capital stock of First Savings
consists of 5,000,000 shares of Common Stock, of which 440,100 shares are issued
and outstanding and 0 shares are held by First Savings as treasury stock.
2.3. Options, Etc.. First Savings has no outstanding convertible
securities, warrants, options, rights, calls or other commitments of any nature
to issue or sell its capital stock.
2.4. Authority; No Violation, etc. First Savings has all requisite
corporate power to execute, deliver and perform its obligations under this
Agreement. The execution and delivery of this Agreement and performance by First
Savings of its obligations hereunder have been duly approved and authorized by
all requisite corporate action of First Savings, subject to the stockholder
approval contemplated by Section 1.8 hereof. This Agreement has been duly
executed and delivered by First Savings and, subject as aforesaid, constitutes
the legal, valid and binding agreement of First Savings, subject to (i)
applicable bankruptcy, insolvency, moratorium, fraudulent conveyance,
reorganization, receivership and other laws relating to or affecting the rights
and remedies of creditors generally, and (ii) principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law). Except for matters disclosed in Item 2.4 of the First Savings Disclosure
Schedule, neither the execution and delivery of this Agreement by First Savings
nor compliance by First Savings with any of the provisions hereof will (a)
conflict with or result in a breach of any provision of First Savings's
Certificate of Incorporation, (b) violate, or result with the passage of time in
a violation of, or cause a default or acceleration under, or give rise to any
right to termination, cancellation or acceleration (whether immediately, or
after the giving of notice, or after the passage of time, or a combination
thereof) under, or result in the creation of any lien, charge or encumbrance on
any assets of First Savings or any FS Subsidiary pursuant to, any of the terms,
conditions or provisions of any agreement, instrument or obligation to which
First Savings or any FS Subsidiary is a party, or by which it or any of its
properties or assets may be bound, or (c) violate any Federal or state statute,
rule or regulation or judgment, order, writ, injunction
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or decree of any Federal or state court, administrative agency or governmental
body, in each case applicable to First Savings or any FS Subsidiary, or any of
their properties or assets, or otherwise require any filing with, or obtaining
any permit, authorization, consent or approval of, any Federal, State or local
public body, commission or authority, including without limitation the New
Jersey Industrial Site Responsibility Act (N.J.S.A. 13:1K-6 et. seq.), except
those approvals and authorizations specified in Section 2.5 hereof.
2.5. Governmental Approvals and Filings. No approval, authorization,
consent, license, clearance or order of, declaration or notification to, or
filing, registration or compliance with, any governmental or regulatory
authority is required in order to (a) authorize the Merger contemplated by this
Agreement, (b) authorize the merger of the Bank with and into Great Falls Bank
(the "Bank Merger") on the Effective Date or (c) prevent the termination of any
material right, privilege, license or agreement of First Savings or any FS
Subsidiary, or to prevent any material loss to First Savings or any FS
Subsidiary, or to the business of First Savings or any FS Subsidiary, by reason
of the Holding Company Merger or the Bank Merger, except (i) approvals by the
Office of Thrift Supervision, (ii) approvals of the Federal Reserve Board (or
the Federal Reserve Bank of New York under power delegated by the Federal
Reserve Board), (iii) in the case of the Bank Merger, compliance with N.J.S.A.
17:9A- 132 through 17:9A-148, inclusive, including approval by the Commissioner
of the Department of Banking and Insurance of New Jersey and filing of the
agreement and plan of the Bank Merger, certified as having been approved by the
stockholders of the Bank and Great Falls Bank, (iv) approvals by the Federal
Deposit Insurance Corporation for the acquisition and assumption of the deposits
of the Bank by Great Falls Bank and the insurance of the Bank's deposits
following the Effective Date, and (v) compliance with the proxy requirements of
the Securities Exchange Act of 1934 and the regulations promulgated thereunder.
2.6. Equity Investments. Except as set forth in Item 2.6 of the First
Savings Disclosure Schedule, First Savings does not own, directly or indirectly,
any voting shares of any company other than the FS Subsidiaries.
2.7. Financial Information. First Savings has delivered to GCB (a) its
audited consolidated statements of financial condition as of December 31, 1997
and 1996 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the years in the two-year period
ended December 31, 1997 and (b) its Quarterly Report on Form 10-QSB for the
quarterly period ended June 30, 1998. The aforementioned financial statements
and report do not contain any untrue statements of material fact or omit to
state any material fact necessary in order to make the statements and
information
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contained therein not misleading. Each of the financial statements contained in
the aforementioned financial statements and report, with the related notes
thereto, (i) is in accordance with the books of First Savings and the FS
Subsidiaries, (ii) has been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except if and as otherwise indicated therein and (iii) fairly present the
consolidated financial position of First Savings and the FS Subsidiaries at such
dates and the results of its operations and the cash flows for the respective
periods indicated therein, except, in the case of the unaudited statements, for
normal year-end adjustments. The copies of the consolidated corporate income tax
returns of First Savings and the FS Subsidiaries for the 12 month periods ended
December 31, 1997 and December 31, 1996 which have been delivered to GCB are
each true, correct and complete.
2.8. Regulatory Filings. First Savings has delivered to GCB true and
complete copies of all reports filed by First Savings and the Bank with the
Office of Thrift Supervision and the Federal Deposit Insurance Corporation since
December 31, 1994.
2.9. Absence of Changes. Except for matters described in Item 2.9 of
the First Savings Disclosure Schedule, there has been no material adverse change
since June 30, 1998 in the assets, properties, business or condition, financial
or otherwise, of First Savings and the FS Subsidiaries, taken as a whole.
2.10. Agreements, etc. Item 2.10(a) of the First Savings Disclosure
Schedule contains a true and complete list of every agreement, to which First
Savings or an FS Subsidiary is a party or by which First Savings or an FS
Subsidiary is bound, which is performable in the future and which, together with
all other contracts of the same or similar nature, provides for the future
obligation to pay or receive more than $10,000.00 or is otherwise material to
the business of First Savings or any FS Subsidiary, including but not limited to
(a) leases of real or personal property, (b) any agreements for the sale of
assets other than in the ordinary course of business, (c) any agreements
pursuant to which First Savings or an FS Subsidiary has borrowed money or may in
the future borrow money and (d) software licenses; provided, however, that such
Item need not list outstanding loans to unaffiliated persons made by the Bank or
loan commitments and credit facilities pursuant to which the Bank may be
obligated to lend money to unaffiliated persons. Except for matters listed in
Item 2.10(b) of the First Savings Disclosure Schedule, First Savings and the FS
Subsidiaries have performed all obligations to be performed by them to date
under all contracts and other agreements listed in Item 2.10(a) of the First
Savings Disclosure Schedule and is not in default thereunder; and, to the best
knowledge of First Savings, there exists no default, or any event
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which upon the giving of notice or the passage of time would give rise to any
default, in the performance of any obligation to be performed by any other party
to any such contract or other agreement.
2.11. Absence of Undisclosed Liabilities. Neither First Savings nor any
FS Subsidiary has any material liabilities (whether matured or unmatured,
accrued, absolute or contingent or otherwise) which were not reflected, reserved
against, accrued for or otherwise disclosed on First Savings's consolidated
statement of financial condition dated as at June 30, 1998, except for
obligations to perform the contracts and the agreements listed on Item 2.10(a)
of the First Savings Disclosure Schedule in accordance with their respective
terms.
2.12. Condition of Tangible Assets. Those assets of First Savings and
the FS Subsidiaries that are tangible property necessary to their business
operations are in generally good operating condition and repair.
2.13. Litigation, etc. Except for matters listed on Item 2.13 of the
First Savings Disclosure Schedule: (a) there are no actions, suits, claims,
investigations or proceedings (legal, administrative or arbitrative) pending or,
to the best knowledge of First Savings, threatened, against First Savings or any
FS Subsidiary, whether at law or in equity, whether civil or criminal in nature
or whether before or by any Federal, state, municipal or other governmental
court, department, commission, board, bureau, agency or instrumentality,
domestic or foreign; and (b) there are no existing unsatisfied judgments,
decrees, injunctions or orders of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding against First
Savings or any FS Subsidiary. No petition for bankruptcy, voluntary or
involuntary, has been filed by or against First Savings or any FS Subsidiary,
neither First Savings nor any FS Subsidiary has made any assignment for the
benefit of its creditors and no receiver has been appointed for First Savings or
any FS Subsidiary or any of their assets.
2.14. Permits, Licenses, etc. Item 2.14 of the First Savings Disclosure
Schedule contains a list of all licenses, permits, orders and approvals issued
by any department, commission, agency or other instrumentality of any federal,
state, county or local government which pertains to the business conducted by
First Savings and each FS Subsidiary. First Savings Corporation is not licensed
as an insurance producer by the New Jersey Department of Banking and Insurance
and is not required to have such a license in order to conduct its business.
2.15. Compliance with Laws. Except as disclosed in Item 2.15 of the
First Savings Disclosure Schedule, neither First Savings nor any FS Subsidiary
is in violation, in any respect
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material to its business or assets, of any federal, state, county or local law,
ordinance, regulation or order applicable to the business conducted by it. First
Savings and each FS Subsidiary has all licenses, permits, orders and approvals
of any governmental or regulatory body which are required for the conduct of the
business conducted by it and which, if not held by it, could reasonably be
expected to have a material adverse effect upon its business or assets
(collectively, "Required Permits"). All such Required Permits are in full force
and effect, no violations are or have been reported in respect of any Required
Permit and no proceeding is pending, or to the best knowledge of First Savings,
threatened, to revoke or limit any such Required Permit.
2.16. Brokers' or Finders' Fees, etc. No agent, broker, investment
banker, person or firm acting on behalf of First Savings or under the authority
of First Savings is or will be entitled to any broker's or finder's fee or any
other commission or similar fee directly or indirectly from GCB, Newco, First
Savings or any FS Subsidiary in connection with any of the transactions
contemplated hereby, except for fees payable to Ryan, Beck & Co., which fees
shall be the sole responsibility of First Savings and shall be paid at or prior
to the Closing. It is expressly understood that Ryan, Beck & Co. has been
retained solely by and is working solely for the benefit of First Savings in
connection with this matter.
2.17. Employees. First Savings has heretofore delivered to GCB a true
and complete list of the names, positions and rates of compensation of all
employees of First Savings and each FS Subsidiary.
2.18. Names. During the last 3 years First Savings and the FS
Subsidiaries have used no business names other than their current corporate
names.
2.19. Year 2000 Readiness. First Savings and each of the FS
Subsidiaries have taken all reasonable steps necessary to address the computer
software, accounting and record keeping issues raised in order for the data
processing systems used in the business conducted by First Savings and the FS
Subsidiaries to be substantially Year 2000 compliant on or before the end of
1999 and, except as set forth in Item 2.19 of the First Savings Disclosure
Schedule, First Savings does not expect the future cost of addressing such
issues to be material. Neither First Savings nor any FS Subsidiary has received
a rating of less than satisfactory from any bank regulatory agency with respect
to Year 2000 compliance.
2.20. Benefit Plans; Employee Relations.
(a) Except as set forth in Item 2.20(a) of the First
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Savings Disclosure Schedule, (i) First Savings and each FS Subsidiary is in
substantial compliance with all applicable Federal, state and local laws and
regulations respecting employment and employment practices, and terms and
conditions of employment and wages and hours, (ii) no collective bargaining
agreement presently covers (nor has any, in the past, covered) any employees of
First Savings or any FS Subsidiary, nor is any currently being negotiated by
First Savings or any FS Subsidiary, nor is First Savings or any FS Subsidiary a
party to any other written contract with or material enforceable oral commitment
to any labor union, (iii) there is no unfair labor practice complaint against
First Savings or any FS Subsidiary pending before the National Labor Relations
Board or any comparable state or local agency, and (iv) there is no labor
strike, dispute, slowdown, stoppage or organizational effort actually pending
or, to the best knowledge of First Savings, threatened against or involving
First Savings or any FS Subsidiary.
(b) Item 2.20(b) of the First Savings Disclosure Schedule contains a
true and complete list of all written contracts with, or oral commitments for
the employment, retention or payment of any severance or other benefit to, any
employee, consultant or other person.
(c) Item 2.20(c) of the First Savings Disclosure Schedule contains a
true and complete list of all Employee Pension Benefit Plans (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974 ("ERISA")),
all Employee Welfare Benefit Plans (as defined in Section 3(1) of ERISA), all
incentive compensation plans and all other employee benefit programs maintained
by First Savings or any FS Subsidiary in respect of its employees (other than
normal policies concerning vacations, holidays and salary continuation during
short absences for illness or other reasons) (all of the foregoing appearing on
such list being herein sometimes collectively referred to as "Employee Benefit
Programs"). First Savings has heretofore delivered to GCB true and complete
copies of all plan texts and other agreements adopted in connection with the
Employee Benefit Programs (including separation policies). With respect to such
plans, Item 2.20(c) of the First Savings Disclosure Schedule contains a true and
complete list of (and First Savings has heretofore delivered to GCB true and
complete copies of):
(i) the most recent Internal Revenue Service ("IRS")
determination letter received by First Savings or any FS Subsidiary relating to
each of the Employee Pension Benefit Plans listed in such Item 2.20(c) (the
"First Savings Retirement Plans") and all applications for determination letters
relating to First Savings Retirement Plans which are pending on the date hereof;
(ii) the most recent Annual Report (Form 5500 Series)
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and accompanying schedules of each of the Employee Welfare Benefit Plans listed
in such Item (the "First Savings Welfare Plans") and each First Savings
Retirement Plan, as filed pursuant to applicable law;
(iii) the Summary Plan Description (as currently in effect)
distributed to employees for all of First Savings Retirement Plans and First
Savings Welfare Plans; and
(iv) the most recent actuarial report received with respect to
each First Savings Retirement Plans that is a defined benefit plan, if any.
(d) Except as disclosed in Item 2.20(c) of the First Savings Disclosure
Schedule, (i) the First Savings Retirement Plans are in substantial compliance
with ERISA and will constitute qualified plans under the Internal Revenue Code
of 1986 immediately prior to the Effective Date, (ii) no material violation of
ERISA has occurred in connection with the administration of any First Savings
Retirement Plan or any First Savings Welfare Plan, (iii) there are no actions,
suits or claims pending or, to the best knowledge of First Savings, threatened
against any First Savings Retirement Plan or First Savings Welfare Plan, or any
administrator or fiduciary thereof, (iv) with respect to each First Savings
Retirement Plan and each First Savings Welfare Plan as to which an Annual Report
is required to be filed, no liabilities as of the date of the most recent Annual
Report relating to such Plan exist unless specifically referred to in such
Annual Report, and no materially adverse change has occurred with respect to the
financial materials covered by such Annual Report since the date thereof, (v) no
accumulated funding deficiency (within the meaning of Section 412 of the
Internal Revenue Code of 1986) exists with respect to any First Savings
Retirement Plan and (vi) no "reportable event" (as defined in Section 4043 of
ERISA) has occurred with respect to any First Savings Retirement Plan that is
subject to Title IV of ERISA. All First Savings Welfare Plans are either
self-funded, or are funded through a contract with an insurance company.
2.21. Tax Matters. First Savings and each FS Subsidiary has filed all
Federal, state and local income and other tax returns (including, but not
limited to, returns for state and federal income taxes, sales taxes, use taxes
and payroll taxes, and information reports), required to be filed by it, and
each such return is complete and accurate in all material respects and was filed
on a timely basis. First Savings and each FS Subsidiary has paid all taxes of
any nature whatsoever with any related penalties, interest and liabilities (any
of the foregoing being referred to herein as a "Tax") that are shown on such tax
returns as due and payable on or before the date hereof, other than such Taxes
as are being contested in good faith and which are listed in Item 2.21 of the
First Savings Disclosure Schedule.
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The accruals for current and deferred Taxes reflected on the consolidated
Statement of Financial Condition of First Savings and the FS Subsidiaries as at
June 30, 1998 are sufficient in all material respects. Except as set forth in
Item 2.21 of the First Savings Disclosure Schedule, there are no claims or
assessments pending against First Savings or any FS Subsidiary for any alleged
deficiency in Tax, and First Savings does not know of any threatened Tax claims
or assessments against it or any FS Subsidiary, which, in either case, involve
amounts either singly or in the aggregate in excess of $10,000.00. Neither First
Savings nor any FS Subsidiary has ever been subject to a sales and use tax
examination. Neither First Savings nor any FS Subsidiary has ever been subject
to a payroll tax examination. First Savings and the FS Subsidiaries do not treat
any workers as independent contractors. All information reports on Forms 1098
and 1099 were filed on magnetic media. A true and complete copy of the policy
and procedures of First Savings and the FS Subsidiaries related to information
reporting compliance has been furnished to GCB. Neither First Savings nor any FS
Subsidiary has ever received any notices or penalties regarding failure to
comply with 1099 reporting requirements.
2.22. Insurance. Item 2.22 of First Savings Disclosure Schedule
contains a true and complete list of all policies of liability, theft, fidelity,
property damage and other forms of insurance held by First Savings or any FS
Subsidiary (specifying the insurer, amount of coverage, annual premium, type of
insurance, policy number and any pending material claims thereunder). The
policies listed in such Item 2.22 are outstanding and duly in force and all
premiums with respect to such policies are currently paid. Except as set forth
in such Item 2.22, neither First Savings nor any FS Subsidiary has, during the
past three fiscal years, been denied or had revoked or rescinded any policy of
insurance.
2.23. Dealings with Officers and Directors. Except as set forth in Item
2.23 of the First Savings Disclosure Schedule, there is no present transaction,
business relationship or indebtedness involving First Savings or any FS
Subsidiary which is of a type described in Item 404 of Regulation S-K
(promulgated by the Securities and Exchange Commission) or which is a "covered
transaction" as that term is defined in Section 23A of the Federal Reserve Act
(12 U.S. Code 371c), as amended, nor is First Savings or any FS Subsidiary a
party to any agreement or understanding which provides for or contemplates such
a transaction, business relationship or indebtedness in the future. Except for
the Employee Benefit Programs referred to in Section 2.20, neither First Savings
nor any FS Subsidiary is a party to any agreement involving payments to any
person or entity based on the profits or gross revenues of First Savings.
2.24. Securities Exchange Act of 1934. First Savings has
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filed all reports required to be filed by it pursuant to the Securities Exchange
Act of 1934, as amended, during the 36 months preceding the date of this
Agreement, and such reports do not contain any untrue statement of a material
fact or omit to state any material fact which is necessary to make the
statements contained therein not misleading.
2.25. Environmental, Health and Safety. Except as set forth
in Item 2.25 of the First Savings Disclosure Schedule:
(a) Each of First Savings, the FS Subsidiaries, the
Participation Facilities and the Loan Properties (each as hereinafter defined)
are, and have been, in compliance with all applicable federal, state and local
laws including common law, regulations and ordinances and with all applicable
decrees, orders and contractual obligations relating to pollution, the discharge
of, or exposure to materials in the environment or workplace ("Environmental
Laws"), except for violations which, either individually or in the aggregate,
have not had and cannot reasonably be expected to have a material adverse effect
on First Savings or any FS Subsidiary.
(b) There is no suit, claim, action or proceeding, pending or,
to the best of First Saving's knowledge threatened, before any court, regulatory
agency or other forum in which First Savings, any FS Subsidiary, any
Participation Facility or any Loan Property, has been or, with respect to
threatened proceedings, may be, named as a defendant (x) for alleged
noncompliance (including by any predecessor) with any Environmental Laws, or (y)
relating to the release, threatened release or exposure to any material whether
or not occurring at or on a site owned, leased or operated by First Savings or
any FS Subsidiary, any Participation Facility or any Loan Property.
(c) During the period of (x) First Savings' or any FS
Subsidiary's ownership or operation of any of their respective current or former
properties, (y) First Savings' or any FS Subsidiary's participation in the
management of any Participation Facility, or (z) First Savings' or any FS
Subsidiary's holding of a security interest in a Loan Property, there has been
no release of materials in, on, under or affecting any such property, except
where such release has not had and cannot reasonably be expected to result in,
either individually or in the aggregate, a material adverse effect on First
Savings or any FS Subsidiary. Prior to the period of (x) First Savings' or any
FS Subsidiary's ownership or operation of any of their respective current
properties, (y) First Savings' or any FS Subsidiary's participation in the
management of any Participation Facility, or (z) First Savings' or any FS
Subsidiary's holding of a security interest in a Loan Property, there was no
release or threatened release of materials in, on, under or affecting any such
property, Participation Facility or Loan Property, except where such a release
has not
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had and cannot be reasonably expected to have, either individually or in the
aggregate, a material adverse effect of First Savings or any FS Subsidiary.
(d) The following definitions apply for purposes of this
Section 2.25: (x) "Loan Property" means any property in which First Savings or
any FS Subsidiary holds a security interest, and, where required by the context,
said term means the owner or operator of such property; and (y) "Participation
Facility" means any facility in which First Savings or any FS Subsidiary
participates in the management and, where required by the context, said term
means the owner or operator of such property.
2.26. Restricted Activities and Transactions. Except as set forth in
Item 2.26 of the First Savings Disclosure Schedule, during the period commencing
June 30, 1998, neither First Savings nor any FS Subsidiary has taken any action
described in Section 4.2 (excluding subsection 4.2(g)) of this Agreement.
2.27. First Savings Disclosure Schedule and Other Materials Furnished
by First Savings. The First Savings Disclosure Schedule delivered simultaneously
with this Agreement by First Savings to GCB and identified and initialed as such
by an officer of First Savings (the "First Savings Disclosure Schedule"),
together with any materials furnished to GCB by First Savings and referred to in
this Article II, are true and complete in all material respects and do not
contain any untrue statement of a material fact or omit to state any material
fact which is necessary to make the statements contained therein not misleading.
2.28. Title to Property. Except as set forth in Item 2.28 of the First
Savings Disclosure Schedule, First Savings and the FS Subsidiaries have good and
marketable title to all of their real and personal property, including but not
limited to the real property on which the main office and each branch office of
the Bank is located, free and clear of all Encumbrances and imperfections of
title, if any. As used in this Agreement, the term "Encumbrances" shall mean and
include security interests, mortgages, leases, liens, pledges, options, rights
of first refusal and other encumbrances, whether or not relating to the
extension of credit or the borrowing of money.
2.29. Liquidation Account. The Bank has maintained sufficient records
to make the necessary computations of the balance of the liquidation account and
the subaccounts thereunder.
2.30. Survival. The representations and warranties of First Savings
contained in this Article II shall not survive the Closing.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GCB
GCB hereby represents and warrants to First Savings as follows:
3.1. Organization; Good Standing; Power; and Qualification. Each of GCB
and Newco is a corporation duly organized, validly existing and in good standing
under the laws of the State of New Jersey, has all requisite corporate power and
authority to own, lease and operate its properties, and to conduct its business
as it is now being conducted. Great Falls Bank is a banking corporation duly
organized, validly existing and in good standing under the laws of the State of
New Jersey. All of the outstanding capital stock of Great Falls Bank is owned by
GCB.
3.2. Authority; No Violation, etc. Each of GCB and Newco has all
requisite corporate power to execute, deliver and perform its obligations under
this Agreement. The execution and delivery of this Agreement and performance by
each of GCB and Newco of its obligations hereunder have been duly approved and
authorized by all requisite corporate action of GCB and Newco, respectively,
subject in the case of Newco to the stockholder consent contemplated by Section
1.10 hereof. This Agreement has been duly executed and delivered by GCB and
Newco and, subject as aforesaid, constitutes the legal, valid and binding
agreement of each of GCB and Newco, subject to (i) applicable bankruptcy,
insolvency, moratorium, fraudulent conveyance, reorganization, receivership and
other laws relating to or affecting the rights and remedies of creditors
generally, and (ii) principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). Neither the
execution and delivery of this Agreement by GCB and Newco nor compliance by GCB
and Newco with any of the provisions hereof will (a) conflict with or result in
a breach of any provision of the Certificate of Incorporation of GCB or Newco,
(b) violate, or result with the passage of time in a violation of, or cause a
default or acceleration under, or give rise to any right to termination,
cancellation or acceleration (whether immediately, or after the giving of
notice, or after the passage of time, or a combination thereof) under, or result
in the creation of any lien, charge or encumbrance on any assets of GCB or Newco
pursuant to, any of the terms, conditions or provisions of any agreement,
instrument or obligation to which GCB or Newco is a party, or by which it or any
of its properties or assets may be bound, or (c) violate any Federal or state
statute, rule or regulation or judgment, order, writ, injunction or decree of
any Federal or state court, administrative agency or governmental body, in each
case applicable to GCB or Newco, or any of their properties or assets, or
otherwise require any filing with, or obtaining any permit, authorization,
consent or approval of, any Federal, State or local public body, commission or
authority, including without
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limitation the New Jersey Industrial Site Responsibility Act (N.J.S.A. 13:1K-6
et. seq.), except those approvals and authorizations specified in Section 3.3
hereof.
3.3. Governmental Approvals and Filings. No approval, authorization,
consent, license, clearance or order of, declaration or notification to, or
filing, registration or compliance with, any governmental or regulatory
authority is required in order to authorize (a) the Holding Company Merger and
(b) the Bank Merger, except (i) approvals by the Office of Thrift Supervision,
(ii) approvals of the Federal Reserve Board (or the Federal Reserve Bank of New
York under power delegated by the Federal Reserve Board), (iii) in the case of
the Bank Merger, compliance with N.J.S.A. 17:9A-132 through 17:9A-148,
inclusive, including approval by the Commissioner of the Department of Banking
and Insurance of New Jersey and filing of the agreement and plan of the Bank
Merger, certified as having been approved by the stockholders of the Bank and
Great Falls Bank, (iv) approvals by the Federal Deposit Insurance Corporation
for the acquisition and assumption of the deposits of the Bank by Great Falls
Bank and the insurance of the Bank's deposits following the Effective Date, and
(v) compliance with the proxy requirements of the Securities Exchange Act of
1934 and the regulations promulgated thereunder.
3.4. Brokers' or Finders' Fees, etc. No agent, broker, investment
banker, person or firm acting on behalf of GCB or Newco or under the authority
of GCB or Newco is or will be entitled to any broker's or finder's fee or any
other commission or similar fee directly or indirectly from First Savings in
connection with any of the transactions contemplated hereby, except for fees
payable to Advest, Inc., which fees shall be the sole responsibility of GCB. It
is expressly understood that Advest, Inc. has been retained solely by and is
working solely for the benefit of GCB and Newco in connection with this matter.
3.5. Financial Information. GCB has delivered to First Savings (a) its
audited consolidated statements of financial condition as of December 31, 1997
and 1996 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the years in the two-year period
ended December 31, 1997 and (b) its Quarterly Report on Form 10-QSB for the
quarterly period ended June 30, 1998. The aforementioned financial statements
and report do not contain any untrue statements of material fact or omit to
state any material fact necessary in order to make the statements and
information contained therein not misleading. Each of the financial statements
contained in the aforementioned financial statements and report, with the
related notes thereto, (i) is in accordance with the books of GCB and its
subsidiaries, (ii) has been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
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except if and as otherwise indicated therein and (iii) fairly present the
consolidated financial position of GCB and its subsidiaries at such dates and
the results of its operations and the cash flows for the respective periods
indicated therein, except, in the case of the unaudited statements, for normal
year-end adjustments.
3.6. Regulatory Filings. GCB and its bank subsidiaries have made all
required filings with the Federal Reserve Board, the New Jersey Department of
Banking and Insurance and the Federal Deposit Insurance Corporation since
December 31, 1994.
3.7. Absence of Changes. There has been no material adverse change
since June 30, 1998 in the assets, properties, business or condition, financial
or otherwise, of GCB and its subsidiaries, taken as a whole.
3.8. Litigation, etc. Except for matters listed on Item 3.8 of the GCB
Disclosure Schedule: (a) there are no actions, suits, claims, investigations or
proceedings (legal, administrative or arbitrative) pending or, to the best
knowledge of GCB, threatened, against GCB or any subsidiary of GCB, whether at
law or in equity, whether civil or criminal in nature or whether before or by
any Federal, state, municipal or other governmental court, department,
commission, board, bureau, agency or instrumentality, domestic or foreign; and
(b) there are no existing unsatisfied judgments, decrees, injunctions or orders
of any court, governmental department, commission, agency, instrumentality or
arbitrator outstanding against GCB or any subsidiary of GCB. No petition for
bankruptcy, voluntary or involuntary, has been filed by or against GCB or any
subsidiary of GCB, neither GCB nor any subsidiary of GCB has made any assignment
for the benefit of its creditors and no receiver has been appointed for GCB or
any subsidiary of GCB or any of their assets.
3.9. Great Falls Bank. Great Falls Bank is in good standing under the
laws of the State of New Jersey and its deposits are insured by the Federal
Deposit Insurance Corporation.
3.10. Compliance with Laws. Except as disclosed in Item 3.10 of the GCB
Disclosure Schedule, neither GCB nor any subsidiary of GCB is in violation, in
any respect material to its business or assets, of any federal, state, county or
local law, ordinance, regulation or order applicable to the business conducted
by it. GCB and each subsidiary of GCB has all licenses, permits, orders and
approvals of any governmental or regulatory body which are required for the
conduct of the business conducted by it and which, if not held by it, could
reasonably be expected to have a material adverse effect upon its business or
assets (collectively, "Required Permits"). All such
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Required Permits are in full force and effect, no violations are or have been
reported in respect of any Required Permit and no proceeding is pending, or to
the best knowledge of GCB, threatened, to revoke or limit any such Required
Permit.
3.11. Securities Exchange Act of 1934. GCB has filed all reports
required to be filed by it pursuant to the Securities Exchange Act of 1934, as
amended, during the 36 months preceding the date of this Agreement, and such
reports do not contain any untrue statement of a material fact or omit to state
any material fact which is necessary to make the statements contained therein
not misleading.
3.12. Year 2000 Readiness. GCB and each of its bank subsidiaries have
taken all reasonable steps necessary to address the computer software,
accounting and record keeping issues raised in order for the data processing
systems used in the business conducted by them to be substantially Year 2000
compliant on or before the end of 1999 and, except as set forth in the GCB
Disclosure Schedule, GCB does not expect the future cost of addressing such
issues to be material. Neither GCB nor either of its bank subsidiaries has
received a rating of less than satisfactory from any bank regulatory agency with
respect to Year 2000 compliance.
3.13. Defined Benefit Plan. Neither GCB nor Great Falls Bank maintains
a defined benefit retirement plan.
3.14. Undisclosed Liabilities. To the best knowledge of GCB, neither
GCB nor Great Falls Bank has any material liabilities (whether matured or
unmatured, accrued, absolute or contingent or otherwise) which were not
reflected, reserved against, accrued for or otherwise disclosed on GCB's
consolidated statement of financial condition dated as at June 30, 1998 and
which can reasonably be expected to prevent or delay the Closing.
3.15. Survival. The representations and warranties of GCB contained in
this Article III shall not survive the Closing.
ARTICLE IV
COVENANTS
A. Covenants of First Savings:
4.1. Regular Course of Business. Except as otherwise consented to in
writing by GCB, prior to the Effective Date, First Savings will, and will cause
the FS Subsidiaries to, carry on their business diligently and in the ordinary
course only, and, without limiting the generality of the foregoing, First
Savings will use its best efforts to preserve its present business organization
(including that of the FS Subsidiaries)
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intact and preserve the present relationships of First Savings and the FS
Subsidiaries with persons having business dealings with them. During such
period, First Savings will, and will cause the FS Subsidiaries to, maintain
their books of account, records and files in the ordinary course in accordance
with existing practices and all applicable regulatory requirements.
4.2. Restricted Activities and Transactions. Except as otherwise
consented to in writing by GCB, from the date of this Agreement through the
Effective Date, First Savings will not, and First Savings will not permit any of
the FS Subsidiaries, to:
(a) amend its Charter or By-Laws;
(b) issue, sell or deliver, or agree to issue, sell or
deliver, any shares of any class of capital stock of First Savings or any FS
Subsidiary or any securities convertible into any such shares, or any options,
warrants, or other rights calling for the issuance, sale or delivery of any such
shares or convertible securities;
(c) except in the ordinary course of business (and consistent
with past practice) (i) borrow, or agree to borrow, any funds or voluntarily
incur, assume or become subject to, whether directly or by way of guarantee or
otherwise, any obligation or liability (absolute or contingent), (ii) cancel or
agree to cancel any debts or claims, (iii) distribute, lease, sell or transfer,
agree to lease, sell or transfer, or grant or agree to grant any preferential
rights to lease or acquire, any of its assets, property or rights, (iv) make or
permit any amendment to or termination of any material contract or agreement,
license or other right to which it is a party or (v) mortgage or pledge any of
its assets, tangible or intangible; for purposes of this Agreement, any contract
or agreement which satisfies the criteria in Section 2.10 shall be deemed a
material contract or agreement.
(d) grant any bonus or increase in compensation, other than
increases given in conformity with past practice; provided, that in no event
shall (i) any increase be given to Haralambos S. Kostakopoulos or any other
employee who has received an increase after October 15, 1997 or (ii) any other
employee be given an increase in excess of 4% of his or her base pay. The
employees who have been given retention bonus agreements are listed in Item
4.2(d) to the First Savings Disclosure Schedule.
(e) enter into or make any change in any Employee Benefit
Program, except as required by law;
(f) acquire voting securities or any other ownership interest
in any corporation, association, joint venture, mutual savings association,
partnership, business trust or other
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business entity, or acquire control or ownership of all or a substantial portion
of the assets of any of the foregoing, or merge, consolidate or otherwise
combine with any other entity, or acquire any branch of any entity engaged in
the business of banking, or directly or indirectly solicit or authorize the
solicitation of or enter into any agreement providing for any of the foregoing;
(g) directly or indirectly solicit or authorize the
solicitation of or enter into any agreement or understanding or, except to the
extent as may be required by law or in order to satisfy the fiduciary duties of
the directors of First Savings, engage in any discussions with, or furnish any
non-public information concerning First Savings or any FS Subsidiary to, any
person or entity other than GCB or a representative thereof with respect to any
offer or possible offer from a third party (i) to purchase shares of any class
of capital stock of First Savings or any FS Subsidiary or any securities
convertible into any such shares, or to acquire any option, warrant or other
right to purchase or otherwise acquire any such shares or convertible
securities, (ii) to make a tender or exchange offer for any shares of any class
of capital stock of First Savings or any FS Subsidiary, (iii) to purchase, lease
or otherwise acquire all or a substantial portion of the assets of First Savings
or any FS Subsidiary, or (iv) to merge, consolidate or otherwise combine with
First Savings or any FS Subsidiary;
(h) except as disclosed in item 4.2(h) of the First Savings
Disclosure Schedule, make any capital expenditure in excess of $10,000;
(i) make, extend or roll over any loan or loan commitment
which, together with all other outstanding loans and loan commitments to the
same borrower and affiliates of such borrower, exceeds (x) $300,000, in the case
of loans secured by first mortgages on one to four family residential dwellings
or (y) $150,000 (exclusive of guarantees by agencies of the United States or the
State of New Jersey) for loans which are not secured by first mortgages on one
to four family residential dwellings;
(j) purchase any securities (whether for sale or to be held to
maturity) having a maturity in excess of five years from the date hereof; or
purchase more than $2,000,000 of any issue of securities issued by the United
States Treasury or any other agency of the United States Government ("Government
Securities"); or purchase any securities which are not Government Securities if
the cost of such securities, together with the cost of all other securities then
owned by First Savings or any FS Subsidiary, and issued by the same issuer or
any affiliate thereof, exceeds $2,000,000;
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(k) offer to pay interest on accounts at the Bank at rates
which exceed the historical relationship of the Bank's rates for such accounts
to the prevailing rates for such accounts in the Bank's primary market area;
said historical relationships are disclosed in Item 4.2(k) of the First Savings
Disclosure Schedule;
(l) enter into or agree to enter into any other agreement or
transaction not in the ordinary course of business; or
(m) Willfully take action which would or is likely to (i)
adversely affect the ability of either GCB or First Savings to obtain any
necessary approvals of governmental authorities required for the transactions
contemplated hereby; (ii) adversely affect First Saving's ability to perform its
covenants and agreements under this Agreement; or (iii) result in any of the
conditions to the Merger not being satisfied; or (iv) agree in writing or
otherwise to do any of the foregoing.
4.3. Dividends and Distributions; Repurchases. Except as otherwise
consented to in writing by GCB, prior to the Effective Date, First Savings will
not declare or pay any dividend on its capital stock in cash, stock or property,
and will not redeem, repurchase or otherwise acquire any shares of its capital
stock, except that First Savings may (a) declare and pay a fifty cent per share
dividend in September, 1998; (b) may declare and pay a dividend, effective May
1, 1999, in the event that the Closing does not occur on or before April 30,
1999, which dividend shall not exceed fifty cents per share; provided, that such
a dividend may not be declared in the event that the Closing shall not have
occurred by April 30, 1999 because of a breach by First Savings of any
representation, warranty, covenant or agreement made by it herein; or (c) may
declare and pay a dividend pursuant to Section 5.12.
4.4. Advice of Changes. First Savings will promptly advise GCB in
writing of (i) any event occurring subsequent to the date of this Agreement
which would render any representation or warranty of First Savings contained in
this Agreement, if made on or as of the date of such event or on or as of the
Closing, untrue or inaccurate in any material respect and (ii) any material
adverse change in the business of First Savings or any FS Subsidiary.
4.5. Acquisition Proposals. First Savings will use its best efforts to
provide GCB with same-day notice of any offer First Savings receives from or on
behalf of any third party of the type referred to in Section 4.2(g) hereof,
including in such notice the identity of the offeror and the complete terms of
any such offer, and will use its best efforts to provide GCB with same-day
notice of the receipt of any information that such an
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offer is likely to be made and any available details with respect to such
potential offer. First Savings shall in any event provide GCB with the notices
contemplated above no later than the second business day following receipt of
any such offer or receipt of information that any such offer is likely to be
made.
4.6. Filings, Notices and Financial Statements. During the period
commencing on the date hereof and ending on the date on which the Closing
occurs:
(a) First Savings shall provide GCB with copies of all filings
made by First Savings, the Bank or any other FS Subsidiary on or after the date
hereof to the Office of Thrift Supervision, the Federal Deposit Insurance
Corporation and any other regulatory agency which has authority to regulate
First Savings, the Bank or any other FS Subsidiary by the first to occur of (i)
two business days following such filing or (ii) the Closing.
(b) To the extent that it is legally permitted to do so, First
Savings shall provide GCB with copies of all communications received by First
Savings, the Bank or any other FS Subsidiary from the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation and any other regulatory
agency which has authority to regulate First Savings, the Bank or any other FS
Subsidiary within five business days of receipt of such communication or, if
sooner, by the Closing. If First Savings, the Bank or any other FS Subsidiary
shall receive any such communication which it is legally prohibited from
providing to GCB, First Savings shall notify GCB that such a communication has
been received within five business days of receipt thereof or, if sooner, by the
Closing, and First Savings and the FS Subsidiaries shall cooperate with GCB to
obtain the consent of the regulatory agency which issued such communication to
provide a copy thereof to GCB and, upon receipt of such consent, shall promptly
provide a copy of such communication to GCB.
(c) First Savings shall prepare unaudited financial statements
on a monthly basis and shall furnish copies of such statements to GCB by the
20th day following the end of each month; it is understood that the financial
statements to be furnished pursuant to this subparagraph shall be the financial
statements regularly prepared by the management of First Savings for its board
of directors.
(d) First Savings shall deliver to GCB its quarterly reports
on Form 10-QSB, all other SEC filings made by First Savings and all press
releases issued by First Savings or any FS Subsidiary on the date such filing is
made or such press release is issued.
4.7. Proxy Statement.
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(a) The proxy statement for the meeting of First Savings
shareholders contemplated by Section 1.8 hereof will not, at the time of its
issuance and at the time of the meeting, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made, in the light of the circumstances under which they are made,
not misleading.
(b) First Savings shall cause a notice of meeting and proxy
statement regarding the meeting of First Savings shareholders contemplated by
Section 1.8 hereof to be mailed to its shareholders as soon as practicable in
accordance with applicable Federal and state law. Provided, however, that First
Savings shall furnish the proposed notice of meeting and proxy statement to GCB
for review and comments prior to sending them to its shareholders. First Savings
shall make the final determination as to the contents of such notice of meeting
and proxy statement.
4.8. Breaches and Adverse Developments. First Savings shall, in the
event it becomes aware of the impending or threatened occurrence of any event or
condition which would cause or constitute a breach (or would have caused or
constituted a breach had such event occurred or have been known prior to the
date hereof) of any of its representations, warranties, covenants or agreements
contained or referred to herein, or any other material adverse development
affecting First Savings or any of the FS Subsidiaries, give prompt written
notice thereof to GCB and use its best efforts to prevent or promptly remedy any
such breach.
4.9 Liquidation Account Computations. First Savings shall (a) furnish
to GCB a computation of the Liquidation Account within forty-five (45) days
following the date hereof and (b) recompute the Liquidation Account as of
January 1, 1999 and shall furnish such recomputation to GCB by January 31, 1999.
B. Covenants of GCB:
4.10. Funding and Capital Adequacy. After giving pro forma effect to
the Merger and any other acquisitions which GCB or its subsidiaries have agreed
to consummate, GCB will be deemed "well capitalized" under prompt corrective
action regulatory capital requirements from December 31, 1998 until receipt of
all approvals and authorizations required in connection with the transactions
contemplated by this Agreement from the following banking regulatory agencies:
The Office of Thrift Supervision, the Federal Reserve Board (or the Federal
Reserve Bank of New York under power delegated by the Federal Reserve Board),
the Commissioner of the Department of Banking and Insurance of New Jersey and
the Federal Deposit Insurance Corporation.
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4.11. Filings, Notices and Financial Statements. During the period
commencing on the date hereof and ending on the date on which the Closing
occurs:
(a) GCB shall provide First Savings with copies of all filings
made by GCB or either of its bank subsidiaries on or after the date hereof to
the Federal Reserve Board, the New Jersey Department of Banking and Insurance or
the Federal Deposit Insurance Corporation and any other regulatory agency which
has authority to regulate GCB or its bank subsidiaries by the first to occur of
(i) two business days following such filing or (ii) the Closing.
(b) GCB shall deliver to First Savings its quarterly reports
on Form 10-QSB or 10-Q, all other SEC filings made by GCB and all press releases
issued by GCB or any subsidiary of GCB on the date such filing is made or such
press release is issued.
4.12. Negative Covenants. Except as specifically contemplated by this
Agreement, GCB shall not do, or agree to commit to do, or permit any of GCB's
subsidiaries to do, without the prior written consent of First Savings (which
shall not be unreasonably withheld), any of the following:
(a) Willfully take action which would or is likely to (i)
adversely affect the ability of either GCB or First Savings to obtain any
necessary approvals of governmental authorities required for the transactions
contemplated hereby; (ii) adversely affect GCB's ability to perform its
covenants and agreements under this Agreement; or (iii) result in any of the
conditions to the Merger not being satisfied; or
(b) agree in writing or otherwise to do any of the foregoing.
4.13. Breaches and Adverse Developments. GCB shall, in the event it
becomes aware of the impending or threatened occurrence of any event or
condition which would cause or constitute a breach (or would have caused or
constituted a breach had such event occurred or have been known prior to the
date hereof) of any of its representations, warranties, covenants or agreements
contained or referred to herein, or any other material adverse development
affecting GCB, Newco or Great Falls Bank, give prompt written notice thereof to
First Savings and use its best efforts to prevent or promptly remedy any such
breach.
4.14. Liquidation Account. GCB agrees to maintain or otherwise cause
Great Falls Bank to maintain the liquidation account established by the Bank
pursuant to the plan of conversion adopted in connection with its conversion
from mutual to stock form upon the Effective Date for the benefit of those
persons and entities who were eligible savings account holders of
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the Bank on October 31, 1991 and who continue from time to time to have rights
therein.
4.15. GCB Shareholder Approval. Approval of the transactions
contemplated by this Agreement by the shareholders of GCB is not required and
will not be sought.
ARTICLE V
MUTUAL COVENANTS AND AGREEMENTS
5.1. Governmental Approvals.
(a) First Savings will, and will cause the FS Subsidiaries to, use
their best efforts to comply as promptly as practicable with the governmental
requirements specified in Sections 2.5 and 3.3 and obtain as soon as practicable
all necessary approvals, authorizations, consents, licenses, clearances or
orders referred to in those sections; provided, however, that the following
shall be the responsibility of GCB and its subsidiaries: (i) obtaining approval
(or waiver) of the Federal Reserve Board (or the Federal Reserve Bank of New
York under power delegated by the Federal Reserve Board), (ii) obtaining
approval by the Federal Deposit Insurance Corporation for the acquisition and
assumption of the deposits of the Bank by Great Falls Bank and the insurance of
the Bank's deposits following the Effective Date and (iii) obtaining approval of
the Commissioner of the Department of Banking and Insurance Of New Jersey to the
Bank Merger. First Savings shall, within thirty (30) days following the date
hereof, apply for non- applicability determinations from the New Jersey
Department of Environmental Protection with respect to the New Jersey Industrial
Site Responsibility Act for all real property owned by First Savings or any FS
Subsidiary.
(b) GCB will, and will cause Newco and Great Falls Bank to, use their
best efforts to comply as promptly as practicable with the governmental
requirements specified in Sections 2.5 and 3.3 and obtain as soon as practicable
all necessary approvals, authorizations, consents, licenses, clearances or
orders referred to in those sections; provided, however, that the following
shall be the responsibility of First Savings and the FS Subsidiaries: (i)
obtaining approvals by the Office of Thrift Supervision and (ii) compliance with
the proxy requirements of the Securities Exchange Act of 1934 and the
regulations promulgated thereunder.
(c) Each of First Savings and GCB agrees that it shall, and shall cause
its subsidiaries to, cooperate fully with the other in order to assist the other
to comply with those governmental responsibilities, and to obtain all approvals,
authorizations, consents, licenses, clearances or orders, which are the
responsibility of the other pursuant to clauses (a) and (b), above; in
furtherance of, and without limiting the generality of,
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the foregoing, each of First Savings and GCB agrees that it shall, and shall
cause its subsidiaries to, provide promptly to the other such information
concerning its business and financial statements and affairs as, in the
reasonable judgment of the other party or its counsel, may be required or
appropriate for inclusion in any application or other submission to a regulatory
authority and to cause its counsel and auditors to cooperate with the other's
counsel and auditors in the preparation of any such application or submission.
(d) GCB shall, if required by any regulatory authority as a condition
of granting any necessary approval, authorization, consent, license, clearance
or order, cause this Agreement to be submitted to the stockholders of GCB at a
special meeting of such stockholders for the purpose of adopting and approving
the same.
(e) Each party shall furnish to the other all applications for
regulatory approvals which it or any of its subsidiaries is required to make
pursuant to clauses (a) or (b) above for review and comments prior to sending
them to the regulators.
5.2. The Bank Merger. Promptly following execution of this Agreement,
GCB shall cause the Board of Directors of Great Falls Bank, and First Savings
shall cause the Board of Directors of Bank, to authorize the execution of a
merger agreement in the form attached hereto as Exhibit A (the "Bank Merger
Agreement") and to cause Great Falls Bank and Bank to execute the Bank Merger
Agreement and to submit the Bank Merger Agreement for approval by the
Commissioner of the Department of Banking and Insurance of New Jersey.
Thereafter, the parties shall each use their best efforts to obtain the approval
of the Commissioner.
It is the understanding of GCB that the Bank Merger may be accomplished
in the manner contemplated by this Section 5.2 hereof by reason of New Jersey
laws which give New Jersey banks "parity" with national banking associations.
However, in the event that it is necessary for Bank to convert to a national
banking association (or, if mergers between New Jersey commercial banks and New
Jersey savings banks are permissible, a New Jersey savings bank) in order to
complete the transaction, First Savings shall use its best efforts to bring
about such conversion as quickly as possible.
5.3. Expenses. In the event the Merger is not consummated, GCB and
First Savings will each separately bear its own expenses (and those of its
subsidiaries) incurred in connection with this Agreement or any transaction
contemplated hereby, subject to the provisions of Article IX hereof.
5.4. Public Announcements. Recognizing that they each have independent
obligations with respect to the dissemination of material information to the
public and to their respective
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shareholders, GCB and First Savings will to the maximum extent feasible advise
and confer with each other prior to the issuance of any reports, statements or
releases (including reports, statements or releases to their respective
employees) pertaining to this Agreement. Without limiting the generality of the
foregoing, First Savings shall furnish any such proposed report, statement or
release to GCB for review and comments prior to issuance.
5.5. Further Assurances. GCB and First Savings agree to execute and
deliver, and to cause their respective subsidiaries to execute and deliver, such
instruments and take such other actions as may be necessary or required in order
to consummate the transactions contemplated hereby.
5.6. Conversion Amount. First Savings shall, as soon as practicable
following the end of the month preceding the month in which the Closing is to
take place, furnish to GCB (i) a consolidated statement of the financial
condition of First Savings and the FS Subsidiaries at the end of said month,
prepared in accordance with Section 1.5 and (ii) a statement of its Adjusted Net
Worth at the end of said month, calculated in accordance with Section 1.5, which
statement shall include a reasonably detailed explanation of all adjustments.
5.7. Termination of Employment of Dr. Haralambos S. Kostakopoulos. The
employment of Dr. Haralambos S. Kostakopoulos, the President of First Savings,
will terminate upon the Effective Date. First Savings shall be responsible for
satisfying the obligation of First Savings to Dr. Kostakopoulos to make the
payment(s) provided for in Dr. Kostakopoulos' Employment Agreement, as detailed
in Item 5.7 of the First Savings Disclosure Schedule, subject to the following
provisions of this Section 5.7. This obligation shall not exceed $712,136 if Dr.
Kostakopoulos is alive on the Effective Date, which amount shall be paid to Dr.
Kostakopoulos by First Savings on the Effective Date; and this obligation shall
not exceed $0 if Dr. Kostakopoulos is not alive on the Effective Date. Except as
provided in this Section 5.7, Dr. Kostakopoulos agrees that he shall not be
entitled to any severance pay or other compensation from First Savings, any FS
Subsidiary, GCB, Newco, Great Falls Bank or any other subsidiary of GCB arising
out of, in connection with, or as a result of, his Employment Agreement, his
employment by First Savings and/or any FS Subsidiary, or the termination of his
employment.
If and to the extent that any payment made to Dr. Kostakopoulos
pursuant to the preceding paragraph of this Section 5.7 constitutes an "excess
parachute payment" which cannot be taken as a deduction pursuant to Section 280G
of the Internal Revenue Code of 1986, as amended, then the amount payable to Dr.
Kostakopoulos shall be reduced by the portion of such payment
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which constitutes an excess parachute payment.
Notwithstanding anything herein to the contrary, Dr. Kostakopoulos does
not waive his rights to purchase continuation of benefits under the Consolidated
Omnibus Budget Reconciliation Act or similar New Jersey law.
5.8. Access to Records and Properties; Confidentiality.
(a) First Savings shall permit reasonable access to GCB and
its agents and representatives, including, without limitation, officers,
directors, employees, attorneys, accountants and financial advisors
(collectively, "Representatives"), and shall disclose and make available to GCB
and its Representatives, its books, papers and records relating to their
respective assets, stock ownership, properties, operations, obligations and
liabilities, including, but not limited to, books of account (including the
general ledger), tax records, minute books of director's and stockholder's
meetings, organizational documents, bylaws, material contracts and agreements,
filings with any regulatory authority, independent auditors work papers (subject
to receipt by such auditors of a standard access representation letter),
litigation files, plans affecting employees, and any other business activities
or prospects of First Savings or any FS Subsidiary, in which GCB and its
Representatives may have a reasonable interest. First Savings shall not be
required to provide access to or disclose information where such access or
disclosure would violate or prejudice the rights of any customer or would
contravene any law, rule, regulation, order or judgment, or in the case of the
document which is subject to an attorney-client privilege, would compromise the
right of the disclosing party to claim that privilege. The parties will use all
reasonable efforts to obtain waivers of any such restriction (other than the
attorney client privilege) and in any event make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply.
(b) GCB shall deliver to First Savings, within five (5)
business days following receipt thereof, copies of the public sections of all
regulatory examination reports rendered during the period commencing on the date
hereof and ending upon the Closing with respect to GCB or Great Falls Bank.
(c) 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 transactions
contemplated hereby, shall be kept confidential 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 Representatives shall return to the other
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party all documents or other materials containing, reflecting or referring to
such information, will not retain any copies of such information, shall keep
confidential all such information, and shall not directly or indirectly use such
information for any competitive or commercial purposes or any other purpose not
expressing permitted hereby. Each party hereto shall inform its Representatives
of the terms of this Section 5.8. Any breach of this Section 5.8 by a
Representative of a party hereto shall conclusively be deemed to be a breach
thereof by such party. In the event that the Merger contemplated hereby does not
occur or this Agreement is terminated, all documents, notes and other writings
prepared by a party hereto or its Representatives based on information furnished
by the other party, and all other documents and records obtained from another
party hereto in connection herewith, shall be promptly destroyed. The obligation
to keep such information confidential shall continue for 30 months 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 other than as a
result of a disclosure by any party hereto or its Representatives; (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, regulatory or examination requirement or in accordance with an order of a
court of competent jurisdiction, provided that in the event of any disclosure
required by this clause (ii), the disclosing party will give reasonable prior
written notice of such disclosure to the other parties and shall not disclose
any such information without an opinion of counsel supporting its position that
such information must be disclosed.
(d) In addition to all other remedies that may be available to any
party hereto in connection with a breach by any other party hereto of its or its
Representative's obligations under this Section 5.8, each party hereto shall be
entitled to specific performance and injunctive and other equitable relief with
respect to this Section 5.8. Each party hereto waives, and agrees to use all
reasonable efforts to cause its Representatives to waive, any requirement to
secure or post a bond in connection with any such relief.
5.9. Employees of the Bank.
Subject to the provisions of this Section 5.9, GCB agrees that it shall
cause Great Falls Bank to allow the employees of the Bank who are offered and
who accept employment by Great Falls Bank (the "Bank Employees") to participate
in any of Great Falls Bank's employee benefit plans in which similarly situated
employees of Great Falls Bank participate, to the same extent as
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comparable employees of Great Falls Bank. As of the Effective Date, GCB shall
cause Great Falls Bank to permit the Bank Employees to participate in Great
Falls Bank's group hospitalization, medical, life and disability insurance plans
on the same terms and conditions as applicable to comparable employees of GCB
and its subsidiaries; provided, however, that all Bank Employees and their
dependents will be eligible to participate in the medical insurance plan(s)
covering employees of Great Falls Bank as of the Effective Date without regard
to pre-existing conditions or exclusions and with no uninsured waiting periods.
As of the next entry date immediately following the Effective Date, GCB shall
cause Great Falls Bank to permit the Bank Employees to participate in Great
Falls Bank's defined contribution plan; provided, that the Bank Employees shall
not be entitled to participate in the profit sharing portion of said plan until
the first anniversary of the Effective Date. The Bank Employees shall be given
credit for their years of service with the Bank or First Savings for eligibility
and vesting purposes under Great Falls Bank's defined contribution retirement
plan, except that the Bank Employees shall not be entitled to participate in the
profit sharing portion of said plan until the first anniversary of the Effective
Date.
As of the Effective Date, the Bank Employees shall retain all accrued
vacation and sick leave benefits, provided such amounts have been fully accrued
for by First Savings or the Bank as of the Effective Date and are in accordance
with such amounts provided in past practice by First Savings and the Bank. As of
the Effective Date, all participants under the Bank's defined contribution plan
shall become 100% vested in all participant accounts. With respect to Great
Falls Bank's vacation, sick leave and severance policies, GCB shall cause Great
Falls Bank to recognize, for purposes of eligibility to participate, vesting and
benefits accrual purposes, all prior years of service that any Bank Employee had
with the Bank or First Savings, except that any Bank Employees who are
involuntarily terminated within six months following the Effective Date shall
not be entitled to receive severance benefits under GCB's severance policies;
such employees shall instead be paid severance benefits in accordance with, and
subject to, the provisions of this Section 5.9.
GCB shall pay each of the four (4) Bank Employees disclosed on Item 4.2
of the First Savings Disclosure Schedule a retention bonus ("Retention Bonus")
if and only if such Bank Employee shall either (a) remain in the employ of GCB
or a subsidiary of GCB for a period of three (3) months following the Effective
Date or (b) be terminated from such employment within three (3) months following
the Effective Date by GCB or a subsidiary of GCB without cause. The amount of
the Retention Bonus to be paid to each listed individual shall be as specified
in Item 4.2 of the First Savings Disclosure Schedule; the aggregate pretax cost
of the Retention Bonuses shall not exceed $90,748.
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Following the Effective Date, GCB shall cause Great Falls Bank to honor
in accordance with its terms the Change In Control Severance Agreement between
Brian McCourt and the Bank.
GCB and Great Falls Bank agree to pay the cost of out- placement
services for any Bank Employees that are terminated without cause within the six
month period following the Effective Date. Bank Employees who are entitled to
receive a Retention Bonus shall not be entitled to any severance benefits until
they have been employed by GCB for six months; provided, that such Bank
Employees shall be entitled to one month's advance notice of termination during
such six month period or to one month's pay in lieu of such notice.
Any employee of First Savings or the Bank as of the Effective Date,
other than Dr. Kostakopoulos, Mr. McCourt or any employee who is entitled to
receive a Retention Bonus, who is involuntarily terminated for any reason, or
whose job or terms of employment is substantially changed (and who thereafter
terminates his or her employment), other than terminations or changes made for
just cause, within six months after the Effective Date will receive the
severance benefits set forth in the following sentence. Such severance benefits
will be paid in a lump-sum payment equal to one (1) week's salary for every year
or partial year of employment service with First Savings or the Bank, with a
minimum severance benefit equal to two (2) weeks of salary and the maximum
severance benefit payable shall be twenty-six (26) weeks.
5.10. Accounting and Financial Matters. Notwithstanding that First
Savings believes that it has established all reserves and taken all provisions
for possible loan losses required by GAAP and applicable laws, rules and
regulations, First Savings recognizes that GCB 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, First Savings and GCB shall consult and cooperate with each
other with respect to (i) conforming, based upon such consultation, the loan,
accrual and reserve policies of First Savings and the FS Subsidiaries to those
policies of GCB and its subsidiaries to the extent appropriate (provided, that
any required change in the practices of First Savings and the FS Subsidiaries in
connection with the matters in this clause (i) need not be effected until the
parties receive all necessary stockholder approvals and all approvals and
authorizations of the public authorities referred to in Sections 2.5 and 3.3
hereof), and (ii) conforming, based upon such consultation, the composition of
the securities portfolios and overall asset/liability management position of
First Savings and the FS Subsidiaries, and GCB and its subsidiaries, to the
extent appropriate.
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5.11. 1999 Closing. Notwithstanding any other provision of this
Agreement, the Closing will not occur prior to January 1, 1999.
5.12. Key Man Insurance. Notwithstanding anything herein to the
contrary, in the event that Dr. Kostakopoulos shall die after the date of the
Agreement, but prior to the Effective Time, First Savings, the Bank, GCB or
Great Falls Bank, as the case may be, shall pay to the estate of Dr.
Kostakopoulos, out of the aggregate proceeds received by First Savings, the
Bank, GCB or Great Falls Bank from the key man life insurance currently held by
First Savings or the Bank on the life of Dr. Kostakopoulos, the sum that would
have been payable under his Employment Agreement upon the Effective Date (as
disclosed in Item 5.7 of the First Savings Disclosure Schedule) but for his
prior death, without regard to the stated limitation in Section 5.7 of $712,136,
and no sums shall be payable by First Savings, Bank, any other FS Subsidiary,
GCB or Newco pursuant to Section 5.7 of this Agreement. Further, in the event
that Dr. Kostakopoulos shall die after the date of the Agreement, but prior to
the Effective Time, First Savings shall pay a special cash dividend on the
shares of common stock of First Savings in the aggregate amount equal to the
amount, if any, by which the aggregate proceeds received by First Savings or the
Bank from the key man life insurance held by First Savings or the Bank on the
life of Dr. Kostakopoulos exceeds the sum of (a) the payments made to the estate
of Dr. Kostakopoulos pursuant to the first sentence of this Section 5.11 and (b)
the aggregate amount of all premiums paid by First Savings, the Bank or any
other FS Subsidiary in respect of such key man life insurance; provided,
however, that the aggregate special cash dividend payable on the Common Stock of
First Savings shall be reduced by the amount of any shortfall referenced at
Section 1.5 herein. Notwithstanding anything herein to the contrary, this
Section 5.12 shall be construed as an agreement as to which Dr. Kostakopoulos
and the shareholders of First Savings are intended to be third party
beneficiaries and shall be enforceable by such persons and their heirs and
representatives.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF GCB AND NEWCO
The obligations of GCB and Newco to consummate the transactions
contemplated hereby are subject to the satisfaction of the following conditions
unless waived by GCB and Newco:
6.1. Representations and Warranties. The representations and warranties
of First Savings set forth in Article II hereof shall be true and correct in all
material respects as of the date of this Agreement and as of the date of the
Closing contemplated
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by Article VIII hereof (the "Closing Date") as though made on and as of the
Closing Date.
6.2. Covenants. First Savings shall have performed and complied in all
material respects with each and every covenant, agreement and condition required
by this Agreement to be performed or complied with by it prior to the Closing
Date.
6.3. Certificate. First Savings shall have furnished to GCB a
certificate of its President in form and substance reasonably satisfactory to
GCB to the effect that (i) the representations and warranties contained in
Article II of this Agreement are true and correct in all material respects at
and as of the Closing Date as though such representations and warranties were
made on the date thereof, (ii) First Savings has complied with all terms,
covenants and provisions of this Agreement required to be performed or complied
with by First Savings prior to the Closing Date, (iii) the statement of
stockholders equity furnished pursuant to Section 5.6 is in accordance with the
books of First Savings and fairly presents the stockholders equity of First
Savings as of the end of the month preceding the month in which the Closing
occurs, and (iv) to the knowledge of First Savings, the conditions set forth in
Sections 6.5, 6.6 and 6.7 hereof are each satisfied as of the Closing Date.
6.4. Opinion of Counsel. GCB shall have received an opinion of Malizia,
Spidi, Sloane & Fisch, P.C., counsel to First Savings, dated the date of the
Closing and addressed to GCB, in form and substance satisfactory to counsel to
GCB, as to the matters set forth in Exhibit B attached hereto. In rendering such
opinion, such counsel may rely upon certificates of officers of First Savings
and of public officials as to matters of fact.
6.5. No Governmental or Other Proceeding or Litigation. No order of any
court or administrative agency (including, without limitations any banking
regulatory authority) shall be in effect on the Closing Date or on the Effective
Date which restrains or prohibits any transaction contemplated hereby or which
would limit or otherwise affect in a material respect the operation of Bank and
Great Falls Bank as a single entity following consummation of the Bank Merger or
of First Savings and Newco as a single entity following consummation of the
Holding Company Merger; no suit, action, or proceeding by any governmental body
or other person or entity, or investigation or inquiry by any governmental body,
shall be pending or, in the case of a governmental body, threatened against GCB,
Newco, Great Falls Bank, First Savings or any FS Subsidiary, which challenges
the validity or legality, or seeks to restrain the consummation, of any
transaction contemplated hereby or which seeks to limit or otherwise affect the
operation of Bank and Great Falls Bank as a single entity following the
consummation of the Bank Merger or of First Savings and Newco as a single entity
following consummation
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of the Holding Company Merger; and no written advice shall have been received by
GCB or First Savings or their respective counsel from any governmental body, and
remain in effect, stating that an action or proceeding will, if the Holding
Company Merger and/or the Bank Merger is consummated or sought to be
consummated, be filed seeking to invalidate or restrain said transaction or
limit or otherwise affect the operation of Bank and Great Falls Bank as a single
entity following the consummation of the Bank Merger or of First Savings and
Newco as a single entity following consummation of the Holding Company Merger.
6.6. Approvals and Consents. The approval of the stockholders of First
Savings referred to in Section 1.8 hereof, and all approvals and authorizations
of the public authorities referred to in Sections 2.5 and 3.3 hereof, shall have
been obtained, and all waiting periods specified by law shall have passed. Also,
First Savings shall have obtained non- applicability determinations from the New
Jersey Department of Environmental Protection with respect to the New Jersey
Industrial Site Responsibility Act for all real property owned by First Savings
or any FS Subsidiary on the date hereof.
6.7. First Savings's Stockholders Equity. First Savings's Adjusted Net
Worth (as defined in Section 1.5) as of the end of the month preceding the month
in which the Closing is to take place shall be not less than $9,045,707.
6.8. Transaction Expenses. First Savings shall have furnished to GCB
(a) an accounting of all Transaction Expenses (as that term is defined in
Section 1.5 hereof) and (b) final bills from all providers of significant
services in connection with the transactions contemplated by this Agreement,
including its investment bankers, attorneys and accountants.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF FIRST SAVINGS
The obligations of First Savings to consummate the transactions
contemplated hereby are subject to the satisfaction of the following conditions
unless waived by First Savings:
7.1. Representations and Warranties. The representations and warranties
of GCB set forth in Article III hereof shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date.
7.2. Covenants. GCB and Newco shall have performed and complied in all
material respects with each and every covenant, agreement and condition required
by this Agreement to be performed or complied with by it prior to the Closing
Date.
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7.3. Certificate. Each of GCB and Newco shall have furnished to First
Savings a certificate of its President or Vice President in form and substance
reasonably satisfactory to First Savings to the effect that (i) the
representations and warranties contained in Article III of this Agreement are
true and correct in all material respects at and as of the Closing Date as
though such representations and warranties were made on the date thereof, (ii)
it has complied with all terms, covenants and provisions of this Agreement
required to be performed or complied with by it prior to the Closing Date and
(iii) to the knowledge of GCB or Newco, as the case may be, the conditions set
forth in Sections 7.5 and 7.6 hereof are each satisfied as of the Closing Date.
7.4. Opinion of Counsel. First Savings shall have received an opinion
of Williams, Caliri, Miller & Otley, counsel to GCB and Newco, dated the date of
the Closing and addressed to First Savings, in form and substance satisfactory
to counsel to First Savings, as to the matters set forth in Exhibit C attached
hereto. In rendering such opinion, such counsel may rely upon certificates of
officers of GCB and Newco and of public officials as to matters of fact.
7.5. No Governmental or Other Proceeding or Litigation. No order of any
court or administrative agency (including, without limitations any banking
regulatory authority) shall be in effect on the Closing Date or on the Effective
Date which restrains or prohibits any transaction contemplated hereby or which
would limit or otherwise affect in a material respect the operation of Bank and
Great Falls Bank as a single entity following consummation of the Bank Merger or
of First Savings and Newco as a single entity following consummation of the
Holding Company Merger; no suit, action, or proceeding by any governmental body
or other person or entity, or investigation or inquiry by any governmental body,
shall be pending or, in the case of a governmental body, threatened against GCB,
Newco, Great Falls Bank, First Savings or any FS Subsidiary, which challenges
the validity or legality, or seeks to restrain the consummation, of any
transaction contemplated hereby or which seeks to limit or otherwise affect the
operation of Bank and Great Falls Bank as a single entity following the
consummation of the Bank Merger or of First Savings and Newco as a single entity
following consummation of the Holding Company Merger; and no written advice
shall have been received by GCB or First Savings or their respective counsel
from any governmental body, and remain in effect, stating that an action or
proceeding will, if the Holding Company Merger and/or the Bank Merger is
consummated or sought to be consummated, be filed seeking to invalidate or
restrain said transaction or limit or otherwise the operation of Bank and Great
Falls Bank as a single entity following the consummation of the Bank Merger or
of First Savings and Newco as a single entity following consummation of the
Holding Company Merger.
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7.6. Approvals and Consents. All approvals and authorizations of the
public authorities referred to in Sections 2.5 and 3.3 hereof, shall have been
obtained, and all waiting periods specified by law shall have passed.
7.7. Fairness Opinion. First Savings shall have received the opinion of
Ryan, Beck & Co., in form and substance reasonably satisfactory to said Board of
Directors, that the consideration to be paid to the stockholders of First
Savings pursuant to this Agreement is fair from a financial point of view to
such stockholders as of the date of Board adoption of the Agreement and as of
the date of mailing of the proxy statement to the stockholders of First Savings
related to the Meeting of Stockholders contemplated by Section 1.8 hereof. The
foregoing opinion shall be included in the proxy statement. Provided, that the
condition specified in this Section 7.7 hereof shall be conclusively deemed to
have been waived if First Savings shall not have exercised its right to
terminate this Agreement by reason of the failure of such condition on or before
the first to occur of (i) the date of the proxy statement distributed in
connection with the meeting of shareholders of First Savings contemplated in
Section 1.8 hereof or (ii) the 120th day following the date of this Agreement.
ARTICLE VIII
CLOSING
Unless this Agreement shall have been terminated pursuant to a
provision of Article IX hereof, a closing (the "Closing") will be held, as soon
as practicable after the satisfaction or waiver of the conditions set forth in
Articles VI and VII hereof (but in no event prior to January 1, 1999; and in no
event later than the last to occur of January 1, 1999 or the 45th day following
receipt of all required regulatory approvals), at the offices of Williams,
Caliri, Miller & Otley, 1428 Route 23, Wayne, New Jersey. The parties agree that
the target date for such Closing shall be January 28, 1999. At the Closing, the
documents referred to in Articles VI and VII hereof will be exchanged by the
parties. Immediately thereafter, (i) the Certificate of Merger contemplated by
Section 1.7 hereof shall be filed in accordance with the Act and (ii) the Bank
Merger Agreement will be approved by the GCB as the sole shareholder of Great
Falls Bank and by First Savings as the sole shareholder of the Bank and shall be
filed with the Department of Banking and Insurance of the State of New Jersey.
ARTICLE IX
TERMINATION
9.1. Termination. This Agreement may be terminated at any
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time prior to Closing:
(a) by First Savings, by written notice to GCB, if (i) First
Savings, without violating any of its covenants hereunder, shall have received
an unsolicited offer to enter into a transaction of the type described in
Section 4.2(g) and the Board of Directors of First Savings, after consulting
with counsel, shall have determined in the exercise of its fiduciary duties that
it should terminate this Agreement and pursue such offer or (ii) the approval of
the stockholders of First Savings referred to in Section 1.8 hereof shall not be
obtained;
(b) by GCB, by written notice to First Savings, if the
approval of the stockholders of First Savings referred to in Section 1.8 hereof
shall not be obtained within 120 days following the date of this Agreement;
(c) by GCB, by written notice to First Savings, if (i) any
representation or warranty of First Savings set forth in Article II hereof shall
not be true and correct in all material respects, (ii) First Savings shall
breach any covenant or agreement made by it herein or (iii) any condition set
forth in Article VI hereof shall not have been satisfied by July 29, 1999.
Provided, that (x) GCB may not terminate this Agreement by reason of the failure
of a condition set forth in Article VI if the failure of such condition shall be
caused by a breach by GCB and/or Newco of any covenant or agreement made by it
herein; (y) GCB may not terminate this Agreement by reason of a breach of any
covenant or agreement made by First Savings hereunder unless First Savings shall
fail to cure such breach within thirty (30) days following a written demand to
cure by GCB; and (z) GCB may not terminate this Agreement by reason of a breach
of any representation or warranty made by First Savings in this Agreement unless
First Savings shall fail to eliminate the matter or condition which makes such
representation or warranty untrue, within thirty (30) days following a written
demand to cure by GCB.
(d) by First Savings, by written notice to GCB, if (i) any
representation or warranty of GCB set forth in Article III hereof shall not be
true and correct in all material respects, (ii) GCB or Newco shall breach any
covenant or agreement made by it herein or (iii) any condition set forth in
Article VII hereof shall not have been satisfied by July 29, 1999. Provided,
that (x) First Savings may not terminate this Agreement by reason of the failure
of a condition set forth in Article VII if the failure of such condition shall
be caused by a breach by First Savings of any covenant or agreement made by it
herein; (y) First Savings may not terminate this Agreement by reason of a breach
of any covenant or agreement made by GCB hereunder unless GCB shall fail to cure
such breach within thirty (30) days following a written demand to cure by First
Savings; and (z) First Savings
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may not terminate this Agreement by reason of a breach of any representation or
warranty made by GCB in this Agreement unless GCB shall fail to eliminate the
matter or condition which makes such representation or warranty untrue, within
thirty (30) days following a written demand to cure by First Savings.
9.2. Liability Upon Termination.
(a) If this Agreement is terminated in accordance with Section 9.1, the
transactions contemplated hereby shall be abandoned without further action by
either party hereto, and the parties shall have no further liabilities or
obligations hereunder except as provided in the following subsections of this
Section 9.2.
(b) In the event First Savings shall exercise its right of termination
under Section 9.1(a), First Savings shall pay to GCB a termination fee of
$500,000.
(c) In the event GCB shall exercise its right of termination under
Section 9.1(b), First Savings shall pay to GCB a termination fee of $500,000.
(d) First Savings shall pay to GCB, as liquidated damages, a
termination fee of $500,000 in the event that (i) this Agreement is terminated
by GCB pursuant to Section 9.1(c) hereof by reason of the breach by First
Savings of any covenant or agreement (but not any representation or warranty)
made by it herein, or (ii) this Agreement is terminated by First Savings unless
such termination is expressly permitted pursuant to Section 9.1(a) or 9.1(d)
hereof.
(e) GCB shall pay to First Savings, as liquidated damages, a
termination fee of $500,000 in the event that (i) this Agreement is terminated
by First Savings pursuant to Section 9.1(d) hereof by reason of the breach by
GCB or Newco of any covenant or agreement (but not any representation or
warranty) made by it herein, or (ii) this Agreement is terminated by GCB unless
such termination is expressly permitted pursuant to Section 9.1(b) or 9.1(c)
hereof.
(f) In the event that GCB shall terminate this Agreement pursuant to
Section 9.1(c) hereof by reason of the breach by First Savings of any
representation or warranty made by it herein other than those contained in
Section 2.5, First Savings shall reimburse GCB for all costs incurred by it in
connection with the negotiation and performance and enforcement of this
Agreement, as well as all costs of enforcing this Section 9.1(f).
(g) The maximum amount to which a party shall be entitled from the
other upon termination of this Agreement shall be $500,000, regardless of the
number of grounds which such party
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may have for claiming a termination fee or other payment
hereunder.
ARTICLE X
INDEMNIFICATION
10.1. Indemnification. In the event of any threatened or actual claim,
action, suit, proceeding or investigation, whether civil or administrative,
including, without limitation, any such claim, action, suit, proceeding or
investigation in which any person who is now, or has been at any time prior to
the date of this Agreement, or who becomes prior to the Effective Date, a
director or officer or employee of First Savings or any of its Subsidiaries (the
"Indemnified Parties") is, or is threatened to be, made a party based in whole
or in part on, or arising in whole or in part out of, or pertaining to (i) the
fact that he is or was a director, officer or employee of First Savings, any of
the Subsidiaries of First Savings or any of their respective predecessors or
(ii) this Agreement or any of the transactions contemplated hereby, whether in
any case asserted or arising before or after the Effective Date, the parties
hereto agree to cooperate and use their best efforts to defend against and
respond thereto. It is understood and agreed that after the Effective Date, GCB
shall indemnify and hold harmless, as and to the extent permitted by New Jersey
law, each such Indemnified Party against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorney's fees and expenses
in advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Party to the fullest extent permitted by law
upon receipt of any undertaking required by applicable law), judgments, fines
and amounts paid in settlement in connection with any such threatened or actual
claim, action, suit, proceeding or investigation, and in the event of any such
threatened or actual claim, action, suit, proceeding or investigation (whether
asserted or arising before or after the Effective Date), the Indemnified Parties
may retain counsel reasonably satisfactory to them after consultation with GCB;
provided, however, that (1) GCB shall have the right to assume the defense
thereof and upon such assumption GCB shall not be liable to any Indemnified
Party for any legal expenses of other counsel or any other expenses subsequently
incurred by any Indemnified Party in connection with the defense thereof, except
that if GCB elects not to assume such defense or counsel for the Indemnified
Parties reasonably advises that there are issues which raise conflicts of
interest between GCB and the Indemnified Parties, the Indemnified Parties may
retain counsel reasonably satisfactory to them after consultation with GCB, and
GCB shall pay the reasonable fees and expenses of such counsel for the
Indemnified Parties, (2) GCB shall in all cases be obligated pursuant to this
paragraph to pay for only one firm of counsel
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for all Indemnified Parties, (3) GCB shall not be liable for any settlement
effected without its prior written consent (which consent shall not be
unreasonably withheld) and (4) GCB shall have no obligation hereunder to any
Indemnified Party when and if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final and nonappealable,
that indemnification of such Indemnified Party in the manner contemplated hereby
is prohibited by applicable law. Any Indemnified Party wishing to claim
Indemnification under this Article X, upon learning of any such claim, action,
suit, proceeding or investigation, shall notify promptly GCB thereof, provided
that the failure to so notify shall not effect the obligations of GCB under this
Article X except to the extent such failure to notify prejudices GCB. GCB's
obligations under this Article X continue in full force and effect for a period
of six (6) years from the Effective Date; provided, however, that all rights to
indemnification in respect of any claim ( a "Claim") asserted or made within
such period shall continue until the final disposition of such Claim.
Notwithstanding anything to the contrary contained in this Section 10.1, in no
event shall GCB's obligations under this Section 10.1 with respect to
indemnification or the advancement of expenses be greater than the obligations
of First Savings and the FS Subsidiaries with respect thereto set forth as of
the date of this Agreement in the Certificate of Incorporation, By-laws or
similar governing documents of First Savings and the FS Subsidiaries.
10.2. Directors and Officers Liability Insurance. GCB shall cause the
persons serving as officers and directors of First Savings and the Bank
immediately prior to the Effective Date to be covered for a period of six years
from the Effective Date by the directors' and officers' liability insurance
policy maintained by First Savings and the Bank (provided that GCB may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are not less advantageous than such
policy) with respect to acts or omissions occurring prior to the Effective Date
which were committed by such officers and directors in their capacity as such.
10.3 Successors. In the event GCB or the Surviving Corporation or any
of its successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger, or (ii) transfers or conveys all or substantially
all of its properties and assets to any person, then, and in each such case, to
the extent necessary, proper provision shall be made so that the successors and
assigns of GCB or the Surviving Corporation, as the case may be, assume the
obligation set forth in this Article X.
10.4 Beneficiaries; Survival. The provisions of this Article X are
intended to be for the benefit of, and shall be
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enforceable by, each Indemnified Party and his or her heirs and representatives;
and the provisions of this Article X will survive the Effective Date.
ARTICLE XI
MISCELLANEOUS
11.1. Parties in Interest. Nothing expressed or implied in this
Agreement is intended or shall be construed to confer upon or give to any
person, firm or corporation other than the parties hereto any rights or remedies
under or by reason of this Agreement or any transaction contemplated hereby,
except as specifically provided in this Agreement.
11.2. Entire Agreement; Amendments. This Agreement contains the entire
understanding of the parties with respect to its subject matter. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to its subject matter, except as specifically provided to the contrary
herein. This Agreement may be amended or modified only by writing signed by the
parties hereto.
11.3. Headings. The article and section and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
11.4. Notices. All notices, claims, certificates, requests, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally, sent by facsimile transmission and
confirmed by first class mail, or mailed by certified mail, return receipt
requested and postage prepaid, as follows:
If to GCB or Newco:
Greater Community Bancorp
55 Union Boulevard
Totowa, New Jersey 07512
Attention: Mr. George E. Irwin, President
Telecopier Number: 973-942-9816
with copy to:
Stuart M. Geschwind, Esq.
Williams, Caliri, Miller & Otley
1428 Route 23
Wayne, New Jersey 07474
Telecopier Number: 973-694-0302
43
<PAGE>
If to First Savings:
First Savings Bancorp of Little Falls, Inc.
115 Main Street
Little Falls, New Jersey 07424
Attention: Dr. Haralambos S. Kostakopoulos,
President
Telecopier Number: (973) 785-1832
with copy to:
Richard Fisch, Esq.
Malizia, Spidi, Sloane & Fisch, P.C.
One Franklin Square
1301 K Street, N.W.
Suite 700 East
Washington, D.C. 20005
Telecopier Number: (202) 434-4661
or to such other address as the party to whom notice is to be given may have
furnished to the other parties in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following that on which the piece of mail containing such
communication is posted; provided that any communication sent by telecopy or
telex and confirmed by mail (postage prepaid) shall be deemed to have been given
at the time of transmission.
11.5. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
11.6. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New
Jersey.
11.7. Gender and Number; Person. Any reference expressed in any gender
shall be deemed to include each of the other genders, and the singular shall be
deemed to include the plural and vice versa, unless the context otherwise
requires. The term "person" as used in this Agreement, unless the context
otherwise requires, shall include any individual and any corporation,
partnership, association, or other entity or group.
11.8. Waivers. Any party to this Agreement may, by written notice to
the other parties hereto, waive any provision of this Agreement. The waiver by
any party hereto of a breach of any provision of this Agreement shall not
operate or be construed as
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a waiver of any subsequent breach of any other provision of this Agreement.
11.9. Parties Bound; Assignment. This Agreement and all of the
provisions hereof shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by either party hereto without the prior written consent of
the other party.
11.10. Release of restrictions on restricted stock. First Savings and
Dr. Kostakopoulos acknowledge that the release of the restrictions on restricted
stock held by Dr. Kostakopoulos as of February 17, 1998 will give rise to
taxable income to Dr. Kostakopoulos and an expense deduction for tax purposes to
First Savings.
45
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ANNEX B -- FAIRNESS OPINION OF RYAN, BECK & CO., INC.
<PAGE>
Ryan, Beck & Co.
Excellence in Investment Banking
200 South Orange Avenue
Livingston, New Jersey 07039-5817
TELEPHONE:(973) 597-6000
FACSIMILE:(973) 597-1258
Corporate Finance Department
December 29, 1998
The Board of Directors
First Savings Bancorp of Little Falls, Inc.
One Center Avenue
Little Falls, New Jersey 07424
Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to the shareholders of First Savings Bancorp of Little
Falls, Inc. ("First of Little Falls") of the Cash Consideration of $52.26 per
share of First of Little Falls to be paid to shareholders of First of Little
Falls pursuant to the terms of the Agreement and Plan of Merger dated September
4, 1998 (the "Agreement') by and among First of Little Falls, Greater Community
Bancorp, Totowa, New Jersey ("Greater Community") and its wholly owned
subsidiary, Great Falls Bank.
Pursuant to the Agreement, First of Little Falls shall merge with and into Great
Falls Bank (the "Merger"), and each share of First of Little Falls' issued and
outstanding common stock will become the right to receive $52.26 in cash,
subject to certain adjustments as set forth in the Agreement We have assumed
that the Merger will be fully taxable to the stockholders of First of Little
Falls and be accounted for by Greater Community as a purchase transaction.
Ryan, Beck & Co., as a customary part of its investment banking business, is
engaged in the valuation of banking and savings institutions and their
securities in connection with mergers and acquisitions. In conducting our
investigation and analysis of the Merger, we have met separately with members of
senior management of Greater Community and First of Little Falls to discuss
their respective operations, historical financial statements, strategic plans
and future prospects. We have reviewed and analyzed material prepared in
connection with the Merger, including but not limited to the following: (i)
reviewed the Agreement and related documents; (ii) reviewed this Proxy
Statement; (iii) reviewed Greater Community's Annual Reports to Shareholders and
Annual Reports on Form 10-K for the years ended December 31, 1997, 1996, and
1995, and Greater Community's Quarterly Reports on Form 1O-Q for the periods
ended March 3l, 1998, June 3O, 1998 and September 30, 1998; (iv) reviewed
internal analyses prepared by Greater Community's management; (v) reviewed First
of
RB NEW JERSEY PENNSYLVANIA FLORIDA ILLINOIS
CO. [LOGO] MEMBER NASD / SIPC / SIA
<PAGE>
Ryan, Beck & Co.
First Savings Bancorp of Little Falls, Inc.
December 29, 1998
Page 2
Little Falls' Annual Reports to Shareholders and Annual Reports on Form 1O-KSB
for the years ended December 31, 1997, 1996, and 1995, and First of Little
Falls' Quarterly Reports on Form 1O-QSB for the periods ended March 31, 1998 (as
amended), June 30, 1998 and September 30, 1998; (vi) reviewed publicly available
financial data of commercial banking organizations which Ryan, Beck deemed
generally comparable to Greater Community; (vii) reviewed publicly available
financial data of thrift organizations which Ryan, Beck deemed generally
comparable to First of Little Falls; (viii) reviewed terms of recent
acquisitions of thrift organizations which Ryan, Beck deemed generally
comparable in whole or in part to First of Little Falls; (ix) reviewed the
potential pro-forma impact of the Merger on Greater Community's financial
condition, operating results and capital ratios; and (x) conducted such other
studies, analyses, inquiries and examinations as Ryan, Beck deemed appropriate.
Ryan, Beck also reviewed certain projections provided by First of Little Falls
and Greater Community for the years ending December 31, 1998 and December 31,
1999 and met with certain members of First of Little Falls and Greater
Community's senior management to discuss First of Little Falls and Greater
Community's past and current business operations, financial condition, strategic
plan and future prospects, including any potential operating efficiencies and
synergies which may arise from the Merger. Ryan, Beck as part of its review of
the Merger, also analyzed Greater Community's financial ability to consummate
the Merger and considered the future prospects of First of Little Falls in the
event it remained independent.
While we have taken care in our investigation and analyses, we have relied upon
and assumed the accuracy, completeness and fairness of the financial and other
information provided to us by the respective institutions or which was publicly
available and have not assumed any responsibility for independently verifying
such information. We have also relied upon the managements of First of Little
Falls and Greater Community as to the reasonableness and achievability of the
financial and operating forecasts and projections (and the assumptions and bases
therefor) provided to us and in certain instances we have made certain
adjustments to such financial and operating forecasts which in our judgment were
appropriate under the circumstances. In addition, we have assumed with your
consent that such forecasts and projections reflect the best currently available
estimates and judgments of the respective managements. We are not experts in the
evaluation of allowances for loan losses. Therefore, we have not assumed any
responsibility for making an independent valuation of the adequacy of the
allowances for loan losses set forth in the balance sheets of First of Little
Falls and Greater Community at June 30, 1998, and we assumed such allowances
were adequate and comply fully with applicable law, regulatory policy and sound
banking practice as of the date of such financial statements. We also assumed
that the Merger in all respects is, and will be consummated in compliance with
all laws and regulations applicable to First of Little Falls and Greater
Community. We have not made or obtained any independent
<PAGE>
Ryan, Beck & Co.
First Savings Bancorp of Little Falls, Inc.
December 29, 1998
Page 3
evaluations or appraisals of the assets and liabilities of either First of
Little Falls or Greater Community or their respective subsidiaries, nor have we
reviewed any individual loan files of First of Little Falls or Greater Community
or their respective subsidiaries.
In conducting our analysis and arriving at our opinion as expressed herein, we
have considered such financial and other factors as we have deemed appropriate
in the circumstances. In rendering our opinion, we have assumed that in the
course of obtaining the necessary regulatory approvals for the Merger, no
conditions will be imposed that will have a material adverse effect on the
contemplated benefits of the Merger to First of Little Falls. Our opinion is
necessarily based on economic, market and other conditions and projections as
they exist and can be evaluated on the date hereof.
We have been retained by the Board of Directors of First of Little Falls as an
independent contractor to act as financial advisor to First of Little Falls with
respect to the Merger and will receive a fee for our services. Ryan, Beck has
had an investment banking relationship with First of Little Falls Bancorp for a
number of years. Additionally, Ryan, Beck has also acted as financial advisor to
First of Little Falls with respect to various other matters from time to time.
Ryan, Beck has had no prior relationship with Greater Community. Ryan, Beck's
research department does not follow Greater Community. Ryan, Beck is a market
maker in Greater Community's common stock and, in such capacity, may from time
to time own Greater Community securities.
Our opinion is directed to the Board of Directors of First of Little Falls and
does not constitute a recommendation to any shareholder of First of Little Falls
as to how such shareholder should vote at any shareholder meeting held in
connection with the Merger.
Based upon and subject to the foregoing it is our opinion as investment bankers
that the Cash Consideration in the Merger as provided and described in the
Agreement is fair to the holders of First of Little Falls common stock from a
financial point of view.
Very truly yours,
/s/Ryan, Beck & Co., Inc.
RYAN, BECK & CO., INC.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 19, 1999
The undersigned stockholder of First Savings Bancorp of Little Falls,
Inc. (the "Company") hereby constitutes and appoints the Proxy Committee of the
Board of Directors, and each of them, as the true and lawful proxies and
attorneys-in-fact of the undersigned, with full power of substitution in each of
them, to represent and to vote, as designated hereon, all shares of common
stock, par value $1.00 per share, of the Company that the undersigned is
entitled to vote at the Meeting of Stockholders of the Company to be held at the
main office of the Company, located at One Center Avenue, Little Falls, New
Jersey, on Tuesday, January 19, 1999, at 11:00 a.m., Eastern Time, and at any
and all adjournments thereof. The undersigned hereby revokes any proxy
previously given and acknowledges receipt of a copy of the accompanying Proxy
Statement for the Meeting and Notice of Meeting of Stockholders.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, IT WILL BE VOTED
"FOR" THE PROPOSAL.
FOR AGAINST ABSTAIN
--- ------- -------
1. To consider and vote upon a proposal to approve the |_| |_| |_|
Agreement and Plan of Merger, dated as of September 4,
1998, by and among Greater Community Bancorp
("GCB"), GCB Acquisition Corp. ("Newco"), and the
Company, pursuant to which (i) Newco would merge with
the Company (the "Corporate Merger") with the
Company surviving, and First Savings Bank of Little
Falls, F.S.B. would merge with Great Falls Bank, (ii)
each outstanding share of the Company's common stock
(excluding certain shares held by the Company) would be
converted into the right to receive a cash payment of
$52.26 from GCB upon completion of the Corporate
Merger (each outstanding stock option would also be
entitled to receive $52.26, less the option exercise price),
all on and subject to the terms and conditions contained
therein.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting, or
at any adjournment or adjournments thereof, and after notification to the
Secretary of the Company at the Meeting of the stockholder's decision to
terminate this proxy, the power of said attorneys and proxies shall be deemed
terminated and of no further force and effect. The undersigned may also revoke
this proxy by filing a subsequently dated proxy or by notifying the Secretary of
the Company of his or her decision to terminate this proxy.
The undersigned acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of the Meeting and a Proxy Statement dated
December 29, 1998.
Dated: , 199
------------------------------- ----
- ----------------------------------------- ------------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
- ----------------------------------------- ------------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this proxy card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
- --------------------------------------------------------------------------------
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE
ENCLOSED POSTAGE-PREPAID ENVELOPE.
- --------------------------------------------------------------------------------
EXHIBIT 1 -- 1997 ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
1997 ANNUAL REPORT
1910 SERVING THE COMMUNITY FOR 87 YEARS 1997
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC
<PAGE>
Dear Fellow Stockholder,
In 1997, the Savings Bank recorded a pre-tax income of $1.23 million compared to
pre-tax loss of $179,110 in 1996. The income in 1997 compared to a loss in 1996
is attributable to a decrease in federal insurance premium of $1.0 million which
included a one time payment into the deposit insurance fund(SAIF) of $845,000
during the 1996 period and a $333,000 increase in net interest income. The
corresponding after-tax earnings are $794,100 in 1997, and a $120,100 loss in
1996.
Net interest income increased by $333,000 or 7.8% to $4.6 million in 1997
compared to $4.3 million in 1996; provisions for loan losses decreased by
$41,300 in 1997, compared to $142,500 in 1996, resulting in an increase in net
interest income after provisions for loan losses of $374,000 to $4.5 million in
1997 compared to $4.1 million in 1996. Non-interest income decreased to $167,000
in 1997 compared to $180,000 in 1996, reflecting decreased collection of
mortgage late fees and DDA fees. Non-interest expense decreased $1.0 million to
$3.4 million in 1997 compared to $4.5 million in 1996, primarily because of a
decrease of $1.0 million in federal insurance premium which included the
$845,000 non-recurring special SAIF assessment paid in 1996.
Your bank was the unsuccessful bidder in an auction for 75% of the stock of a
small commercial bank based in Brooklyn, New York. The Board of Directors is
continuing to explore an initial public offering.
In closing, the loyalty and support of our stockholders and customers is deeply
appreciated by the Board of Directors, officers and staff. We pledge to you our
diligent efforts for the continued improvement of First Savings Bank in the
forthcoming year.
Emanuel M. Kontokosta Dr. H.S. Kostakopoulos
Chairman of the Board President and Chief Executive Officer
Nikos P. Mouyiaris Frederick J. Tedeschi
Vice Chairman Vice Chairman
<PAGE>
BUSINESS OF THE COMPANY
First Savings Bancorp of Little Falls, Inc. (the "Company" or "Bancorp") is a
savings and loan holding company incorporated under the laws of the State of New
Jersey in March 1993, for the sole purpose of acquiring all of the issued and
outstanding Common Stock of First Savings Bank of Little Falls, S.L.A. ("First
Savings" or the "Bank") in connection with the reorganization of the Bank into
the holding company form of organization (the "Reorganization"). On January 7,
1994, after receipt of all required approvals, the Reorganization was
consummated and common and preferred stock of the Savings Bank was exchanged on
a one-for-one basis for shares of the Corporation's Common and Preferred Stock.
On December 31, 1996, Preferred Stock shares were converted to Common Stock
shares on a one-for-ten basis. As of December 31, 1997, the unconsolidated
assets of the Company consisted of all of the issued and outstanding shares of
the Savings Bank's Common Stock, organizational costs of $15,509 and $17,882 in
cash. Therefore, the discussion regarding operating results refers to the
Savings Bank.
BUSINESS OF THE BANK
First Savings Bank of Little Falls, F.S.B. is a federally chartered stock
savings bank located in Little Falls, New Jersey. The Bank was founded in 1928
as the Singac Building & Loan Association. In 1940, the Bank changed its name to
The First Savings and Loan Association of Little Falls and effective November
17, 1992, the Bank's name became the First Savings Bank of Little Falls, S.L.A.
On April 29, 1994, the Bank became a federal savings bank. On May 6, 1994, the
Bank purchased from the RTC the deposits and other assets of a branch in Little
Ferry, Bergen County. The Savings Bank's deposits have been federally insured
since 1933 by the Savings Association Insurance Fund ("SAIF") and its
predecessor, the Federal Savings and Loan Insurance Corporation ("FSLIC"). The
Savings Bank has been a member of the Federal Home Loan Bank System since 1934.
On September 28, 1992, the Bank completed its conversion from a New Jersey
chartered mutual savings and loan association to a New Jersey chartered stock
savings association pursuant to the provisions under federal and state law for a
"modified" conversion from mutual to stock form (the "Conversion"). As part of
the Conversion, an Investor Group, consisting of Dr. Haralambos S.
Kostakopoulos, President, Emanuel M. Kontokosta - Chairman of the Board, and
Vice Chairmen Nikos P. Mouyiaris and Frederick J. Tedeschi, along with other
existing officers and directors of the Bank, purchased 56% of the Common Stock
issued in the Conversion. The Investor Group also purchased 100% of the $3.4
million of convertible Preferred Stock issued in the Conversion. As of December
31, 1996 the Preferred Stock was converted to Common Stock at a rate of one
share of Preferred Stock to 10 shares of Common Stock.
Page 1
<PAGE>
The Bank is primarily engaged in the business of attracting deposits from the
general public and using those deposits, together with other funds, to purchase
securities and to originate mortgage loans for the purchase or construction of
residential properties. To a lesser extent, the Bank also originates home
improvement loans and home equity lines of credit.
At December 31, 1997, the Bank had two active subsidiaries, The First Service
Corporation of Little Falls, a wholly-owned subsidiary acting as a general agent
selling annuities, and Redeem Inc., a wholly-owned subsidiary serving as a REO
subsidiary in connection with taking title to REO properties.. As of March 31,
1998, Redeem Inc. does not hold title to any property, and has no loans
outstanding from First Savings. Redeem has no significant assets or liabilities.
MARKET PRICE OF STOCK AND RELATED SECURITY HOLDER MATTERS
The Bancorp's Common Stock is not listed on any stock exchange or on the
National Association of Securities Dealers Automated Quotations System
("NASDAQ"). Approximately 90% of the Common Stock is held by current officers
and directors of the Bank and by an Investor Group consisting of Haralambos S.
Kostakopoulos President of the Savings Bank, Emanuel M. Kontokosta - Chairman of
the Board, and Vice Chairmen Nikos P. Mouyiaris and Frederick J. Tedeschi. The
market for the Common Stock is illiquid, with few purchases and sales of stock.
The last known sale of the Common Stock involved 500 shares at $14.00 a share on
May 6, 1994.
The ability of the Bancorp to pay dividends on its Common Stock is dependent
upon the ability of the Bank to pay dividends, since the Bancorp's main asset is
the stock of the Savings Bank. The ability of the Bank to pay dividends is
restricted by the regulations of the OTS and tax considerations. The Bank may
not pay dividends that would reduce the regulatory capital of First Savings
below the level required for institutions insured by SAIF or the liquidation
account created in connection with the Conversion. During 1997, a dividend of
$1.00 per share was declared to the owners of Common Stock.
There are 42 holders of the Common Stock of the Bancorp as of March 31, 1998.
Page 2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations is intended to assist you in understanding our financial condition
and results of operations. The information in this section should also be read
with our Consolidated Financial Statements and Notes to the Consolidated
Financial Statements elsewhere in this document.
Certain forward-looking statements contained herein are subject to risks and
uncertainties. The Company's actual results may differ materially from those set
forth in such forward-looking statements. Reference is made to the Company's
reports filed with the Securities and Exchange Commission for a discussion of
factors that may cause such differences to occur.
Our results of operations depend primarily on net interest income,
which is determined by (i) the difference between rates of interest we earn on
our interest-earning assets and the rates we pay on interest-bearing liabilities
(interest rate spread), and (ii) the relative amounts of interest-earning assets
and interest-bearing liabilities. Our results of operations are also affected by
non-interest income, including, primarily, income from customer deposit account
service charges, and non-interest expense, including, primarily, salaries and
employee benefits, federal deposit insurance premiums, office occupancy costs,
equipment, and loss on foreclosed real estate. Our results of operations also
are affected significantly by general and economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities, which events are beyond our control.
Asset/Liability Management
We seek to reduce our exposure to changes in interest rates by
maintaining a balance between assets and liabilities maturing within a one to
three-year time span. Our assets and liabilities may be analyzed by examining
the extent to which our assets and liabilities are interest rate sensitive and
by monitoring the expected effects of interest rate changes on our net portfolio
value.
An asset or liability is interest rate sensitive within a specific time
period, if it will mature or reprice within that time period. If our assets
mature or reprice more quickly or to a greater extent than our liabilities, our
net portfolio value and net interest income would tend to increase during
periods of rising interest rates but decrease during periods of falling interest
rates. Conversely, if our assets mature or reprice more slowly or to a lesser
extent than our liabilities, our net portfolio value and net interest income
would tend to decrease during periods of rising interest rates but increase
during periods of falling interest rates. Our policy has been to mitigate the
interest rate risk inherent in the historical savings institution business of
originating long-term loans funded by short-term deposits by pursuing certain
strategies designed to decrease the vulnerability of our earnings to material
and prolonged changes in interest rates.
Page 3
<PAGE>
Net Portfolio Value
In recent years, we have measured our interest rate sensitivity by
computing the "gap" between the assets and liabilities which were expected to
mature or reprice within certain time periods, based on assumptions regarding
loan prepayment and deposit decay rates formerly provided by the OTS. However,
the OTS now requires the computation of amounts by which the net present value
of an institution's cash flow from assets, liabilities and off balance sheet
items (the institution's net portfolio value or "NPV") would change in the event
of a range of assumed changes in market interest rates. These computations
estimate the effect on an institution's NPV from instantaneous and permanent 1%
to 4% increases and decreases in market interest rates. Our Board of Directors
has adopted an interest rate risk policy which establishes maximum decreases in
our estimated NPV of 11%, 23%, 28% and 37% in the event of 1%, 2%, 3% and 4%
increases and decreases in market interest rates, respectively. At December 31,
1997, based on information provided by the OTS, it was estimated that our NPV
would decrease 17%, 36%, 57% and 77% and increase 15%, 30%, 46% and 68% in the
event of 1%, 2%, 3%, and 4% increases and decreases in market rates,
respectively. These calculations indicate that our net portfolio value could be
adversely affected by increases in interest rates but could be favorably
affected by decreases in interest rates. Changes in interest rates also may
affect our net interest income, while increases in rates expected to decrease
income and decreases in rates expected to increase income, our interest-bearing
liabilities would be expected to mature or reprice more quickly than our
interest-earning assets. In addition, we would be deemed to have more than a
normal level of interest rate risk under applicable regulatory capital
requirements.
While we cannot predict future interest rates or their effects on our
NPV or net interest income, we do not expect current interest rates to have a
material adverse effect on our NPV or net interest income in the future.
Computations of prospective effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, prepayments and deposit run-offs and should not be relied upon as
indicative of actual results. Certain shortcomings are inherent in such
computations. Although certain assets and liabilities may have similar maturity
or periods of repricing they may react at different times and in different
degrees to changes in the market interest rates. The interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while rates on other types of assets and liabilities may lag
behind changes in market interest rates. Certain assets, such as adjustable rate
mortgages, generally have features which restrict changes in interest rates on a
short term basis and over the life of the asset. In the event of a change in
interest rates, prepayments and early withdrawal levels could deviate
significantly from those assumed in making calculations set forth above.
Additionally, an increased credit risk may result as the ability of many
borrowers to service their debt may decrease in the event of an interest rate
increase.
The board of directors is responsible for reviewing our asset and
liability policies. The Board of Directors meets quarterly to review interest
rate risk and trends, as well as liquidity and capital ratios and requirements.
Management is responsible for administering the policies and determinations of
the Board of Directors with respect to our asset and liability goals and
strategies. Management expects that our asset and liability policies and
strategies will continue as described above so long as competitive and
regulatory conditions in the financial institution industry and market interest
rates continue as they have in recent years.
Page 4
<PAGE>
Financial Condition
Our total consolidated assets increased by $11.4 million or 6.8% from
$166.7 million at December 31, 1996 to $178.1 million at December 31, 1997. Our
total liabilities increased $10.9 million or 6.9% from $157.4 million at
December 31, 1996 as compared to $168.3 million at December 31, 1997. The
increase in assets primarily reflects the Company deployment of proceeds from a
reduction in interest bearing deposits, sales of and repayments received on
securities available for sale, and deposit growth into our loan portfolio, and
investment securities held to maturity. Comparing balances from December 31,
1997 to 1996, we increased our loan receivable by $10.7 million, our investment
securities held to maturity increased by $17.6 million, interest bearing
deposits decreased by $7.8 million, and investment securities available for sale
decreased by $6.3 million. Deposits increased $10.2 million and our borrowed
funds increased $551,000.
Results Of Operations for the Years Ending December 31, 1997 and 1996
Net Income(Loss). Net income(loss) increased $914,000 from a loss of
$120,000 for 1996 to an income of $794,000 for 1997. The increase was primarily
the result of a decrease in federal deposit insurance premium of $1.0 million
and increased net interest income.
Net income(loss) decreased $483,000 or 133% from income of $363,000 for 1995 to
a loss of $120,000 for 1996. The decrease was primarily the result of the
recognition of the one-time SAIF special insurance assessment in the amount of
$541,000(after taxes). Excluding the SAIF special assessment, net income would
have increased $58,000 or 16% from 1995.
Net Interest Income. Net interest income is the most significant
component of our income from operations. Net interest income is the difference
between interest we receive on our interest-earning assets (primarily loans,
investment and mortgage-backed securities) and interest we pay on our
interest-bearing liabilities (primarily deposits and borrowed funds). Net
interest income depends on the volume of and rates earned on interest-earning
assets and the volume of and rates paid on interest-bearing liabilities.
The following table sets forth a summary of average balances of assets
and liabilities with corresponding interest income and interest expense as well
as average yield and cost information. Average balances are derived from monthly
balances, however, we do not believe the use of month-end balances has caused
any material difference in the information presented. There have been no tax
equivalent adjustments made to the yields.
Page 5
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET
Year Ended December 31,
---------------------------------------------------------------------------------
------------------------ -------------------------- ------------------------
1997 1996 1995
------------------------ -------------------------- ------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable (1) $101,389 $8,639 8.52 % $88,162 $7,686 8.72 % $75,220 $6,788 9.02 %
Mortgage-backed secruities 28,318 1,811 6.40 30,498 1,936 6.35 18,445 1,160 6.29
Other interest earnings assets 34,230 2,257 6.59 30,024 1,833 6.11 37,230 2,394 6.43
------- ------ ------- ------ ------- ------
Total interest-earning
assets 163,937 12,707 7.75 148,684 11,455 7.70 130,895 10,342 7.90
------- ----- ------- ----- ------- ----
Non-interest-earning assets 9,158 9,801 10,419
------ ------ ------
Total assets $173,095 $158,485 $141,314
======== ======== ========
Interest-bearing
liabilities:
Savings accounts $23,574 796 3.38 $22,435 754 3.36 $22,591 756 3.35
NOW and Money Market 14,760 365 2.47 14,515 364 2.51 15,368 410 2.67
Time Deposits 123,927 6,923 5.59 100,479 5,475 5.45 91,505 4,929 5.39
Borrowed money 305 20 6.56 10,768 592 5.50 2,225 131 5.89
---- --- ------- ---- ------ ----
Total Interest-bearing
liabilities 162,566 8,104 4.99 148,197 7,185 4.85 131,689 6,226 4.73
------ ----- ------ ----- ------ ----
Non-interest-bearing liabilities 830 574 228
---- ---- ---
Total liabilities 163,396 148,771 131,917
Retained Earnings 9,699 9,714 9,397
------ ------ -----
Total liabilities and retained
earnings $173,095 $158,485 $141,314
========= ========= =========
Net interest income $4,603 $4,270 $4,116
======= ======== =======
Interest rate spread 2.76 % 2.85 % 3.17 %
======== ========= ========
Net yield on
Interest-earnings
assets 2.81 % 2.87 % 3.14 %
======== ========= ========
Ratio of average interest-earning
assets to average
interest-bearing
liabilities 1.0084 x 1.0033 x 0.9940 x
======== ========= ========
</TABLE>
(1) Includes non-accrual loans.
(1) Average balances include non-accrual loans.
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
Page 6
<PAGE>
The table below sets forth information regarding changes in our
interest income and interest expense for the periods indicated. For each
category of our interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in volume multiplied by old rate); (ii) changes in rate (changes in
rate multiplied by old volume); (iii) changes in rate-volume (changes in rate
multiplied by the change in volume). Increases and decreases due to both rate
and volume, which cannot be segregated, have been allocated proportionately to
the change due to volume and change due to rate.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
------------------------------- ----------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Due to
------------------------------- ----------------------------------
Volume Rate Net Volume Rate Net
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable $1,153 ($200) $953 $1,168 ($270) $898
Mortgage-backed securities (138) 13 (125) 758 18 776
Other interest earning assets 257 167 424 (463) (98) (561)
---- ---- ---- ----- ---- -----
Total interest-earning assets $1,272 ($20) $1,252 $1,463 ($350) $1,113
=============================== ==================================
Interest expense:
Savings accounts $38 $4 $42 ($5) $3 ($2)
NOW and money market 6 (5) 1 (22) (24) (46)
Time deposits 1,278 170 1,448 482 64 546
Borrowed money (575) 3 (572) 503 (42) 461
----- -- ----- ---- ---- ---
Total interest-bearing 747 172 919 958 1 959
=============================== ==================================
liabilities
Net change $525 ($192) $333 $504 ($350) $154
=============================== ==================================
</TABLE>
Our net interest income increased $333,000 or 7.8% to $4.6 million in
1997 compared to $4.3 million in 1996. The increase was due primarily to an
increase of $884,000 in average net interest-earning assets, partially offset by
a decline in our interest rate spread from 2.85% in 1996 to 2.76% in 1997. The
decline in our interest rate spread had a corresponding impact on our net
interest margin which declined 6 basis points to 2.81% in 1997.
The increase in our average interest-earning assets of $15.3 million
reflects an increase of $13.2 million in average loans, an decrease of $2.2
million in average mortgage-backed securities and a increase of $4.2 million in
other average interest-earning assets which is made up of small business loan
securities, investment securities, and interest bearing deposits held at banks.
Offsetting the foregoing was an increase of $14.4 million in average
interest-bearing liabilities, reflecting a $24.8 million increase in average
interest-bearing deposits, primarily time deposits, offset by a $10.5 million
decrease in borrowed money.
Page 7
<PAGE>
Our interest rate spread and net interest margin decreased in 1997
compared to 1996. This was due to a increase in the yield on average
interest-earning assets from 7.70% in 1996 to 7.75% in 1997 and an increase in
the interest cost of average interest-bearing liabilities from 4.85% in 1996 to
4.99% in 1997.
The yield on our average interest-earning assets increased in 1997 due
the deployment of interest bearing deposits into loans and other interest
bearing assets, offset by a slight decrease in yield on loans. As general market
rates of interest were relatively stable during 1996 and 1997, the decline in
the yield on our loans in 1997 reflected the impact of competition for new loan
originations.
The increase in the cost of our average interest-bearing liabilities
was due primarily to a growth in deposits toward certificates of deposits, which
have a higher cost then demand and savings deposits. While the cost of time
deposits rose from 5.45% in 1996 to 5.59% in 1997, the cost of non-certificates
accounts remained steady at 3.03%. The increase in the cost of time deposits
reflects desire for growth and increased competition. The increase in deposits
allowed the Bank to reduce its reliance on borrowed money.
Our net interest income increased $154,000 or 3.7% to $4.3 million in
1996 compared to $4.1 million in 1995. The increase was due primarily to the
growth of average interest-earning assets from $130.9 million in 1995 to $148.7
million in 1996, partially offset by a $16.5 million increase in average
interest-bearing liabilities and a decline in our interest rate spread from
3.17% in 1995 to 2.85% in 1996. The decline in our interest rate spread had a
corresponding impact on our net interest margin which declined 27 basis points
to 2.87% in 1996.
The increase in our average interest-earning assets of $17.8 million
reflects an increase of $12.9 million in average loans, an increase of $12.0
million in average mortgage-backed securities and a decrease of $7.2 million in
other average interest-earning assets which is made up of small business loan
securities, investment securities, and interest bearing deposits held at banks.
Our interest rate spread and net interest margin decreased in 1996
compared to 1995. This was due to a decline in the yield on average
interest-earning assets from 7.90% in 1995 to 7.70% in 1996 and an increase in
the interest cost of average interest-bearing liabilities from 4.73% in 1995 to
4.85% in 1996.
The yield on our average interest-earning assets decreased in 1996 due
to a decline in the yield on loans and, other interest earning assets, offset by
a slight increase in yield on mortgage-backed securities. As general market
rates of interest were relatively stable during 1995 and 1996, the decline in
the yield on our loans in 1996 reflected the impact of competition for new loan
origination's.
Page 8
<PAGE>
The increase in the cost of our average interest-bearing liabilities
was due primarily to a shift in deposits toward certificates of deposits, which
have a higher cost the demand deposits. The cost of NOW and Money Market
accounts fell from 2.67% in 1995 to 2.51% in 1996, and borrowed money fell from
5.89% in 1995 to 5.50% in 1996, while the cost of time deposits rose from 5.39%
in 1995 to 5.45% in 1996. The lower costs of NOW and Money Market accounts
reflects our reduction of deposit rates to match the decrease in interest rates
during 1996 and the decrease in the cost of borrowings reflects the reduction in
average advances from the Federal Home Loan Bank and the decrease in interest
rates. The increase in the cost of time deposits reflects increased competition.
Provision for Loan Losses. We recorded a provision for loan losses of
$101,000 in 1997 compared with $143,000 in 1996 and a loan loss provision of
$80,000 in 1995. The increase in our provision for loan losses in 1997, 1996,
and 1995 reflects the increase in the size of our loan portfolio due to internal
loan growth, purchase of residential loans and the increase in our
non-performing loan portfolio.
Historically, we have emphasized our loss experience over other factors
in establishing the provision for loan losses. We review the allowance for loan
losses in relation to: (i) the composition of our loan portfolio, (ii)
observations of the general economic climate and (iii) loan loss expectations
(identification of impaired loans and the establishment of specific loan loss
allowances on such loans).
We will continue to monitor our allowance for loan losses and make
future adjustments to the allowance through the provision for loan losses as
economic conditions dictate. We maintain an allowance for loan losses at a level
that we consider to be adequate to provide for the inherent risk of loss in our
loan portfolio, however, there can be no assurance that future losses will not
exceed estimated amounts or that additional provisions for loan losses will not
be required in future periods. In addition, our determination as to the amount
of our allowance for loan losses is subject to review by the OTS, as part of the
examination process, which may result in the establishment of an additional
allowance based upon the judgment of the OTS after review of the information
available at the time of the OTS examination.
Non-Interest Income. Our non-interest income decreased $13,000 in 1997
or 7.3% from $180,000 for the year ended December 31, 1996 to $167,000 for the
year ended December 31, 1997. The decrease was primarily a result of an decrease
in miscellaneous non-interest income from $86,000 in 1996 to $68,000 in 1997.
This decrease was due to an decrease in collection of mortgage late charges
during 1996. The decrease was partially offset by a increase in gain on sales of
securities of $4,000.
Our non-interest income increased $20,000 in 1996 or 12.5% from
$160,000 for the year ended December 31, 1995 to $180,000 for the year ended
December 31, 1996. The increase was primarily a result of an increase in
miscellaneous non-interest income from $72,000 in 1995 to $86,000 in 1996. This
increase was due to an increase in collection of mortgage late charges during
1996.
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<PAGE>
Non-Interest Expense. Our non-interest expense decreased by $1.049
million or 23% from $4.49 million for 1996 to $3.44 million for 1997. The
increase was primarily attributable to a decrease of federal deposit insurance
premium of $1.03 million which included the one-time special SAIF assessment of
$845,000 paid in 1996. Pursuant to the Economic Growth and Paperwork Reduction
Act of 1996 (the "Act"), the FDIC imposed a special assessment on SAIF members
to capitalize the SAIF at the designated reserve level of 1.25% as of October 1,
1996. Based on our deposits as of March 31, 1995, the date for measuring the
amount of the special assessment pursuant to the Act, our special assessment was
$845,000. Due to the recapitalization of the SAIF, we experienced lower premiums
for deposits in 1997 and expect continued lower premiums for deposit insurance
in future periods. See Form 10-K, "Regulation - Regulation of the Bank -
Insurance of Deposit Accounts."
Pursuant to the Act, we pay, in addition to our normal deposit
insurance premium as a member of the SAIF, an annual amount equal to
approximately 6.4 basis points of outstanding SAIF deposits toward the
retirement of the Financing Corporation Bonds ("Fico Bonds") issued in the
1980's to assist in the recovery of the savings and loan industry. Members of
the Bank Insurance Fund ("BIF"), by contrast, pay, in addition to their normal
deposit insurance premium, approximately 1.3 basis points. Beginning no later
than January 1, 2000, the rate paid to retire the Fico Bonds will be equal for
members of the BIF and the SAIF. The Act also provides for the merging of the
BIF and the SAIF by January 1, 1999 provided there are no financial institutions
still chartered as savings associations at that time. Should the insurance funds
be merged before January 1, 2000, the rate paid by all members of this new fund
to retire the Fico Bonds would be equal.
In addition, our salaries and employee benefits increased by $89,000 or
6.5% in 1997 compared to 1996. The increase was a result of some staff increases
in our loan area to accommodate our loan growth. Loss on foreclosed real estate
decreased $235,000 in 1997 as compared to 1996. The decrease was due to $37,000
of loss provisions in 1997 compared to $257,000 of loss provisions in 1996. Our
legal fees increased $128,000 in 1997 as compared to 1996. This increase was the
result of legal fees in connection with a unsuccessful bid to purchase 75% of
the stock of a small commercial Bank based in Brooklyn, New York. The Bank is no
longer pursuing the purchase and should not incur any legal fees regarding this
matter in 1998. Exclusive of the items specifically discussed above, other
elements of non-interest expense totalled $1.44 million in 1997, an increase of
1.4% over the $1.42 million in 1996.
Our non-interest expense increased by $1.03 million or 30% from $3.46
million for 1995 to $4.49 million for 1996. The increase was primarily
attributable to the one-time special SAIF assessment of $845,000. Pursuant to
the Economic Growth and Paperwork Reduction Act of 1996 (the "Act"), the FDIC
imposed a special assessment on SAIF members to capitalize the SAIF at the
designated reserve level of 1.25% as of October 1, 1996. Based on our deposits
as of March 31, 1995, the date for measuring the amount of the special
assessment pursuant to the Act, our special assessment was $845,000.
Page 10
<PAGE>
In addition, our salaries and employee benefits decreased by $61,000 in
1996 compared to 1995. The decrease was a result of some staff reduction through
normal attrition and reduced medical benefits expense. Equipment expense
decreased by $21,000 in 1996 as compared to 1995. Equipment costs increased in
1995 due to the acquisition of Little Ferry Branch in fiscal 1994. There were no
branch acquisitions in 1996. Our legal fees increased $48,000 in 1996 as
compared to 1995. This increase was the result of increased legal fees in
connection with a lawsuit involving one of our real estate owned properties. The
suit was settled in 1996 and did not have a material affect on our consolidated
financial statements. See Form 10-K, "Real Estate Owned".
Income Tax Expense. We recognized an income tax expense of $436,000 for
1997 compared to a tax benefit of $59,000 in 1996. The $495,000 increase was the
result of pre-tax loss of $179,000 in 1996 versus pre-tax income of $794,000 in
1997.
Liquidity and Capital Resources
We are required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which varies from time to time depending
upon economic conditions and deposit flows, is based upon a percentage of our
deposits and short term borrowings. The required ratio currently is 4.0% and our
liquidity ratio average was 14.5% and 37.7% at December 31, 1996 and 1997,
respectively.
Our primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investments and interest-bearing
deposits, funds provided from operations and advances from the FHLB of New York.
While scheduled repayments of loans and mortgage-backed securities and
maturities of investment securities are predicable sources of funds, deposit
flows and loan prepayments are greatly influenced by the general level of
interest rates, economic conditions and competition. We use our liquidity
resources principally to fund existing and future loan commitments, to fund
maturing certificates of deposit and demand deposit withdrawals, to invest in
other interest-earning assets, to maintain liquidity, and to meet operating
expenses.
Net cash provided by our operating activities for the year ended
December 31, 1997 totalled $1.4 million as compared to $1.3 million for the year
ended December 31, 1996 and $784,000 for the year ended December 31, 1995.
Net cash used in our investing activities for the year ended December
31, 1997 totalled $18.8 million an increase of $14.8 million from December 31,
1996. The increase was primarily attributable to a $10.1 million excess of loan
originations over repayments in 1997 compared to $2.9 million in 1996 and a
decrease of $8.0 million in net proceeds from calls of investment securities.
Net cash used in our investing activities for the year ended December 31, 1996
totalled $4.0 million a decrease of $19.4 million from December 31, 1995. The
decrease was primarily attributable to an increase of $17.3 million of net
proceeds from calls and sales of investment securities and mortgage-backed
securities.
Net cash provided by our financing activities for 1997 totalled $10.4
million. This was primarily the result of a net increase in deposits of $10.2
million. Net cash provided by our financing activities for 1996 totalled $12.2
million. This was the result of a net increase in deposits of $25.0 million
offset by a repayment of FHLB advances of $12.6 million.
Page 11
<PAGE>
Liquidity may be adversely affected by unexpected deposit outflows,
excessive interest rates paid by competitors, adverse publicity relating to the
savings and loan industry, and similar matters. Further, the disparity in Fico
Bond interest payments as described herein could result in us losing deposits to
BIF members that have lower costs of funds and therefore are able to pay higher
rates of interest on deposits. Management monitors projected liquidity needs and
determines the level desirable, based in part on our commitments to make loans
and management's assessment of our ability to generate funds. We are also
subject to federal regulations that impose certain minimum capital requirements.
Impact of Inflation and Changing Prices
Our consolidated financial statements and the accompanying notes
presented elsewhere in this document, have been prepared in accordance with
generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation. The impact of inflation is reflected in the increased cost of
our operations. Unlike most industrial companies, nearly all our assets and
liabilities are monetary. As a result, interest rates have a greater impact on
our performance than do the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
Recent Accounting Pronouncements
FASB Statement on Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities. In June 1996, FASB issued SFAS No.
125, which will be effective, on a prospective basis, for fiscal years beginning
after December 31, 1996. SFAS No. 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities based on consistent application of a financial-components approach
that focuses on control. SFAS No. 125 extends the "available for sale" and
"trading" approach of SFAS No. 115 to non-security financial assets that can be
contractually prepaid or otherwise settled in such a way that the holder of the
asset would not recover substantially all of its recorded investment. In
addition, SFAS No. 125 amends SFAS No. 115 to prevent a security from being
classified as held to maturity if the security can be prepaid or settled in such
a manner that the holder of the security would not recover substantially all of
its recorded investment. The extension of the SFAS No. 115 approach to certain
non-security financial assets and the amendment to SFAS No. 115 are effective
for financial assets held on or acquired after January 1, 1997. The FASB has
deferred the effective date of SFAS No. 125 until January 1, 1998 for certain
transactions including repurchase agreements, dollar-roll, securities lending
and similar transactions. FASB 125 will not have a material effect on our
financial statements.
Page 12
<PAGE>
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income". Statement No. 130 requires that all items that are components of
"comprehensive income" be reported in a financial statement that is displayed
with the same prominence as other financial statements. Comprehensive income is
defined as the "change in equity [net assets] of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. It includes all changes in equity during period except those resulting
from investments by owners and distributions to owners. Companies will be
required to (a) classify items of other comprehensive income by their nature in
the financial statements and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. Statement
No. 130 is effective for fiscal years beginning after December 15, 1997 and
requires reclassification of prior periods presented and requires
reclassification of prior periods presented. As the requirements of Statement
No. 130 is effective for fiscal years beginning after December 15, 1997 and
requires reclassification of prior periods presented. As the requirements of
Statement No. 130 are disclosure-related, its implementation will have no impact
on the Corporation's consolidated financial condition or results of operations.
Year 2000
The Year 2000 issue concerns the potential impact of historic computer
software code that only utilitizes two digits to represent the calendar
year(e.g. "98" for "1998"). Software so developed could produce inaccurate or
unpredictable results upon the change to January 1, 2000, when current and
future dates represent a lower two digit year number than date in the prior
century. The Bank, similar to most financial institutions, is significantly
subject to the potential impact of the "Year 2000 issue" due to the nature of
financial informatio9n. Potential impact to the Bank may arise from software,
hardware, and equipment both within the Bank's direct control and outside of the
Bank's ownership. Yet with which the Bank electronically or operationally
interfaces (e.g. vendors providing credit bureau information). The Bank has a
year 2000 compliance program in place to ensure that all software applications
will be year 2000 certified compliant. Management expects that it will be able
to satisfy year 2000 compliance issues by the end of 1998. Management intends to
perform testing on all systems throughout 1998 and 1999. The Bank does not
expect that the cost of its year 2000 compliance program will be material to its
financial condition or results of operations. Non-compliance with the year 2000
issue could have an adverse affect of the operations of the business.
Page 13
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
At or for the year ended DECEMBER 31,
1997 1996 1995 1994 1993
(In thousands except for per share amounts )
<S> <C> <C> <C> <C> <C>
TOTAL AMOUNT OF :
TOTAL ASSETS $178,144 $166,734 $154,635 $133,730 $130,574
LOANS RECEIVABLE, 105,467 94,733 85,836 74,277 76,918
SECURITIES AVAILABLE FOR SALE 31,226 37,507 35,964 -- 15,893
MORTGAGE-BACKED 10,415 12,805 2,545 18,289 4,035
SECURITIES HELD TO
MATURITY
INVESTMENT 19,644 2,000 19,000 28,120 10,443
SECURITIES,
HELD TO MATURITY
CASH & CASH EQUIVALENTS 3,683 10,673 1,128 3,559 12,345
DEPOSITS 166,759 156,596 131,636 123,656 115,494
BORROWED MONEY 551 -- 12,600 -- 5,000
STOCKHOLDERS EQUITY 9,864 9,332 9,597 9,177 9,041
NET INTEREST INCOME 4,603 4,270 4,116 3,922 3,980
NET INCOME(LOSS) 794 (120) 363 499 2,500
DILUTED EARNINGS PER COMMON SHARE $1.80 ($0.27) $0.82 $1.13 $5.68
COMMON STOCK DIVIDENDS DECLARED $1.00 -- $0.50 $0.50 --
RETURN ON AVERAGE ASSETS 0.46% -0.08% 0.26% 0.38% 1.90%
RETURN ON AVERAGE EQUITY 8.19% -1.24% 3.86% 5.43% 32.22%
DIVIDEND PAYOUT RATIO (1) 55.42% -- 25.95% 15.20% 0.00%
AVERAGE EQUITY TO AVERAGE ASSETS 5.60% 6.13% 6.65% 6.94% 5.88%
RATIO
</TABLE>
(1) Common stock dividends declared as a percentage of net income applicable to
common shares.
<PAGE>
CORPORATE DATA
Directors
Emanuel M. Kontokosta
Chairman of the Board
Principal Owner of Kontokosta
Associates, New York, New York;
an architectural and engineering firm
Dr. H. S. Kostakopoulos
President and CEO of First Savings
Bank of Little Falls, F.S.B.
Nikos P. Mouyiaris
Vice Chairman
Chairman - Executive Committee
Owner and President of Mana Products, Long Island City, New York;
a cosmetics firm
Frederick J. Tedeschi, Esq.
Vice Chairman
Chairman - Investment Committee
Self-employed attorney and Town
Justice, Southold, New York
- - -------
Transfer Agent
First Savings Bank of Little Falls, F.S.B.
Officers
Dr. H. S. Kostakopoulos
President & Chief Executive Officer
Brian McCourt
Vice President/Controller, Treasurer
Carlo Pascetta
Senior Loan Officer
John Christensen
Assistant Vice President
Manager/Branch Administration
Pamela E. Skurat
Assistant Vice President
Manager/Loan Administration
Veronica Kingsley
Assistant Vice President
Quality Control
Jo-Ann Palmere
Assistant Secretary
Manager - Main Branch
Elizabeth A. Gallagher
Assistant Secretary
Manager - Singac Branch
Lois D'Ambrosia
Manager - Little Ferry Branch
Sarina Matos
Assistant Vice President
Corporate Secretary
Compliance Officer
<PAGE>
Auditors
Radics & Co., LLC.
P.O. Box 676
U.S. Highway 46 East
Pine Brook, New Jersey 07058
General Counsel
McCarter & English
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
Special Securities Counsel
Malizia, Spidi, Sloane & Fisch, P.C.
1301 K Street, NW
Suite 700 East
Washington, D.C. 20005
Annual Meeting
The Annual Meeting of Stockholders will be held on April 21, 1998 at Corporate
Headquarters, 1 Center Avenue, Little Falls, New Jersey.
10-KSB Information
A copy of Form 10-KSB including financial statement schedules as filed with the
Securities and Exchange Commission will be furnished without charge to
stockholders as of the record date upon written request to the Secretary, First
Savings Bank of Little Falls, F.S.B., 1 Center Avenue, Little Falls, New Jersey
07424.
Corporate Office
1 Center Avenue
Little Falls, New Jersey 07424
973-256-2100
Branches
115 Main Street
Little Falls, New Jersey 07424
973-256-2100
123 Route 23
Singac, New Jersey 07424
973-256-2100
Little Ferry
100 Washington Avenue
Little Ferry, NJ 07643
201-641-6755
Loan Center
1 Center Avenue
Little Falls, New Jersey 07424
973-256-2100
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(With Independent Auditor's Report Thereon)
December 31, 1997
------------------------------------
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(With Independent Auditor's Report Thereon)
December 31, 1997
--------------------------------------------------------------
INDEX
-----
Page
----
Management Responsibility Statement 1
Independent Auditors' Report 2
Consolidated Statements of Financial Condition as of
December 31, 1997 and 1996 3
Consolidated Statements of Operations for Each of the Years in the
Three-Year Period Ended December 31, 1997 4
Consolidated Statements of Changes in Stockholders' Equity for
Each of the Years in the Three-Year Period Ended December 31, 1997 5
Consolidated Statements of Cash Flows for each of the Years in the
Three-Year Period Ended December 31, 1997 6 - 7
Notes to Consolidated Financial Statements 8 - 32
All schedules are omitted because they are not required or applicable or the
required information is shown in the consolidated financial statements or the
notes thereto.
<PAGE>
February 20, 1997
MANAGEMENT RESPONSIBILITY STATEMENT
Management of First Savings Bancorp of Little Falls, and its subsidiaries is
responsible for the preparation of the consolidated financial statement and all
other consolidated financial information included in this report. The
consolidated financial statements were prepared in accordance with generally
accepted accounting principles applied on a consistent basis. All consolidated
financial information included in this report agrees with the consolidated
financial statements. In preparing the consolidated financial statements,
management makes informed estimates and judgments, with consideration given to
materiality, about the expected result of various events and transactions.
Management maintains a system of internal accounting control that includes
personnel selection, appropriate division of responsibilities and formal
procedures and policies consistent with high standards of accounting and
administrative practice. Consideration has been given to the necessary balance
between costs of systems of internal control and the benefits derived.
Management reviews and modifies its systems of accounting and internal control
in light of changes in conditions and operations as well as in response to
recommendations from independent certified public accountants. Management
believes the accounting and internal control systems provide reasonable
assurance that assets are safeguarded and financial information is reliable.
The Board of Directors (the "Board") is responsible for determining that
management fulfills its responsibilities in the preparation of the consolidated
financial statements and in the control of operations. The Board appoints the
independent certified public accountants, approves the overall scope of audit
work and related fee arrangements and reviews audit reports and finding.
/s/ Dr. H.S. Kostakopoulos
---------------------------------------
Dr. H.S. Kostakopoulos
President and Chief Executive Officer
/s/ Brian Mccourt
----------------------------------------
Brian Mccourt
Vice President, Treasurer and Controller
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Board of Directors and Stockholders
First Savings Bancorp of Little Falls, Inc.
Little Falls, New Jersey
We have audited the accompanying consolidated statements of financial condition
of First Savings Bancorp of Little Falls, Inc. (the "Corporation") and
Subsidiaries as of December 31, 1997 and 1996 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in the second
preceding paragraph present fairly, in all material respects, the consolidated
financial position of First Savings Bancorp of Little Falls, Inc. and
Subsidiaries at 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/Radics & Co., LLC
February 20, 1998
2.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITIONS
-----------------------------------------------
<TABLE>
<CAPTION>
December 31,
-----------------------------------
Assets Note (s) 1997 1996
- - ------ ------------------- ----------------- ----------------
<S> <C> <C> <C>
Cash and amounts due from depository institutions $ 2,142,413 $ 1,319,813
Interest-bearing deposits in other banks 1,540,810 9,353,526
----------------- ----------------
Total and cash and cash equivalents 1 and 21 3,683,223 10,673,339
Securities available for sale 1, 4, 12 and 21 31,226,440 37,506,700
Investment securities held to maturity 1, 5 and 21 19,643,589 2,000,000
Mortgage-backed securities held to maturity 1, 6, 12 and 21 10,414,679 12,805,191
Loans receivable 1, 7 and 21 105,467,485 94,732,642
Real estate owned 1 and 8 1,640,004 2,906,034
Premises and equipment 1 and 9 2,775,060 2,956,315
Federal Home Loan Bank of New York stock 12 1,106,600 925,600
Interest receivable 1, 7, 10 and 21 1,379,628 1,110,765
Other assets 1 and 14 807,631 1,117,511
----------------- ----------------
Total assets $ 178,144,339 $ 166,734,097
================= ================
Liabilities and stockholders' equity
- - ------------------------------------
Liabilities
- - -----------
Deposits 11 and 21 $ 166,758,857 $ 156,596,114
Borrowed money 12 and 21 551,132 -
Advance payments by borrowers for taxes and insurance 769,354 633,815
Other liabilities 200,537 171,920
----------------- ----------------
Total liabilities 168,279,880 157,401,849
----------------- ----------------
Commitments and contingencies 17, 18 and 21 - -
Stockholders' equity 1, 3, 13 and 14
- - --------------------
Preferred stock - par value $0.01 per share; authorized
1,000,000 shares; issued and outstanding -0- shares - -
Common stock - par value $1.00 per share;
authorized 5,000,000 shares;
issued and outstanding 440,100 shares 440,100 440,100
Paid-in capital 3,670,377 3,670,377
Retained earnings - substantially restriced 5,458,904 5,062,392
Unrealized gain on securities available for sale, net 295,078 159,379
----------------- ----------------
Total stockholders' equity 9,864,459 9,332,248
----------------- ----------------
Total liabilities and stockholders' equity $ 178,144,339 $ 166,734,097
================= ================
</TABLE>
See notes to consolidated financial statements.
3.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
Note (s) 1997 1996 1995
--------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C>
Interest income:
Loans 1 and 7 $ 8,638,815 $ 7,686,356 $ $ 6,788,274
Mortgage-backed securities 1 1,810,796 1,935,936 1,160,130
Investments 1 1,853,970 1,730,414 2,024,582
Other interest-earning assets 403,835 102,974 368,823
-------------- --------------- -----------------
Total interest income 12,707,416 11,455,680 10,341,809
-------------- --------------- -----------------
Interest expense:
Deposits 11 8,083,690 6,593,393 6,094,747
Borrowed money 20,332 591,823 131,038
-------------- --------------- -----------------
Total interest expense 8,104,022 7,185,216 6,225,785
-------------- --------------- -----------------
Net interest income 4,603,394 4,270,464 4,116,024
Provision for loan losses 1 and 7 101,174 142,500 80,228
-------------- --------------- -----------------
Net interest income after provision for loan losses 4,502,220 4,127,964 4,035,796
-------------- --------------- -----------------
Non-interest income:
Fees and service charges 90,980 90,606 92,622
Gain (loss) on calls and sales of securities 1, 4, 5 and 6 7,836 3,575 (4,808)
Miscellaneous 68,060 85,884 71,886
-------------- --------------- -----------------
Total non-interest income 166,876 180,065 159,700
-------------- --------------- -----------------
Non-interest expenses:
Salaries and employee benefits 15 1,457,573 1,368,656 1,429,664
Net occupancy expense of premises 1 243,005 245,327 241,138
Equipment 1 375,333 361,738 382,817
Loss on foreclosed real estate 1 and 8 161,599 396,168 156,663
Federal insurance premium 18 98,312 1,130,410 307,671
Advertising and promotion 104,217 101,070 84,977
Consulting fees 121,928 113,202 136,708
Legal fees 276,148 170,763 123,141
Amortization of intangibles 1 33,336 33,336 33,333
Miscellaneous 567,160 566,469 560,930
-------------- --------------- -----------------
Total non-interest expenses 3,438,611 4,487,139 3,457,042
-------------- --------------- -----------------
Income (loss) before income taxes (benefit) 1,230,485 (179,110) 738,454
Income taxes (benefit) 1 and 14 436,373 (59,039) 375,568
-------------- --------------- -----------------
Net income (loss) 794,112 (120,071) 362,886
Preferred stock dividends - 170,000 170,000
-------------- --------------- -----------------
Net income (loss) applicable to common shares $ 794,112 $ (290,071) $ 192,886
============== =============== =================
Net income (loss) per common share: 1 and 16
Basic $ 1.80 $ (2.90) $ 1.93
Diluted 1.80 (0.27) 0.82
============== =============== =================
Dividends declared per common share 3 $ 1.00 $ - $ 0.50
============== =============== =================
</TABLE>
See notes to consolidated financial statements.
4.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Retained (Gain) Loss
Earnings - on Securities Total
Preferred Common Paid-in Substantially Available for Stockholders'
Stock Stock Capital Restricted Sale, Net Equity
------------ ------------ -------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1995 $ 340 $ 100,100 $ 4,010,037 $ 5,209,627 $ (142,989) $ 9,177,115
Net income for the year
ended December 31, 1995 - - - 362,886 - 362,886
Unrealized loss on
securities available
for sale, net of
income tax effect - - - - 276,958 276,958
Dividend on preferred stock - - - (170,000) - (170,000)
Dividend on common stock - - - (50,050) - (50,050)
------------ ------------ -------------- --------------- -------------- -----------------
Balance - December 31, 1995 340 100,100 4,010,037 5,352,463 133,969 9,596,909
Net (loss) for the year
ended December 31, 1996 - - - (120,071) - (120,071)
Unrealized gain on
securities available
for sale, net of
income tax effect - - - - 25,410 25,410
Conversion of preferred
stock to common stock (340) 340,000 (339,660) - - -
Dividend on preferred stock - - - (170,000) - (170,000)
------------ ------------ -------------- --------------- -------------- -----------------
Balance - December 31, 1996 - 440,100 3,670,377 5,062,392 159,379 9,332,248
Net income for the year
ended December 31, 1997 - - - 794,112 - 794,112
Unrealized gain on
securities available
for sale, net of
income tax effect - - - - 135,699 135,699
Dividend on common stock - - - (397,600) - (397,600)
------------ ------------ -------------- --------------- -------------- -----------------
Balance - December 31, 1997 $ - $ 440,100 $ 3,670,377 $ 5,458,904 $ 295,078 $ 9,864,459
============ ============ ============== =============== ============== =================
</TABLE>
See notes to consolidated financial statements.
5.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1997 1996 1995
--------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 794,112 $ (120,071) $ 362,886
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 284,052 287,849 303,303
Amortization of premiums, discounts and fees, net 183,675 307,664 97,863
Amortization of intangibles 33,336 33,336 33,333
Deferred income taxes 147,493 (84,225) 414,735
Provision for losses on loans and real estate owned 138,511 399,000 210,000
Net (gain) loss on sales of assets (8,817) 4,965 (73,360)
Loss on calls of investment securities held to maturity - - 4,808
(Increase) decrease in interest receivable (268,863) 317,103 (501,708)
Decrease (increase) in refundable income taxes - 212,449 (212,449)
Decrease (increase) in other assets 55,198 (17,763) 90,235
Increase (decrease) in accrued interest payable 12,111 966 144,560
Increase (decrease) in other liabilities 68,040 (16,745) (90,782)
--------------- ---------------- ----------------
Net cash provided by operating activities 1,438,848 1,324,498 783,654
--------------- ---------------- ----------------
Cash flows from investing activities:
Proceeds from maturities of term deposits - - 8,500,000
Proceeds from calls of investment securities held to maturity 9,000,000 17,000,000 4,000,000
Purchases of:
Term deposits - - (6,000,000)
Securities available for sale (3,202,687) (12,189,859) -
Investment securities held to maturity (26,607,569) - -
Mortgage-backed securities held to maturity - (12,491,176) (21,723,449)
Loans receivable - (6,135,880) (9,055,000)
Premises and equipment (102,797) (339,230) (346,237)
Federal Home Loan Bank of New York stock (181,000) (102,300) (151,300)
Principal repayments on:
Securities available for sale 6,085,224 6,442,347 -
Investment securities held to maturity - - 20,927
Mortgage-backed securities held to maturity 2,393,587 1,817,557 3,715,596
Proceeds from sales of:
Securities available for sale 3,340,764 3,924,166 -
Mortgage-backed securities held to maturity - 403,979 -
Loans receivable - 64,615 -
Real estate owned 612,029 638,401 458,697
Net (increase) in loans receivable (10,121,440) (2,929,591) (2,697,732)
Additions to real estate owned (51,355) (104,711) (159,948)
Payments applied to real estate owned 6,000 13,380 11,500
--------------- ---------------- ----------------
Net cash (used in) investment activities (18,829,244) (3,988,302) (23,426,946)
--------------- ---------------- ----------------
</TABLE>
See notes to consolidated financial statements.
6.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1997 1996 1995
---------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits $ 10,153,709 $ 24,959,065 $ 7,835,814
Proceeds net of repayments from short-term borrowed money - (12,600,000) 12,600,000
Proceeds of long-term debt 568,000 - -
Repayments of long-term debt (16,868) - -
Increase (decrease) in advance payments
by borrowers for taxes and insurance 135,539 70,553 (4,243)
Cash dividend paid on preferred stock (42,500) (170,000) (170,000)
Cash dividend paid on common stock (397,600) (50,050) (50,050)
---------------- --------------- ---------------
Net cash provided by financing activities 10,400,280 12,209,568 20,211,521
---------------- --------------- ---------------
Net (decrease) increase in cash and cash equivalents (6,990,116) 9,545,764 (2,431,771)
Cash and cash equivalents - beginning 10,673,339 1,127,575 3,559,346
---------------- --------------- ---------------
Cash and cash equivalents - ending $ 3,683,223 $ 10,673,339 $ 1,127,575
================ =============== ===============
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the year for:
Interest $ 8,091,911 $ 7,195,772 $ 6,069,703
================ =============== ===============
Income taxes $ 240,792 $ (210,459) $ 225,111
================ =============== ===============
Supplemental disclosure of noncash activities:
Investment securities held to maturity transferred to
available for sale $ - $ - $ 1,921,218
================ =============== ===============
Mortgage-backed securities held to maturity transferred
to (from) available for sale $ - $ - $ 33,654,187
================ =============== ===============
Unrealized gain on securities available for sale, net $ 135,699 $ 25,410 $ 276,958
================ =============== ===============
Loans transferred to real estate owned $ - $ 493,186 $ 405,461
================ =============== ===============
Loans originated to facilitate the sale of real estate owned $ 663,000 $ - $ $ 256,500
================ =============== ===============
Dividends declared but not paid:
Common stock $ - $ - $ 50,050
Preferred stock - 42,500 42,500
---------------- --------------- ---------------
$ - $ 42,500 $ 92,550
================ =============== ===============
Preferred stock converted to common stock $ - $ 339,660 $ -
================ =============== ===============
</TABLE>
See notes to consolidated financial statements.
7.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - ----------------------------------------------
Basis of consolidated financial statement presentation
------------------------------------------------------
The consolidated financial statements include the accounts of the
Corporation and its wholly owned subsidiary, First Savings Bank of Little
Falls, FSB (the "Savings Bank"), and the Savings Bank's wholly owned
subsidiaries, The First Service Corporation of Little Falls (the "Service
Corp.") and Redeem, Inc., and have been prepared in conformity with
generally accepted accounting principles. All significant intercompany
accounts and transactions have been eliminated in consolidation.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the statements of consolidated
financial condition and revenues and expenses for the periods then ended.
Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant changes
relate to the determination of the allowance for loan losses, the valuation
of real estate owned and the determination of the amount of deferred tax
assets which are more likely than not to be realized.
Management believes that the allowance for loan losses is adequate, real
estate owned is appropriately valued and deferred tax assets recorded are
more likely than not to be realized. While management uses available
information to recognize losses on loans and real estate owned, future
additions to the allowance for loan losses or further writedowns of real
estate owned may be necessary based on changes in economic conditions in the
Savings Bank's market area.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Savings Bank's allowance for
loan losses and real estate owned valuations. Such agencies may require the
Savings Bank to recognize additions to the allowance or additional
writedowns based on their judgments about information available to them at
the time of their examination.
Cash and cash equivalents
-------------------------
Cash and cash equivalents include cash and amounts due from depository
institutions and interest-bearing deposits with other financial institutions
with original maturities of three months or less.
8.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
- - ----------------------------------------------
Investment and mortgage-backed securities
-----------------------------------------
Investments in debt securities that the Corporation has the positive intent
and ability to hold to maturity are classified as held-to-maturity
securities and reported at amortized cost. Debt and equity securities that
are bought and held principally for the purpose of selling them in the near
term are classified as trading securities and reported at fair value, with
unrealized holding gains and losses included in earnings. Debt and equity
securities not classified as trading securities nor as held-to-maturity
securities are classified as available for sale securities and reported at
fair value, with unrealized holding gains or losses, net of deferred income
taxes, reported in a separate component of stockholders' equity.
As permitted by the Financial Accounting Standards Board's ("FASB") "A guide
to Implementation of Statement 115 on Accounting for Certain Investments in
Debt and Equity Securities", the Savings Bank, in 1995, reassessed the
classification of its held to maturity portfolios. Effective December 31,
1995, as a result of such reassessment, the Savings Bank transferred
securities with an approximate book value of $35,575,000 and an approximate
fair value of $35,964,000, from held to maturity to available for sale. In
connection with such transfer, an unrecognized gain, net of deferred income
taxes, of approximately $253,000 was recognized and classified as a separate
component of stockholders' equity.
Premiums and discounts on all securities are amortized/accreted using the
interest method. Interest and dividend income on securities, which includes
amortization of premiums and accretion of discounts, is recognized in the
consolidated financial statements when earned. The adjusted cost basis of an
identified security sold or called is used for determining security gains
and losses recognized in the consolidated statements of operations.
Loans receivable
----------------
Loans receivable are stated at unpaid principal balances less the allowance
for loan losses and deferred loan fees and discounts. Interest is calculated
by the use of the actuarial method.
The Savings Bank defers loan origination fees and certain direct loan
origination costs and accretes such amounts as an adjustment of yield over
the contractual lives of the related loans. Discounts on loans purchased are
recognized as income by use of a method which approximates the level-yield
method over the terms of the respective loans.
Uncollectible interest on loans that are contractually past due is charged
off and the related loans placed on nonaccrual status. Income is
subsequently recognized only to the extent that cash payments are received
until, in management's judgment, the borrower's ability to make periodic
interest and principal payments is probable, in which case the loan is
returned to an accrual status.
9.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
- - ----------------------------------------------
Allowance for loan losses
-------------------------
An allowance for loan losses is maintained at a level considered adequate to
absorb future loan losses. Management of the Savings Bank, in determining
the allowance for loan losses, considers the risks inherent in its loan
portfolio and changes in the nature and volume of its loan activities, along
with the general
economic and real estate market conditions. The Savings Bank utilizes a
two-tier approach: (1) identification of impaired loans and establishment of
specific loss allowances on such loans; and (2) establishment of general
valuation allowances on the remainder of its loan portfolio. The Savings
Bank maintains a loan review system which allows for a periodic review of
its loan portfolio and the early identification of potential impaired loans.
Such system takes into consideration, among other things, delinquency
status, size of loans, type and estimated fair value of collateral and
financial condition of the borrowers. Specific loan loss allowances are
established for identified loans based on a review of such information.
General loan loss allowance are based upon a combination of factors
including, but not limited to, actual loan loss experience, composition of
loan portfolio, current economic conditions and management's judgment.
Although management believes that adequate specific and general loan loss
allowances are established, actual losses are dependent upon future events
and, as such, further additions to the level of the allowance for loan
losses may be necessary.
Impaired loans are measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loans observable market price or fair value of
the collateral if the loan is collateral dependent. A loan evaluated for
impairment is deemed to be impaired when, based on current information and
events, it is probable that the Savings Bank will be unable to collect all
amounts due according to the contractual terms of the loan agreement. All
loans identified as impaired are evaluated independently. The Savings Bank
does not aggregate such loans for evaluation purposes. Payments received on
impaired loans are applied first to accrued interest receivable and then to
principal.
Real estate owned
-----------------
Real estate owned consists of real estate acquired by foreclosure or deed in
lieu of foreclosure. Real estate owned is recorded at the lower of cost or
fair value at date of acquisition and thereafter carried at the lower of
such initially recorded amount or fair value less estimated selling costs.
Costs incurred in developing or preparing properties for sale are
capitalized. Income and expense related to the holding and operating of
properties are recorded in operations. Gains and losses from sales of such
properties are recognized as incurred.
Concentration of risk
---------------------
The Savings Bank's real estate and lending activity is concentrated in real
estate and loans secured by real estate located primarily in the State of
New Jersey.
10.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
- - ----------------------------------------------
Premises and equipment
----------------------
Premises and equipment are comprised of land, at cost, and buildings,
building improvements, furniture, fixtures and equipment, at cost, less
accumulated depreciation. Depreciation charges are computed on the
straight-line method over the following estimated useful lives:
Building and improvements 40 to 50 years
Furniture, fixtures and equipment 3 to 10 years
Significant renewals and betterments are charged to the premises and
equipment account. Maintenance and repairs are charged to operations in the
year incurred. Rental income is netted against occupancy costs in the
consolidated statements of operations.
Income Taxes
------------
The Corporation and its subsidiaries file a consolidated federal income tax
return. Income taxes are allocated based on the contribution of income to
the consolidated income tax return. Separate state income tax returns are
filed.
The accrual basis of accounting is used for both financial and income tax
reporting. Provisions for income taxes reflected in the consolidated
financial statements differ from the amounts reflected in the income tax
returns due to temporary differences in the reporting of certain items for
financial reporting and tax reporting purposes and the recognition of net
operating loss carry forwards for financial reporting purposes. The income
tax provision shown in the consolidated financial statements relates to
items of income and expense in those statements irrespective of temporary
variances for income tax reporting purposes. The tax effect of these
temporary variances is accounted for as deferred income taxes applicable to
future years. A valuation allowance is provided for deferred tax assets when
it is more likely than not that a portion of the deferred tax assets will
not be realized.
Interest rate risk
------------------
The Savings Bank is principally engaged in the business of attracting
deposits from the general public and using these deposits, together with
borrowings and other funds, to purchase securities and to make loans secured
by real estate. The potential for interest-rate risk exists as a result of
the generally shorter duration of interest-sensitive liabilities compared to
the generally longer duration of interest-sensitive assets. In a rising rate
environment, liabilities will reprice faster than assets, thereby reducing
the market value of long-term assets and net interest income. For this
reason, management regularly monitors the maturity structure of interest
sensitive assets and liabilities in order to measure its level of
interest-rate risk and to plan for future volatility.
Excess of cost over assets acquired
------------------- ---------------
The cost in excess of fair value of net assets (goodwill) is amortized to
expense over a period of fifteen years by use of the straight-line method.
The remaining unamortized balance amounted to $378,000 and $411,000 at
December 31, 1997 and 1996, respectively, and is included in other assets.
11.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
- - ---------------------------------------------
Net income per common share
---------------------------
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share".
Statement No. 128 is effective for years ending after December 15, 1997 and
requires that prior period data be restated. Per share amounts are reported
in accordance with Statement No. 128.
Basic net income per common share is calculated by dividing net income by
the weighted average number of shares of common stock outstanding. Diluted
net income per share is calculated by adjusting the weighted average number
of shares of common stock outstanding to include the effect of convertible
preferred stock.
See Note 16 for a reconciliation of such amounts.
Reclassification
----------------
Certain amounts for the years ended December 31, 1996 and 1995 have been
reclassified to conform to current year's presentation.
2. IMPACT OF NEW ACCOUNTING STANDARDS
- - --------------------------------------
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income". Statement No. 130 requires that all items that are components of
"comprehensive income" be reported in a financial statement that is displayed
with the same prominence as other financial statements. Comprehensive income is
defined as the "change in equity [net assets] of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners". Companies
will be required to (a) classify items of other comprehensive income by their
nature in the financial statements and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
Statement No. 130 is effective for fiscal years beginning after December 15,
1997 and requires reclassification of prior periods presented. As the
requirements of Statement No. 130 are disclosure-related, its implementation
will have no impact on the Corporation's consolidated financial condition or
results of operations.
4. STOCKHOLDERS' EQUITY
- - ------------------------
For the purpose of granting to eligible account holders a priority over
stockholders in the event of future liquidation, the Savings Bank, at the time
of its conversion to stock form, established a liquidation account in an amount
equal to its total net worth of $1,579,000 at March 31, 1992. In the event of
future liquidation of the converted Savings Bank (and only in such event), an
eligible account holder who continues to maintain his/her deposit account shall
be entitled to receive a distribution from the liquidation account. The total
amount of the liquidation account will be decreased (but never increased) in an
amount proportionately corresponding to decreases in the deposit account
balances of eligible account holders as of each subsequent year end. No
dividends may be paid to stockholders if such dividends would reduce the net
worth of the converted Savings Bank below the amount required by the liquidation
account. The balance of the liquidation account at December 31, 1997 has not
been determined.
12.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
3. STOCKHOLDERS' EQUITY (Cont'd.)
- - -------------------------
The preferred stock issued in the conversion was non-cumulative. Each share was
permitted to be converted, at stockholder option into ten shares of common
stock. Effective December 31, 1996, all 34,000 outstanding shares of preferred
stock were converted into 340,000 shares of common stock. The holders of
preferred stock received dividends at the annual rate of $5.00 per share.
Holders of the non-cumulative preferred stock had no voting rights and
liquidation rights subordinate to those of holders of common stock.
The ability of the Corporation to pay dividends to stockholders is dependent
upon its receiving dividends from the Savings Bank. The Savings Bank may pay
dividends and/or capital distributions, as defined by regulations, during a
calendar year up to one-hundred percent of its net income to date during such
year plus an amount which would reduce by fifty percent its excess capital over
its regulatory capital requirements at the beginning of such year.
During the year ended December 31, 1997, the Corporation declared cash dividends
to common shareholders of $440,100, or $1.00 per share. The four largest
shareholders, whose combined holdings exceed 90% of the total shares of common
stock outstanding, waived $42,500 of such dividends due them. As such, dividends
actually paid totalled $397,600.
4. SECURITIES AVAILABLE FOR SALE
- - ---------------------------------
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------------------
Amortized Gross Unrealized Carrying
---------------------------
Value Gains Losses Value
--------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Mortgage-backed securities:
Government National Mortgage Asociation $ 9,913,396 $ 151,585 $ - $ 10,064,981
Federal National Mortgage Association 2,135,837 4,898 19,523 2,121,212
Federal Home Loan Mortgage Corporation 665,900 15,132 - 681,032
Federal National Mortgage Association REMIC 1,920,246 - 59 1,920,187
--------------- ------------- ------------ ---------------
14,635,379 171,615 19,582 14,787,412
Small Business Administration 16,111,311 297,717 - 16,409,028
Common stock 25,000 5,000 - 30,000
--------------- ------------- ------------ ---------------
$ 30,771,690 $ 474,332 $ 19,582 $ 31,226,440
=============== ============= ============ ===============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------------
Amortized Gross Unrealized Carrying
---------------------------
Value Gains Losses Value
--------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Mortgage-backed securities:
Government National Mortgage Asociation $ 12,174,754 $ 144,707 $ 2,541 $ 12,316,920
Federal National Mortgage Association 3,688,379 10,471 57,757 3,641,093
Federal Home Loan Mortgage Corporation 1,635,735 24,632 5,822 1,654,545
--------------- ------------- ------------ ---------------
17,498,868 179,810 66,120 17,612,558
Small Business Administration 19,762,634 155,708 24,200 19,894,142
--------------- ------------- ------------ ---------------
$ 37,261,502 $ 335,518 $ 90,320 $ 37,506,700
=============== ============= ============ ===============
</TABLE>
13.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
4. SECURITIES AVAILABLE FOR SALE (Cont'd.)
The foregoing securities are not due at a single maturity date as they are
subject to periodic repayment. Accordingly, such securities will generally repay
at a more rapid rate than reflected in the following table of securities by
final maturity date.
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------------------
Amortized Gross Unrealized Carrying
---------------------------
Value Gains Losses Value
--------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Due after one year through five years $ 2,184,043 $ 51,484 $ - $ 2,235,527
Due after five years through ten years 7,123,438 174,670 - 7,298,108
Due after ten years 21,439,209 243,178 19,582 21,662,805
Equity security 25,000 5,000 - 30,000
--------------- ------------- ------------ ---------------
$ 30,771,690 $ 474,332 $ 19,582 $ 31,226,440
=============== ============= ============ ===============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------------
Amortized Gross Unrealized Carrying
---------------------------
Value Gains Losses Value
--------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Due after one year through five years $ 1,484,193 $ 17,451 $ 5,783 $ 1,495,861
Due after five years through ten years 10,537,900 94,618 14,810 10,617,708
Due after ten years 25,239,409 223,449 69,727 25,393,131
--------------- ------------- ------------ ---------------
$ 37,261,502 $ 335,518 $ 90,320 $ 37,506,700
=============== ============= ============ ===============
</TABLE>
During the years ended December 31, 1997 and 1996, proceeds from sales of
securities available for sale totalled $3,340,764 and $3,924,166, respectively,
and resulted in gross gains of $45,337 and $4,548, respectively, and, during the
year ended December 31, 1997, gross losses of $37,501. There were no sales of
securities available for sale during the year ended December 31, 1995.
A security available for sale, having a carrying value of $360,000 at December
31, 1996, was pledged to secure public funds on deposit. Additionally, at
December 31, 1997 and 1996, securities available for sale with an aggregate
carrying value of $2,593,000 and $1,134,000, respectively, are pledged to secure
customer deposits.
14.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
5. INVESTMENT SECURITIES HELD TO MATURITY
- --------------------------------------------
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------------------
Carrying Gross Unrealized Estimated
---------------------------
Value Gains Losses Fair Value
--------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
U.S. Government Agencies:
Due after one year through five years $ 1,999,587 $ 3,485 $ - $ 2,003,072
Due after five years through ten years 8,000,000 - - 8,000,000
Due after ten years 9,644,002 2,591 2,482 9,644,111
--------------- ------------- ------------ ---------------
$ 19,643,589 $ 6,076 $ 2,482 $ 19,647,183
=============== ============= ============ ===============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------------
Carrying Gross Unrealized Estimated
---------------------------
Value Gains Losses Fair Value
--------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
U.S. Government Agencies due after ten years $ 2,000,000 $ - $ - $ 2,000,000
=============== ============= ============ ===============
</TABLE>
There were no sales of investment securities held to maturity during the years
ended December 31, 1997, 1996 and 1995. During the years ended December 31,
1997, 1996 and 1995, proceeds from calls of investment securities held to
maturity totalled $9,000,000, $17,000,000 and $4,000,000, respectively, and
resulted in no gross gains or losses in 1997 and 1996 and gross losses of $4,808
in 1995.
6. MORTGAGE-BACKED SECURITIES HELD TO MATURITY
- -------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------------
Carrying Gross Unrealized Estimated
--------------------------
Value Gains Losses Fair Value
--------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
Government National Mortgage Association $ 31,453 $ 630 $ - $ 32,083
Federal National Mortgage Association 1,540,181 - 167 1,540,014
Federal Home Loan Mortgage Corporation 7,843,045 25,541 2,864 7,865,722
Federal National Mortgage Association REMIC 1,000,000 - - 1,000,000
--------------- ------------ ----------- ---------------
$ 10,414,679 $ 26,171 $ 3,031 $ 10,437,819
=============== ============ =========== ===============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------------
Carrying Gross Unrealized Estimated
--------------------------
Value Gains Losses Fair Value
--------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
Government National Mortgage Association $ 39,023 $ 1,047 $ 280 $ 39,790
Federal National Mortgage Association 1,809,078 29,263 - 1,838,341
Federal Home Loan Mortgage Corporation 9,957,090 20,147 42,601 9,934,636
Federal National Mortgage Association REMIC 1,000,000 - - 1,000,000
--------------- ------------ ----------- ---------------
$ 12,805,191 $ 50,457 $ 42,881 $ 12,812,767
=============== ============ =========== ===============
</TABLE>
15.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
6. MORTGAGE-BACKED SECURITIES HELD TO MATURITY (Cont'd.)
- - -------------------------------------------------
During the year ended December 31, 1996, proceeds from sales of mortgage-backed
securities held to maturity totalled $403,979 and resulted in gross losses of
$973. There were no sales of mortgage-backed securities held to maturity during
the years ended December 31, 1997 and 1995.
Mortgage-backed securities held to maturity with a carrying value of $414,000 at
December 31, 1997 were pledged to secure public finds on deposit.
7. LOANS RECEIVABLE
- ----------------------
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Real estate mortgage:
One-to-four family $ 83,317,259 $ 74,156,889
Multi-family 5,020,506 3,311,210
Non-residential 6,182,670 6,775,830
Land 38,949 41,373
---------------- ----------------
94,559,384 84,285,302
---------------- ----------------
Commercial loans 4,655,264 3,954,014
---------------- ----------------
Consumer:
Equity 4,398,584 4,681,054
Home improvement and second mortgages 1,346,046 1,090,470
Passbook or certificate 629,681 814,064
Student education 90,750 115,908
Other loans 619,456 527,256
---------------- ----------------
7,084,517 7,228,752
---------------- ----------------
Total loans 106,299,165 95,468,068
---------------- ----------------
Less: Allowance for loan losses 596,230 523,715
Deferred loan fees and discounts 235,450 211,711
---------------- ----------------
831,680 735,426
---------------- ----------------
$ 105,467,485 $ 94,732,642
================ ================
</TABLE>
The Savings Bank has granted loans to its officers and directors and to their
associates. Related party loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do not involve more than the
normal risk of collectibility. The aggregate dollar amount of these loans,
exclusive of loans to any officer or director and their affiliates which total
less than $60,000, was $868,000 and $775,000 at December 31, 1997 and 1996,
respectively. Activity during the year ended December 31, 1997 included new
loans of $174,000 and repayments of $81,000.
16.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
7. LOANS RECEIVABLE (Cont'd)
- -----------------------
An analysis of the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Balance - beginning $ 523,715 $ 388,633 $ 377,315
Provision charged to operations 101,174 142,500 80,228
Loans charged off (37,374) (7,418) (70,605)
Recoveries 8,715 - 1,695
------------ ------------ ------------
Balance - ending $ 596,230 $ 523,715 $ 388,633
============ ============ ============
</TABLE>
Impaired loans and related amounts recorded in the allowance for loan losses are
summarized as follows: (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Recorded investment in impaired loans:
With recorded allowance $ 696 $ 1,277
Without recorded allowances - -
------------ ------------
Total impaired loans 696 1,277
Related allowance for loan losses 35 155
------------ ------------
Net impaired loans $ 661 $ 1,122
============ ============
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, the average recorded
investment in impaired loans totalled $1,321,000, $559,000 and $355,000,
respectively. Interest income recognized on such loans during the time each was
impaired totalled $118,000, $28,000 and $7,000, respectively, all of which was
recorded on the cash basis.
Nonaccrual loans totalled approximately $2,601,000, $1,639,000 and $1,146,000 at
December 31, 1997, 1996 and 1995, respectively. Renegotiated loans for which
interest has been reduced totalled approximately $406,000, $1,313,000 and
$1,348,000 at December 31, 1997, 1996 and 1995, respectively. Interest income
that would have been recorded under the original terms of such loans and the
interest income actually recognized are summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C>
Interest income that would have been recorded $ 292 $ 303 $ 250
Interest income recognized 161 230 184
------------ ------------ ------------
Interest income foregone $ 131 $ 73 $ 66
============ ============ ============
</TABLE>
17.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
8. REAL ESTATE OWNED
- - ---------------------
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Acquired in settlement of loans $ 1,674,616 $ 3,443,636
Allowance for losses (34,612) (537,602)
-------------- --------------
$ 1,640,004 $ 2,906,034
============== ==============
</TABLE>
The following is an analysis of the allowance for losses:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1997 1996 1995
------------- -------------- --------------
<S> <C> <C> <C>
Balance - beginning $ 537,602 $ 302,537 $ 1,461,991
Provision charged to operations 37,337 256,500 129,772
Losses charged off (540,327) (21,435) (1,289,226)
------------- -------------- --------------
Balance - ending $ 34,612 $ 537,602 $ 302,537
============= ============== ==============
</TABLE>
The following is an analysis of loss on foreclosed real estate:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1997 1996 1995
------------- -------------- --------------
<S> <C> <C> <C>
Provision for losses $ 37,337 $ 256,500 $ 129,772
Operating expenses, net of rental income 125,243 131,128 100,251
(Gain) loss on disposition (981) 8,540 (73,360)
------------- -------------- --------------
$ 161,599 $ 396,168 $ 156,663
============= ============== ==============
</TABLE>
18.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
9. PREMISES AND EQUIPMENT
- - --------------------------
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1996
-------------- ---------------
<S> <C> <C>
Land $ 547,867 $ 547,867
-------------- ---------------
Buildings and improvements 3,112,048 3,060,894
Less accumulated depreciation 1,173,521 1,065,155
-------------- ---------------
1,938,527 1,995,739
-------------- ---------------
Furniture, fixtures and equipment 1,677,207 1,625,564
Less accumulated depreciation 1,388,541 1,212,854
-------------- ---------------
288,666 412,709
-------------- ---------------
$ 2,775,060 $ 2,956,315
============== ===============
</TABLE>
10. INTEREST RECEIVABLE
- - ------------------------
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1996
-------------- ---------------
<S> <C> <C>
Loans $ 652,651 $ 640,131
Securities 707,313 470,634
Other interest-earning assets 19,664 -
-------------- ---------------
$ 1,379,628 $ 1,110,765
============== ===============
</TABLE>
11. DEPOSITS
- - -------------
<TABLE>
<CAPTION>
December 31 ,
------------------------------------------------------------------
1997 1996
------------------------------- --------------------------------
Weighted Weighted
Average Average
Rate Amount Rate Amount
------------ ----------------- ------------ ----------------
<S> <C> <C> <C> <C>
Non-interest-bearing demand 0.00% $ 2,958,852 0.00% $ 1,985,234
NOW and Super NOW 2.04% 4,336,162 2.03% 4,204,758
Money Market 3.51% 8,107,509 3.38% 8,102,117
Savings and Realty Trust 3.39% 24,403,289 3.35% 21,967,044
Certificates of deposit 5.67% 126,953,045 5.62% 120,336,961
---------------- ---------------
5.04% $ 166,758,857 5.02% $ 156,596,114
================= ================
</TABLE>
19.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
11. DEPOSITS (Cont'd)
- - -------------
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
Year Ended Decmber 31,
------------------------------------------
1997 1996 1995
------------ ------------- -------------
(In Thousands)
<S> <C> <C> <C>
Savings and Realty Trust $ 796 $ 754 $ 756
NOW and Money Market 365 364 410
Certificates of deposit 6,923 5,475 4,929
------------ ------------- ------------
$ 8,084 $ 6,593 $ 6,095
============ ============= ============
</TABLE>
A summary of certificates of deposit by time remaining until maturity follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
------------- -------------
(In Thousands)
<S> <C> <C>
Within one year $ 97,555 $ 88,730
After one year through two years 18,216 18,295
Thereafter 11,182 13,312
------------- -------------
Total $ 126,953 $ 120,337
============= =============
</TABLE>
A summary of certificates of deposit of $100,000 or more by time remaining to
maturity follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
------------- -------------
(In Thousands)
<S> <C> <C>
Within three months $ 1,984 $ 3,589
After three through six months 2,402 1,611
After six through twelve months 4,534 2,449
After twelve months 2,236 1,754
------------- -------------
$ 11,156 $ 9,403
============= =============
</TABLE>
20.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
12. BORROWED MONEY
- - -------------------
Borrowed money at December 31, 1997 consisted of a ten-year term advance from
the Federal Home Loan Bank of New York ("FHLB"), maturing June 18, 2007,
carrying an interest rate of 6.70% and having a remaining balance of $551,132.
The advance is payable in monthly principal and interest installments of $6,507
through maturity.
At December 31, 1997 and 1996, the Savings Bank had available to it overnight
lines of credit of $16,936,000 and $25,117,000, respectively, granted by the
FHLB. The unused amount of credit available to the Savings Bank under these
lines, which may continue until terminated by either the Savings Bank or the
FHLB, was $16,936,000 at December 31, 1997
Collateral pledged to secure the foregoing credit facilities consists of FHLB
stock of $1,106,600 and $925,600 at December 31, 1997 and 1996, respectively,
and securities with an aggregate carrying value of $16,504,000 and $21,245,000
at December 31, 1997 and 1996, respectively.
13. REGULATORY CAPITAL
- - -----------------------
The Savings Bank is subject to capital requirements prescribed by the Office of
Thrift Supervision ("OTS") consisting of three separate measurements of capital
adequacy (the "Capital Rule"). The Capital Rule requires each saving institution
to maintain tangible capital equal to at least 1.5% of its total tangible assets
and core capital equal to at least 3.0% of its adjusted total assets. The
Capital Rule further requires each savings institution to maintain total capital
equal to at least 8.0% of its risk-weighted assets.
The following table sets forth the capital position of the Savings Bank, as
calculated under the Capital Rule, as of December 31, 1997:
<TABLE>
<CAPTION>
Tangible Core Risk-Based
------------------------- ------------------------ -------------------------
Amount Percent Amount Percent Amount Percent
----------- ------------ ----------- ----------- ------------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
GAAP equity $ 9,897 5.56 $ 9,867 5.56 $ 9,867 12.74
Deduct non-includable portion of:
Deferred tax asset (173) (0.10) (173) (0.10) (173) (0.22)
Intangible asset (378) (0.21) (378) (0.21) (378) (0.49)
Unrealized gain on securities, net (295) (0.16) (295) (0.16) (295) (0.38)
Add: General valuation allowance - - - - 596 0.77
----------- ------------ ----------- ----------- ------------ -----------
Regulatory capital as calculated 9,021 5.09 9,021 5.09 9,617 12.42
Regulatory capital as required 2,660 1.50 5,321 3.00 6,197 8.00
----------- ------------ ----------- ----------- ------------ -----------
Excess $ 6,361 3.59 $ 3,700 2.09 $ 3,420 4.42
=========== ============ =========== =========== ============ ===========
</TABLE>
21.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
13. REGULATORY CAPITAL (Cont'd)
- - -----------------------
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
imposes increased requirements on the operations of financial institutions and
mandated the development of regulations designed to empower regulators to take
prompt corrective action with respect to institutions that fall below certain
capital standards. FDICIA stipulates that an institution with less than 4% core
capital is deemed to be undercapitalized. Quantitative measures established by
FDICIA to ensure capital adequacy require the Savings Bank to maintain minimum
amounts and ratios of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital to average assets
(as defined). Management believes, as of December 31, 1997, that the Savings
Bank meets all capital adequacy requirements to which it is subject.
As of September 30, 1997, the most recent notification from the OTS, the Savings
Bank was categorized as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Savings
Bank must maintain minimum total, risk-based, and Tier I leverage ratios of 10%,
6%, and 5%, respectively. There are no conditions existing or events which have
occurred since notification that management believes have changed the
institution's category.
14. INCOME TAXES
- - -----------------
The Savings Bank qualifies as a Savings Institution under the provisions of the
Internal Revenue Code and was therefore permitted, prior to January 1, 1996, to
deduct from taxable income an allowance for bad debts based on the greater of:
(1) actual loan losses (the "experience method"); or (2) eight percent of
taxable income before such bad debt deduction less certain adjustments (the
"percentage of taxable income method"). The percentage of taxable income method
was repealed effective January 1, 1996. For income tax years ended December 31,
1996 and thereafter, the Saving Bank must use either the experience method or
the specific charge off method. Retained earnings at December 31, 1997 includes
approximately $3.5 million of such bad debt allowance, for which income taxes
have not been provided.
The components of income taxes (benefit) are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
Current $ 288,880 $ 25,216 $ (39,167)
------------ ------------- -------------
Deferred:
Temporary differences 125,903 (105,845) 393,068
Net operating loss carryforward 21,590 21,590 21,667
------------ ------------- -------------
147,493 (84,255) 414,735
------------ ------------- -------------
$ 436,373 $ (59,039) $ 375,568
============ ============= =============
</TABLE>
22.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
14. INCOME TAXES (Cont'd)
- - -----------------
Deferred income taxes result from temporary differences in the recognition of
income and expense for tax and financial statement purposes. The sources of
these temporary differences and the tax effects are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
Allowance for losses on
loans and real estate owned $ 155,928 $ (125,575) $ 405,495
Deferred loan fees 4,342 8,639 8,902
Nonaccrual interesst (14,965) 25,477 (7,887)
Depreciation (32,715) (6,400) (8,536)
Net operating loss carryforward 21,590 21,590 21,667
Other 13,313 (7,986) (4,906)
------------ ------------- -------------
$ 147,493 $ (84,255) $ 414,735
============ ============= =============
</TABLE>
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Deferred tax assets:
Allowance for losses on
loans and real estate owned $ 225,934 $ 381,862
Net operating loss carryfoward 194,310 215,900
Nonaccrual interest 44,347 29,382
Deferred loan fees, net 35,236 39,578
Other - 13,313
------------- -------------
499,827 680,035
------------- -------------
Deferred tax liabilities:
Depreciation 23,054 55,769
Unrealized gain on securities available for sale 159,672 85,819
------------- -------------
182,726 141,588
------------- -------------
Net deferred tax assets included in other assets $ 317,101 $ 538,447
============= =============
</TABLE>
23.
<PAGE>
FIRST SAVINGS BANCORP, OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
14. INCOME TAXES (Cont'd)
- - -----------------
For income tax reporting purposes, at December 31, 1997, the Corporation has net
operating loss carryforwards totalling approximately $571,500 that will expire
on December 31, 2006.
The following table presents a reconciliation between the reported income tax
expense (benefit) and the income tax expense (benefit) which would be computed
by applying the federal statutory rate of 34% to income before income taxes:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
Federal income taxes (benefit) $ 418,365 $ (60,897) $ 251,074
Increase (reduction) of
income taxes resulting from:
Change in permanent difference relating
to base year tax bad debt reserves - - 100,541
State income taxes,
net of federal income tax effect 25,670 (3,216) 21,967
Other (7,662) 5,074 1,986
------------ ------------- -------------
$ 436,373 $ (59,039) $ 375,568
============ ============= =============
</TABLE>
15. RETIREMENT PLAN
- - --------------------
The Savings Bank has a 401(k) plan covering all eligible employees. Under this
plan, participants may elect to contribute up to 15% of their compensation, not
to exceed applicable limits as per the Internal Revenue Code. The Savings Bank
has elected to match 50% of employees' contributions, up to a maximum 6% of each
respective employee's compensation. The 401(k) plan expense was $25,000, $18,000
and $22,000 for the years ended December 31, 1997 , 1996 and 1995, respectively.
24.
<PAGE>
FIRST SAVINGS BANCORP, OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
16. NET INCOME (LOSS) PER COMMON SHARE
- - --------------------------------------
Year Ended December 31, 1997
----------------------------
Weighted
Average
Net Number Per
Income of Shares Share
------ --------- -----
Basic and diluted net income $794,112 440,100 $1.80
======== ======= =====
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1996 1995
------------------------------ --------------------------
Weighted Weighted
Average Average
Net Number Per Net Number Per
Loss of Shares Share Income of Shares Share
<S> <C> <C> <C> <C> <C> <C>
Basic net income (loss)
applicable to common shares $(290,071) 100,100 $(2.90) $192,886 $100,100 $1.93
====== =====
Assumed conversion of
preferred stock to
common stock 170,000 340,000 170,000 340,000
------- ------- ------- -------
Diluted net income (loss) $(120,071) 440,100 $(0.27) $362,886 440,100 $0.82
========= ======= ====== ======== ======= =====
</TABLE>
17. COMMITMENTS AND CONTINGENCIES
- - ----------------------------------
The Savings Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments primarily include commitments to extend credit.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the consolidated statement of
financial condition. The contract or notional amounts of those instruments
reflect the extent of involvement the Savings Bank has in particular classes of
financial instruments.
The Savings Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The Savings
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
25.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
17. COMMITMENTS AND CONTINGENCIES (Cont'd)
- - ----------------------------------
At December 31, 1997, the Bank had outstanding commitments to originate loans
totalling $975,000, consisting of $691,000 for fixed rate first mortgage loans
with rates ranging from 7.00% through 7.75%, $259,000 for adjustable rate first
mortgage loans with initial rates ranging from 6.875% to 7.65% and $25,000 for
an equity line of credit.
At December 31, 1996, the Bank had outstanding commitments to originate loans
totalling $1,216,000, consisting of $185,000 for fixed rate first mortgage loans
with rates ranging from 7.875% through 8.375% , $196,000 for fixed rate second
mortgage loans with rates ranging from 8.375% to 9.50%, $200,000 for a
commercial mortgage loan having a rate which will adjust monthly to the prime
rate plus 3.50%, $600,000 for a fifteen year commercial mortgage loan which will
carry a fixed rate at 11.00% for the first five years and then adjust each fifth
year to the five year U.S. treasury rate plus 4.00% and $35,000 for an equity
line of credit.
At December 31, 1997 and 1996, undisbursed funds from approved home equity lines
of credit amounted to approximately $2,686,000 and $2,529,000, respectively.
Unless they are specifically cancelled by notice from the Savings Bank, these
funds represent firm commitments available to the respective borrowers on
demand. The interest rate charged for any month on funds disbursed is generally
1.00% to 2.00% above the prime rate. Certain lines are subject to an
introductory rate of 2% below the prime rate for the first year. The Savings
Bank also offers unsecured credit lines in conjunction with a credit card
program. At December 31, 1997 and 1996, unused amounts under these lines of
credit totalled $137,000 and $90,000, respectively.
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 many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Savings Bank evaluates each customer's
creditworthiness on a case-by case basis. The amount of collateral obtained if
deemed necessary by the Savings Bank upon extension of credit is based on
management's credit evaluation of the counterparty. Collateral held generally
includes residential and commercial real estate. Management does not anticipate
losses on any of these transactions.
In the conduct of their business, the Corporation, the Savings Bank and the
Savings Bank's subsidiaries are involved in normal litigation matters. In the
opinion of management, the ultimate disposition of such litigation should not
have a material adverse effect on the consolidated financial position or
operations of the Corporation.
26.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
18. LEGISLATIVE MATTERS
- - ------------------------
On September 30, 1996, legislation was enacted which, among other things,
imposed a special one-time assessment on Savings Association Insurance Fund
("SAIF") member institutions, including the Savings Bank, to recapitalize the
SAIF and spread the obligation for payment of Financial Corporation ("FICO")
bonds across all SAIF and Bank Insurance Fund ("BIF") members. The special
assessment levied amounted to 65.7 basis points on SAIF assessable deposits held
as of March 31, 1995. The special assessment was recognized in the third quarter
of 1996 and was tax deductible. The Savings Bank took a charge of $845,000 as a
result of the special assessment. This legislation eliminates the substantial
disparity between the amount that BIF and SAIF members had been paying for
deposit insurance premiums.
Currently, the FDIC has estimated that, in addition to normal deposit insurance
premiums, BIF members will pay a portion of the FICO payment equal to 1.3 basis
points on BIF -insured deposits compared to 6.4 basis points by SAIF members on
SAIF-insured deposits. All institutions will pay a pro-rata share of the FICO
payment on the earlier of January 1, 2000 or the date upon which the last
savings association ceases to exist. The legislation also requires BIF and SAIF
to be merged by January 1, 1999 provided that legislation is adopted to
eliminate the saving association charter and no savings associations remain as
of that time.
The FDIC has lowered SAIF assessments to a range comparable to that of BIF
members, although SAIF members must also make the FICO payments described above.
Management cannot predict the level of FDIC insurance assessments on an ongoing
basis or whether the BIF and SAIF will eventually be merged.
On August 21, 1996, legislation was enacted to allow for the recapture of
post-1987 tax bad debt reserves ("excess reserves"). Prior to enactment certain
thrift institutions such as the Savings Bank were allowed deductions for bad
debts under methods more favorable than those granted to other taxpayers. This
legislation repealed the Code Section 593 reserve method of accounting for bad
debts by thrift institutions effective for taxable years beginning after 1995.
Thrift institutions that are treated as small banks are allowed to utilize the
experience method applicable to such institutions, while thrift institutions
that are treated as large banks are required to use only the specific charge off
method.
For small institutions such as the Savings Bank, the amount of the institution's
applicable excess reserves generally is the excess of (1) the balances of its
reserve for losses on qualifying real property loans and its reserve for losses
on nonqualifying loans as of the close of its last taxable year beginning before
January 1, 1996, over (ii) the greater of the balance of (a) its pre-1988 tax
reserves or (b) what the reserves would have been at the close of its last year
beginning before January 1, 1996, had the Savings Bank always used the
experience method. The Savings Bank has excess reserves of approximately $3,000
remaining at December 31, 1997 which will be recaptured ratably during the next
four years.
27.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
19. PARENT CORPORATION FINANCIAL INFORMATION
- - ----------------------------------------------
The following condensed financial statements of the Corporation should be read
in conjunction with the Notes to Consolidated Financial Statements.
STATEMENTS OF FINANCIAL CONDITION
---------------------------------
December 31,
----------------------------
Assets 1997 1996
- - ------ ---------- ----------
Cash and cash equivalents $ 17,882 $ 17,397
Investment in subsidiary 9,867,301 9,372,123
Organization costs 15,509 22,949
---------- ----------
Total assets $9,900,692 $9,412,469
========== ==========
Liabilities and stockholders' equity
- - ------------------------------------
Liabilities
- - -----------
Dividends payable $ - $ 42,500
Due to subsidiary 36,233 37,721
---------- -----------
Total liabilities 36,233 80,221
---------- -----------
Stockholders' equity
- - --------------------
Preferred stock - -
Common stock 440,100 440,100
Paid-in-capital in excess of par value 3,670,377 3,670,377
Retained earnings - substantially restricted 5,753,982 5,221,771
--------- ---------
Total stockholders' equity 9,864,459 9,332,248
--------- ---------
Total liabilities and stockholders' equity $9,900,692 $9,412,469
========== ==========
28.
---
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
19. PARENT CORPORATION FINANCIAL INFORMATION (Cont'd)
- - ----------------------------------------------
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
Dividends from subsidiary $440,100 $ 220,050 $ 20,050
Interest income 486 474 460
-------- --------- --------
Total income 440,586 220,524 220,510
Expenses 7,845 7,440 505
-------- --------- --------
432,741 21,084 220,005
Equity in undistributed earnings (loss) of subsidiaries 359,479 (333,155) 142,881
-------- --------- --------
Income (loss) before income taxes 792,220 (120,071) 362,886
Income tax (benefit) 1,892 - -
-------- --------- --------
Net income (loss) $794,112 $(120,071) $362,886
======== ========= ========
</TABLE>
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 794,112 $(120,071) $ 362,886
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Equity in undistributed
(earnings) loss of subsidiary (359,479) 333,155 (142,881)
Amortization of organization costs 7,440 7,440 -
(Decrease) increase in due to subsidiary (1,488) - 506
--------- --------- ---------
Net cash provided by operating activities 440,585 220,524 220,511
--------- --------- ---------
Cash flows from financing activities:
cash dividends paid (440,100) (220,050) (220,050)
--------- --------- ---------
Net cash (used in) financing activities (440,100) (220,050) (220,050)
--------- --------- ---------
Net increase in cash and cash equivalents 485 474 461
Cash and cash equivalents - beginning 17,397 16,923 16,462
--------- --------- ---------
Cash and cash equivalents - ending $ 17,882 $ 17,397 $ 16,923
========= ========= =========
</TABLE>
29.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
- - -----------------------------------------
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Total interest income $2,980,860 $3,159,415 $3,270,835 $3,296,306
Total interest expense 1,957,284 2,007,387 2,062,360 2,076,991
---------- ---------- ---------- ----------
Net interest income 1,023,576 1,152,028 1,208,475 1,219,315
Provision for loan losses 25,000 25,000 25,000 26,174
Total non-interest income 31,527 51,805 40,860 42,684
Total non-interest expenses 794,560 853,479 849,627 940,945
Income taxes 86,814 114,563 134,178 100,818
---------- ---------- ---------- ----------
Net income $ 148,729 $ 210,791 $ 240,530 $ 194,062
========== ========== ========== ==========
Basic and diluted net
income per common share $ 0.34 $ 0.48 $ 0.55 $ 0.43
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Total interest income $2,818,787 $2,822,134 $2,849,290 $2,965,469
Total interest expense 1,775,928 1,757,264 1,810,840 1,841,184
---------- ---------- ---------- ----------
Net interest income 1,042,859 1,064,870 1,038,450 1,124,285
Provision for loan losses 25,000 25,000 25,000 117,500
Total non-interest income 41,050 39,933 43,255 55,827
Total non-interest expenses 806,754 867,947 1,657,919 1,104,519
Income taxes (benefit) 87,960 72,810 (209,770) (10,039)
---------- ---------- ---------- ----------
Net income (loss) $ 164,195 $ 139,046 $ (391,444) $ (31,868)
========== ========== ========== ==========
Net income (loss) per common share:
Basic $ 1.22 $ 0.96 $ (4.34) $ (0.74)
Diluted 0.37 0.32 (0.89) (0.07)
========== ========== ========== ==========
</TABLE>
30.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
21. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
- - --------------------------------------------------
The fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than a forced or liquidation sale. Significant estimations were used for
the purposes of this disclosure. Estimated fair values have been determined
using the best available data and estimation methodology suitable for each
category of financial instruments. For those loans and deposits with floating
interest rates, it is presumed that estimated fair values generally approximate
their recorded book balances. The estimation methodologies used and the
estimated fair values and carrying values of the financial instruments are set
forth below.
Cash and cash equivalents and interest receivable
-------------------------------------------------
The carrying amounts for cash and cash equivalents and interest
receivable approximate fair value as a result of their short-term
nature.
Securities
----------
The fair value for securities, both available for sale and held to
maturity, are based on quoted market prices or dealer prices, if
available. If quoted market prices or dealer prices are not available,
fair value is estimated using quoted market prices or dealer prices for
similar securities.
Loans
-----
The fair value of loans is estimated by discounting future cash flows,
using the current rates at which similar loans with similar remaining
maturities would be made to borrowers with similar credit ratings.
Deposits
--------
For demand, savings and club accounts, fair value is the carrying
amount reported in the consolidated financial statements. For
fixed-maturity certificates of deposit, fair value is estimated using
the rates currently offered for deposits of similar remaining
maturities.
Borrowed money
--------------
The fair value of borrowed money is estimated by discounting future
cash flows, using the current rates available for borrowings of similar
remaining maturities.
Commitments
-----------
The fair value of commitments to extend credit is estimated using the
fees currently charged to enter into similar agreements taking into
account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between the
current levels of interest rates and the committed rates.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
21. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
- - --------------------------------------------------
The fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than a forced or liquidation sale. Significant estimations were used for
the purposes of this disclosure. Estimated fair values have been determined
using the best available data and estimation methodology suitable for each
category of financial instruments. For those loans and deposits with floating
interest rates, it is presumed that estimated fair values generally approximate
their recorded book balances. The estimation methodologies used and the
estimated fair values and carrying values of the financial instruments are set
forth below.
Cash and cash equivalents and interest receivable
-------------------------------------------------
The carrying amounts for cash and cash equivalents and interest receivable
approximate fair value as a result of their short-term nature.
Securities
----------
The fair values for securities, both available for sale and held to
maturity, are based on quoted market prices or dealer prices, if
available. If quoted market prices or dealer prices are not available,
fair value is estimated using quoted market prices or dealer prices for
similar securities.
Loans
-----
The fair value of loans is estimated by discounting future cash flows,
using the current rates at which similar loans with similar remaining
maturities would be made to borrowers with similar credit ratings.
Deposits
--------
For demand, savings and club accounts, fair value is the carrying amount
reported in the consolidated financial statements. For fixed-maturity
certificates of deposit, fair value is estimated using the rates currently
offered for deposits of similar remaining maturities.
Borrowed money
--------------
The fair value of borrowed money is estimated by discounting future cash
flows, using the current rates available for borrowings of similar
remaining maturities.
Commitments
-----------
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers
the difference between the current levels of interest rates and the
committed rates.
31.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
21. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont'd)
The carrying values and estimated fair values of financial instruments are as
follows.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1997 1996
------------------------ -------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----- ---------- ----- ----------
Financial assets
- - ----------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 3,683 $ 3,683 $ 10,673 $ 10,673
Securities available for sale 31,226 31,226 37,507 37,507
Investment securities held to maturity 19,644 19,647 2,000 2,000
Mortgage-backed securities held to maturity 10,415 10,438 12,805 12,813
Loans receivable 105,467 108,497 94,733 94,552
Accrued interest receivable 1,380 1,380 1,111 1,111
Financial liabilities
- - ---------------------
Deposits 166,759 167,415 156,596 157,818
Borrowed money 551 557 - -
Commitments
- - -----------
To originate and fund loans 3,798 3,798 3,835 3,835
</TABLE>
Fair value estimates are made at a specific point in time based on relevant
market information and information about the financial instruments. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the entire holdings of a particular financial instrument.
Because no market value exists for a significant portion of the financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective
in nature, involve uncertainties and matters of judgment and, therefore, cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates. In addition, fair value estimates are based on existing
on-and-off balance sheet financial instruments without attempting to estimate
the value of anticipated future business, and exclude the value of assets and
liabilities that are not considered financial instruments. Other significant
assets and liabilities that are not considered financial assets and liabilities
include premises and equipment, other real estate owned and advance payments by
borrowers for taxes and insurance. In addition, the tax ramifications related to
the realization of the unrealized gains and losses can have a significant effect
on fair value estimates and have not been considered in any of these estimates.
Finally, reasonable comparability between financial institutions may not be
likely due to the wide range of permitted valuation techniques and numerous
estimates which must be made given the absence of active secondary markets for
many of the financial instruments. This lack of uniform valuation methodologies
introduces a greater degree of subjectivity to those estimated fair values.
32.
EXHIBIT 2 -- FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1998, AS AMENDED
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------------------------------
FORM 10-QSB
(Mark One)
[X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION report pursuant to section 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ______________________
SEC File Number 0-23194
First Savings Bancorp of Little Falls, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-3360945
- --------------------------------------------------------------------------------
(State or other jurisdiction) (I.R.S. Employer Identification No.)
Registrant's telephone number, including area code (973) 256-2100
---------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check (X) 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
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: 440,100.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
-------------------------------------------
INDEX
-----
Page Number
-----------
PART I - CONSOLIDATED FINANCIAL INFORMATION
Consolidated Statements of Financial
Condition at September 30, 1998
and December 31, 1997 (unaudited) 1
Consolidated Statements of Income
and Comprehensive Income
for the Three and Nine Months Ended
September 30, 1998 and 1997 (unaudited) 2
Consolidated Statements of Cash Flows
of the Nine Months Ended
September 30, 1998 and 1997 (unaudited) 3-4
Notes to Consolidated Financial Statements 5-6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-12
PART II - OTHER INFORMATION 13
SIGNATURES 14
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------------------------------------------
<S> <C> <C>
Assets
- ------
Cash and amounts due from
depository institutions $1,613,468 $2,142,413
Interest-bearing demand
deposits in other banks 5,849,245 1,540,810
-------------------------- ----------------------
Total cash and cash equivalents 7,462,713 3,683,223
Securities available for sale, net 25,575,637 31,226,440
Investment securities held to maturity, net:
estimated fair value of $24,231,000(1998) and $19,647,000 (1997) 24,146,561 19,643,589
Mortgage-backed securities held to maturity, net:
estimated fair value of $9,032,000(1998) and $10,438,000 (1997) 8,943,261 10,414,679
Loans receivable, net of allowance for loan
losses of $611,170 (1998) $596,230 (1997) 109,933,403 105,467,485
Premises and equipment, net 2,760,705 2,775,060
Real estate owned, net 1,485,738 1,640,004
Federal Home Loan Bank of New York stock, at cost 1,154,400 1,106,600
Interest and dividends receivable, net 1,396,287 1,379,628
Other assets 1,653,628 807,631
-------------------------- ----------------------
Total assets $184,512,333 $178,144,339
========================= =====================
Liabilities and stockholder's equity
Liabilities
Deposits $172,399,887 $166,758,857
Borrowed Money 519,561 551,132
Advance payments by borrowers for
taxes and insurance 805,037 769,354
Other liabilities 501,087 200,537
-------------------------- ----------------------
Total liabilities 174,225,572 168,279,880
-------------------------- ----------------------
Stockholders' Equity
Common Stock (par value $1.00 per share)
authorized 5,000,000 shares: issued and
outstanding 440,100 shares 440,100 440,100
Additional paid-in capital 4,212,303 3,670,377
Retained earnings-substantially restricted 5,413,540 5,458,904
Accumulated other comprehensive income 220,818 295,078
-------------------------- ----------------------
Total stockholders' equity 10,286,761 9,864,459
-------------------------- ----------------------
Total liabilities and stockholders' equity $184,512,333 $178,144,339
========================== ======================
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PAGE 1
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- --------------------------
SEPTEMBER 30 SEPTEMBER 30
1 9 9 8 1 9 9 7 1 9 9 8 1 9 9 7
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income
Loans $ 2,244,232 $ 2,322,787 $ 6,667,710 $ 6,407,461
Mortgage-backed securities 359,877 708,525 1,151,883 2,244,161
Investments 557,446 138,349 1,623,997 459,012
Other interest-earning assets 110,602 101,174 362,138 300,443
----------- ----------- ----------- -----------
Total interest income 3,272,157 3,270,835 9,805,728 9,411,077
----------- ----------- ----------- -----------
Interest expense
Deposits 2,147,587 2,052,902 6,382,076 6,015,987
Borrowed Money 9,088 9,458 27,145 11,044
----------- ----------- ----------- -----------
Total Interest expense 2,156,675 2,062,360 6,409,221 6,027,031
----------- ----------- ----------- -----------
Net interest income 1,115,482 1,208,475 3,396,507 3,384,046
Provision for loan losses 25,000 25,000 75,000 75,000
----------- ----------- ----------- -----------
Net interest income after
provision of loan losses 1,090,482 1,183,475 3,321,507 3,309,046
----------- ----------- ----------- -----------
Non-interest income
Service charges 22,922 20,137 75,235 66,726
Miscellaneous 19,774 20,723 47,233 49,230
Gain on sale of loans 217 -- 217 --
Gain on sale of securities available -- -- -- 7,836
for sale
----------- ----------- ----------- -----------
Total non-interest income 42,913 40,860 122,685 123,792
----------- ----------- ----------- -----------
Non-interest expense
Salaries and employee benefits 340,733 366,059 1,071,209 1,092,206
Net occupancy expense 65,146 58,746 185,437 183,738
Equipment 102,804 93,438 287,904 274,631
Loss on foreclosed real estate 8,809 86,941 66,319 159,928
Federal insurance premium 25,717 24,975 77,287 72,678
Advertising and promotion 7,665 17,938 31,834 70,116
Legal fees 60,513 32,440 161,628 127,620
Miscellaneous 149,630 169,090 561,476 518,209
----------- ----------- ----------- -----------
Total non-interest expenses 761,017 849,627 2,443,094 2,499,126
----------- ----------- ----------- -----------
Income before income taxes 372,378 374,708 1,001,098 933,712
Income taxes 137,170 134,178 386,312 333,663
----------- ----------- ----------- -----------
Net income 235,208 240,530 614,786 600,049
----------- ----------- ----------- -----------
Other comprehensive income:
Unrealized holding (losses)gains on securities available
for sale, net of income taxes of $23,678, $38,322,
$20,521 and $56,151, respectively (81,579) 71,171 (74,260) 104,062
Reclassification adjustments for realized gains on
securities available for sale, net of income taxes of
$2,819 -- -- -- (5,017)
----------- ----------- ----------- -----------
Other comprehensive income: (81,579) 71,171 (74,260) 99,045
----------- ----------- ----------- -----------
Comprehensive income $ 153,629 $ 311,701 $ 540,526 $ 699,094
=========== =========== =========== ===========
Net income per common share- basic and $ 0.53 $ 0.55 $ 1.40 $ 1.36
diluted
=========== =========== =========== ===========
Weighted average number of common
shares outstanding- basic and diluted 440,100 440,100 440,100 440,100
=========== =========== =========== ===========
</TABLE>
Page 2
See notes to unaudited consolidated financial statements
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS INC.
------------------------------------------
AND SUBSIDIARY
--------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
- -------------------------------------
Net income $ 614,786 $ 600,049
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 197,396 211,844
Amortization of premiums, discounts and fees, net 162,076 178,753
Provision for losses on loans and real estate owned 113,000 113,511
Net (gain)loss on sales of real estate owned (17,600) 8,806
Net gain on sales of loans (217) --
Net gain on sales of securities available for sale -- (7,836)
Increase in interest and dividends receivable, net (16,659) (119,544)
Increase in other assets (288,301) (257,715)
(Decrease)increase in accrued interest payable (19,468) 37,959
Increase in other liabilities 80,500 136,739
Amortization of branch premium 25,000 24,999
- -------------------------------------------------------------------------- ------------ ------------
Net cash provided by operating activities 235,727 927,565
- -------------------------------------------------------------------------- ------------ ------------
Cash flows from investing activities:
Purchase of securities available for sale (2,120,003) (3,177,687)
Proceeds from Investment securities held to maturity matured or called 15,815,891 8,000,000
Proceeds from sale of securities available for sale -- 3,340,763
Purchase of investment securities held to maturity (20,318,702) (14,607,815)
Purchase of Mortgage-backed securities held to maturity (1,021,875) --
Securities available for sale repayments 7,411,659 3,493,462
Mortgage-backed securities held to maturity repayments 2,494,994 2,567,325
Net increase in loans receivable (4,785,501) (13,012,217)
Additions to premises and equipment (183,041) (83,586)
Additions to real estate owned -- (51,355)
Payments received on real estate owned -- 6,000
Proceeds from sales of loans 98,717 --
Proceeds from sales of real estate owned 360,128 323,073
Purchase of Federal Home Loan Bank of NY stock (47,800) (181,000)
- -------------------------------------------------------------------------- ------------ ------------
Net cash used in investment activities (2,295,533) (13,383,037)
- -------------------------------------------------------------------------- ------------ ------------
Cash flows from financing activities:
Net increase in deposits 5,660,498 8,644,594
Increase in Federal Home Loan Bank Advances -- 568,000
Repayment of Federal Home Loan Bank Advances (31,571) (10,064)
Increase in advance payments by
borrowers for taxes and insurance 35,683 189,635
Preferred stock dividends paid -- (42,500)
Common stock dividends paid (440,100) (177,550)
- -------------------------------------------------------------------------- ------------ ------------
Net cash provided by financing activities 5,224,510 9,172,115
- -------------------------------------------------------------------------- ------------ ------------
Net increase(decrease) in cash and cash equivalents 3,779,490 (3,283,357)
Cash and cash equivalents -- beginning 3,683,223 10,673,339
------------ ------------
Cash and cash equivalents -- end $ 7,462,713 $ 7,389,982
============ ============
</TABLE>
See notes to unaudited consolidated financial statements
Page 3
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS INC.
------------------------------------------
AND SUBSIDIARY
--------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------
1998 1997
---- ----
<S> <C> <C>
Supplemental disclosures of cash flows information:
- ---------------------------------------------------
Cash paid during the period for:
--------- ----------------------
Interest $6,428,689 $5,989,072
================ ===============
Income taxes $239,515 $231,669
================ ===============
Supplemental disclosure of noncash activities:
- ----------------------------------------------
(Decrease)increase in unrealized gain on securities,
net of deferred income taxes ($74,260) $99,045
================ ===============
Loans transferred to real estate owned $226,262 $ --
================ ===============
Loans originated to facilitate the sale of
real estate owned $ -- $663,000
================ ===============
Common stock dividend declared but not yet paid $220,050 $42,500
================ ===============
^Refundable federal income taxes not affecting $541,926 $ --
======== =========
net income recorded as an increase to additional
paid-in capital
</TABLE>
See notes to unaudited consolidated financial statements
Page 4
<PAGE>
First Savings Bancorp of Little Falls, Inc.
-------------------------------------------
Notes To Consolidated Financial Statements
------------------------------------------
The consolidated financial statements include the accounts of First
Savings Bancorp of Little Falls, Inc. (the "Company") and its wholly owned
subsidiary, First Savings Bank of Little Falls, FSB (the "Savings Bank") and the
Savings Bank's wholly owned subsidiaries, The First Service Corporation of
Little Falls and Redeem, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.
These consolidated financial statements were prepared in accordance
with instructions for Form 10-QSB and therefore, do not include all disclosures
necessary for a complete presentation of the statements of financial condition,
statements of income, and statements of cash flows in conformity with generally
accepted accounting principles. However, all adjustments which are, in the
opinion of management, necessary for the fair presentation of the interim
financial statements have been included and all such adjustments are of a normal
recurring nature. The results of operations for the nine months ended September
30, 1998 are not necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 1998 or any other interim period.
These statements should be read in conjunction with the consolidated
statements and related notes which are incorporated by reference in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1997.
Effective January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement of Financial Accounting Standards ("Statement") No. 130,
"Reporting Comprehensive Income". Statement No. 130 requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income. As required, the provisions of
Statement No. 130 have been retroactively applied to previously reported
periods. The application of Statement No. 130 had no effect on the Company's
consolidated financial condition or operations.
On September 8, 1998 the Company signed a definitive merger agreement (the
"Agreement") with Greater Community Bancorp ("Greater Community") dated
September 4, 1998, for the purchase by Greater Community of all of the
outstanding common stock of the registrant. Each share of the registrant's
common stock will converted into the right to receive $52.26 in cash, subject to
adjustment as provided in the Agreement.
Page 5
<PAGE>
In February 1998, the President of the Company recognized taxable income based
upon the removal of a restriction on transfer of previously awarded common
stock. Such shares were previously awarded to the President by an investor
group. As a result, the Bank recognized a tax deductible expense of $542,000.
Such deduction was reported incorrectly as a permanent timing difference in the
calculation of income tax expense for the three months ended March 31, 1998.
This tax benefit should have been recorded as a direct addition to paid-in
capital as required by FASB 109. Such tax benefit recorded in the quarter ended
March 31, 1998 has been reversed, revising previously reported data as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, 1998 September 30, 1998
-------------------------------------------------------
As Previously As Previously
reported As revised reported As revised
-------------------------------------------------------
<S> <C> <C> <C> <C>
Income before income tax $ 391,112 $ 391,112 $ 1,001,098 $ 1,001,098
Income (benefit)tax (377,403) 164,523 (155,614) 386,312
----------- ----------- ----------- -----------
Net Income $ 768,515 $ 226,589 $ 1,156,712 $ 614,786
=========== =========== =========== ===========
Net Income per common
share-basic and diluted $ 1.75 $ .51 $ 2.63 $ 1.40
=========== =========== =========== ===========
</TABLE>
Page 6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
On September 8, 1998 the Company signed a definitive merger agreement (the
"Agreement") with Greater Community Bancorp ("Greater Community") dated
September 4, 1998, for the purchase by Greater Community of all of the
outstanding common stock of the registrant. Each share of the registrant's
common stock will converted into the right to receive $52.26 in cash, subject to
adjustment as provided in the Agreement
FINANCIAL CONDITION AT SEPTEMBER 30, 1998
- -----------------------------------------
Total assets of the Company increased $6.4 million or 3.6% from $178.1
million at December 31, 1997 to $184.5 million as September 30, 1998. The
increase in assets primarily reflects the Company's deployment of proceeds into
the loan portfolio and net investments held to maturity, from principal
repayments of mortgage-backed securities held to maturity and redemption's of
securities available for sale. The Bank as of September 30, 1998 had $2.2
million of outstanding loan commitments that will be funded in the fourth
quarter of 1998 with outstanding balances of interest bearing demand deposits in
other banks.
Deposits, after interest credited increased $5.6 million or 3.4% from
$166.8 million at December 31, 1997 to $172.4 million at September 30, 1998. The
increase resulted primarily from the growth of certificates of deposit, Now
accounts and the Company's response to the rates offered by other bank's in the
market area. The Company did not offer promotional rates on deposits during this
quarter.
Stockholder's equity increased $422,000 to $10.3 million at September 30, 1998
from $9.9 million at December 31, 1997. The primary cause of the increase was
the recording of a $542,000 federal income tax benefit not affecting net income
directly to additional paid-in capital. This benefit related to the release of
certain restrictions on the common stock owned by a member of the control group.
Other changes in stockholders equity resulted from net income of $615,000,
dividends declared of $660,000 and a $74,000 reduction in net unrealized gains
on securities available for sale.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
- ------------------------------------------------
SEPTEMBER 30, 1998
- -------------------
Net income for the three months ended September 30, 1998 decreased
$6,000 or 2% from $241,000 for the three month period ended September 30, 1997
to $235,000 for three month period ended September 30, 1998. This decrease was
primarily due to a $93,000 decrease in net interest income, offset by a $89,000
decrease in non-interest expenses.
For the three months ended September 30, 1998, net interest income
decreased $93,000 from $1.21 million for the same period in 1997 to $1.12
million in 1998. The primary reason for the decrease was during the three months
ended September 30, 1998, the Company's interest rate spread and net interest
margin decreased to 2.55% and 2.54%, respectively, compared to 2.82% and 2.81%,
respectively for the same period of 1997.
Page 7
<PAGE>
The lower spread and margin are primarily due to a lower yield on earning
assets and the higher cost of funds in the third quarter of 1998. Average
balances of the securities and loan portfolio increased $6.7 million due to
asset growth from the origination of whole loans and the purchase of securities
Non-interest income increased $2,000 or 5% from $41,000 for the three
month period ended September 30, 1997 to $43,000 for the three month period
ended September 30, 1998. The increase was for increases in the collection of
mortgage late charges and DDA fees.
Non-interest expense decreased to $761,000 for the three month period ended
September 30, 1998 from $850,000 for the three month period ended September 30,
1997. Salaries and employee benefits decreased $25,000 due mainly to the
retirement of two employees at June 30, 1998 whose positions remained unfilled
as of September 30, 1998. Loss on foreclosed real estate decreased $78,000 due
to the lower holding costs and improved results related to the disposition of
properties during the three month period ended September 30, 1998. See " Asset
Quality". Legal fees increased $28,000 during the three month period September
30, 1998 because of increased costs associated with resolving cases of real
estate owned properties.
Income taxes were $137,000 and $134,000 for the three months ended
September 30, 1998 and 1997, respectively. The effective tax rate for the three
month periods ended September 30, 1998 and 1997, was 37% and 36% respectively.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
- ------------------------------------------------------------------
Net income for the nine months ended September 30, 1998 increased $15,000 or
2% from $600,000 for the nine month period ended September 30, 1997 to $615,000
for the nine month period ended September 30, 1998. The increase was primarily
due to a $12,000 increase in net interest income and a $56,000 decrease in
non-interest expense, partially offset by a $53,000 increase in income tax
expense.
For the nine months ended September 30, 1998, net interest income increased
$12,000 from $3.38 million for the same period in 1997 to $3.40 million in 1998.
The main reason for the increase was that the average balances of the securities
and loan portfolio increased $4.3 million, due to asset growth from the
origination of whole loans and the purchase of investment securities held to
maturity, during the nine month period ended September 30, 1998 compared to the
same period last year. Declining interest rates partially offset the increase in
average balances. The interest rate spread and net interest margin declined to
2.59% and 2.58%, respectively, during the nine months ended September 30, 1998
compared to 2.74% and 2.73%, respectively for the same period of 1997. The lower
spread and margin are primarily due to a lower yield on earning assets and
higher cost of funds in the first nine months of 1998.
Page 8
<PAGE>
Non-interest income decreased $1,000 or 1% from $124,000 for the nine
month period ended September 30, 1997 to $123,000 for the nine month period
ended September 30, 1998.
Non-interest expense decreased $56,000, or 2%, from $2.5 million for the nine
months ended September 30, 1997 to $2.44 million for the nine months ended
September 30, 1998. Such decrease was primarily attributable to a $94,000
decrease in loss on real estate owned, a $38,000 decrease in advertising and
promotion, offset by a $34,000 increase in legal fees. As discussed previously,
lower holding costs were incurred on real estate owned property and increased
legal costs were incurred on the resolution of real estate owned property. In
1997, the Company incurred advertising and promotion costs for the " Grand
Reopening" of the Little Ferry branch which were non-recurring in 1998.
An income tax expense of $386,000 was recorded for the nine month period ended
September 30, 1998 compared to a $334,000 expense for the same period last year.
The effective tax rate for the nine month periods ended September 30, 1998 and
1997, was 38% and 36% respectively
Asset Quality
- -------------
The following schedule sets forth certain information regarding the Bank's
non-performing as of September 30, 1998, and as of December 31, 1997.
Sept 30, December 31,
1998 1997
--------- ------------
Non-accrual loans $1,683 $2,601
Renegotiated loans 406 406
-------------------------
Total non-accural and
renegotiated loans 2,086 3,007
Other real estate owned 1,486 1,640
-------------------------
Total $3,572 $4,647
=========================
At September 30, 1998, non-accrual loans decreased $918,000 from December 31,
1997. Residential loans totaling $588,000 became nonaccrual, residential loans
formally non-accrual totaling $501,000 became current, a $300,000 payment was
made on a multi-family loan, four loans totaling $479,000 were paid-off and a
loan of $226,000 was transferred to other real estate owned and sold during the
second quarter of 1998. As of September 30, 1998 the Bank's other real estate
owned represents one non-residential property.
Page 9
<PAGE>
The following table represents an analysis of the allowance for loan losses:
<TABLE>
<CAPTION>
Nine months ended Sept. 30, Year ended December 31,
---------------------------------------------------------
1998 1997 1997
------------------------------------------------
<S> <C> <C> <C>
Balance - beginning $ 596,230 $ 523,715 $ 523,715
Provision charged 75,000 75,000 101,174
Loans charged off (61,555) (35,474) (37,374)
Recoveries 1,495 3,868 8,715
------------------------------------------------
Balance-ending $ 611,170 $ 567,109 $ 596,230
================================================
Net loans charged off as a
percent of average loans (1) .07% .04% .03%
Allowance as a percent of
Total loans .55% .52% .56%
Non performing loans 29.30% 34.64% 19.83%
</TABLE>
(1)Annualized
Analysis of the Allowance for Loan Losses
- -----------------------------------------
<TABLE>
<CAPTION>
At September 30, 1998 At December 31, 1997
---------------------------------------------------
(Dollars In Thousands) Percent of Percent of
Loans in each Loans in each
category to category to
$ total loans $ total loans
---------------------------------------------------
<S> <C> <C> <C> <C>
Real estate...................... $465 90.76% $408 88.96%
Commercial........................ 105 4.26% 107 4.38%
Consumer......................... 41 4.98% 81 6.66%
---------------------------------------------------
Total $611 100.00% 596 100.00%
===================================================
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Savings Bank is required to maintain minimum levels of liquid
assets, as defined by the Office Of Thrift Supervision regulations. This
requirement, which may be varied from time to time depending upon economic
conditions and deposit flows, is based upon a percentage of deposits and
short-term borrowings. The required minimum ratio is 4%. The Savings Bank's
liquidity ratio averaged 38.5% during nine months of 1998.
The Savings Bank anticipates that it will have sufficient funds
available to meet its current loan commitments and normal savings withdrawals.
At September 30, 1998, the Savings Bank had outstanding loan commitments of $2.7
million. In addition, it had $97.7 million in certificates of deposits scheduled
to mature within one year of September 30, 1998. Based upon historical
experience, management believes that a substantial portion of such deposits will
remain with the Savings Bank.
As of September 30, 1998, the Company had regulatory capital that was
in excess of applicable limits. The Company is required under certain federal
regulations to maintain tangible capital equal to at least 1.5% of its tangible
assets, core capital equal to at least 3.00% of adjusted tangible assets and
risk-based capital equal to at least 8.00% of risk-weighted assets. At September
30, 1998, the Savings Bank had tangible capital equal to 5.11% of adjusted total
assets, core capital equal to 5.11% of adjusted total assets and total capital
equal to 12.43% of risk-weighted assets.
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YEAR 2000
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A great deal of information has been disseminated about the global computer year
2000. Many computer programs that can only distinguish the final two digits of
the year entered (a common programming practice in earlier years) are expected
to read entries for the year 2000 as the year 1900 and compute payment, interest
or delinquency based on the wrong date or are expected to be unable to compute
payment, interest or delinquency. Rapid and accurate data processing is
essential to the operation of the Bank. Data processing is also essential to
most other financial institutions and many other companies. All of the material
data processing of the Bank that could be affected by this problem is provided
by third party hardware and software providers.
During March 1998 the Bank's Board of Directors adopted a Year 2000 Business
Plan("The Plan") and selected five key employees to serve on the Year 2000
committee and prepare the Bank for the new millennium. As recommended by the
Federal Financial Institutions Examination Council, the Plan encompasses the
following phases: Awareness, Assessment, Renovation, Validation and
Implementation. These phases will enable the Company to identify risks, develop
an action plan perform adequate testing and complete certification that its
processing systems will be Year 2000 ready. Execution of the Plan is currently
on target.
The Bank's committee has selected nine areas as deemed mission critical to the
continued operation of the Bank into the next millennium. The nine areas are as
follows: internal Data processing system, Novell wide area networks, personal
computer hardware/software, Fedline terminal, automated clearing house terminal,
ATM machines, optical disk storage, and third party service bureaus. The Bank's
main areas of concern is the in-house data processing system which is a Unisys
mainframe running Information Technology Inc. software. The system is the Bank's
main processor and currently runs the Bank's savings, DDA, loans, general
ledger, investments, accounts payable and fixed assets. This system is currently
Year 2000 and has been since it was compiled in 1987 and therefore no additional
costs or renovations will needed to be done in this area. The other eight areas
of concern have either been updated to be Year 2000 ready or will be updated by
the fourth quarter of 1998.
The Bank is currently in the validation phase of its plan and expects to have
completed all testing and have all systems verified by June 1999. Testing has
been delayed until June 1999 due to the pending merger. If the proposed merger
is completed, it is uncertain which system the Bank will retain.
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<PAGE>
The Bank has contacted all material vendors and suppliers regarding their Year
2000 state of readiness. Each of these third parties has delivered written
assurance to the Bank that they expect to be Year 2000 compliant prior to the
Year 2000. The Bank is in the process of contacting all its material loan
customers regarding their Year 2000 state of readiness.
Based on a preliminary study, the Bank expects to spend approximately $74,000
from 1998 through 1999 to modify its computer information systems enabling
proper processing of transactions relative to the year 2000 and beyond. As of
September 30, 1998 the Bank has incurred $20,000 of expenses toward the Year
2000 and does not expect to incur all the $74,000 allocated to the Year 2000 due
to the pending merger which will result in the consolidation of some operations
and therefore some expenses will not have to be incurred. The Bank has not
developed a formal contingency plan which would be implemented in the unlikely
event that it was not Year 2000 compliant. The Company will continue to closely
monitor the progress of its Year 2000 compliance plan and will determine by
March 31, 1999 if the need for a contingency plan exits. The Bank is considering
using its existing Disaster Recovery Plan as a contingency plan which would be
implemented in the unlikely event that it was not Year 2000 compliant. The
Bank's Disaster recovery plan in summary calls for a delivery of new computer
equipment with compliant software in a remote location if necessary.
The Bank continues to evaluate appropriate courses of corrective action,
including replacement of certain systems whose associated costs would be
recorded as assets and amortized. Accordingly, the Bank does not expect the
amounts required to be expensed over the next two years to have a material
effect on its financial position or results of operations.
Successful and timely completion of the Year 2000 project is based on
management's best estimates derived from various assumptions of future events,
which are inherently uncertain, including the progress and results of the Bank's
testing plans, and all vendors, supplies and customer readiness.
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<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
-------------------------------------------
PART II
-------
Item 1. Legal Proceedings
The Company and the Savings Bank are not engaged in any legal
proceedings of a material nature at the present time. From time to
time, the Savings Bank is a party to legal proceedings wherein it
enforces its security interest in loans.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a)Exhibits
Exhibit 27 Financial Data Schedule(electronic filing only)
b)Reports on Form 8-K
On September 9, 1998, the Company filed a Form 8-K reporting the
announcement of the definitive merger agreement with Greater
Community Bancorp.
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<PAGE>
SIGNATURES
----------
Pursuant to the requirements 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.
FIRST SAVINGS BANCORP OF LITTLE FALLS INC.
------------------------------------------
(Registrant)
Date: December 7, 1998 /s/Haralambos S. Kostakopoulos
----------------------------
Haralambos S. Kostakopoulos
President
Chief Executive Officer
Date: December 7, 1998 /s/Brian McCourt
-----------------------------
Brian McCourt
Vice President
Treasurer
Page 14
