<PAGE> 1
REGISTRATION NO. 333-74383
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1 TO THE
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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HUDSON CITY BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE OF INCORPORATION)
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<TABLE>
<S> <C> <C>
DELAWARE 6035 22-3640393
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
WEST 80 CENTURY ROAD
PARAMUS, NEW JERSEY 07652
(201) 967-1900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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LEONARD S. GUDELSKI
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
HUDSON CITY SAVINGS BANK
WEST 80 CENTURY ROAD
PARAMUS, NEW JERSEY 07652
(201) 967-1900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
ROBERT C. AZAROW, ESQ.
OMER S. J. WILLIAMS, ESQ.
THACHER PROFFITT & WOOD
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 912-7400
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective. If any of the
securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value..................... 77,696,875 $10.00 $776,968,750 $241,917(3)
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</TABLE>
(1) Includes the maximum number of shares that may be issued in connection with
this offering.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Previously paid upon filing of the Registration Statement on March 15, 1999.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION ON SUCH DATE OR DATES AS MAY
BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
PROSPECTUS
[LOGO]
HUDSON CITY BANCORP, INC.
Proposed Holding Company for Hudson City Savings Bank
Up to 77,696,875 Shares of Common Stock
Hudson City Bancorp, Inc. is a new corporation that is offering shares of its
common stock. The shares we are offering represent less than half of the
outstanding common stock of Hudson City Bancorp. Hudson City Savings Bank formed
Hudson City Bancorp to own Hudson City Savings Bank as part of a reorganization
of our structure. More than half of the outstanding common stock of Hudson City
Bancorp will be owned by Hudson City, MHC, a mutual savings bank holding
company. The common stock of Hudson City Bancorp will be listed for trading on
the Nasdaq National Market System under the symbol "HCBK."
TERMS OF THE OFFERING
PRICE: $10.00 PER SHARE
<TABLE>
<CAPTION>
Minimum Maximum
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<S> <C> <C>
Number of shares ............................ 49,937,500 67,562,500
Underwriting commissions and expenses ....... $ 9,047,000 $ 10,993,000
Net proceeds to Hudson City Bancorp ......... $490,328,000 $664,632,000
Net proceeds per share to Hudson City Bancorp $ 9.82 $ 9.84
</TABLE>
We may sell up to 77,696,875 shares because of regulatory
considerations or changes in market or economic conditions.
PLEASE READ THE RISK FACTORS BEGINNING ON PAGE [ ].
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.
Neither the Securities and Exchange Commission, the Federal Deposit Insurance
Corporation, the Commissioner of Banking and Insurance of the State of New
Jersey nor any state securities regulator has approved or disapproved these
securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
RYAN, BECK & CO.
[ ], 1999
<PAGE> 3
[MAP OF NEW JERSEY DIVIDED BY COUNTY AND SHOWING NUMBER OF
HUDSON CITY SAVINGS BANK BRANCH OFFICES PER COUNTY]
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SUMMARY
To more fully understand the offering, you should read this entire document
carefully, including the financial statements and the notes to the financial
statements.
OUR REORGANIZATION AND STOCK OFFERING
Hudson City Savings Bank is reorganizing into the mutual holding company
structure. As part of the reorganization, Hudson City Bancorp is offering shares
of its common stock to the public. After the reorganization, Hudson City Bancorp
will own Hudson City Savings.
THE COMPANIES
HUDSON CITY SAVINGS BANK
Hudson City Savings is a community and customer-oriented savings bank that
provides financial services primarily to individuals and families. We seek to
differentiate ourselves from our competitors by providing high quality service
while maintaining low operating costs. Our assets are almost evenly divided
between residential mortgage loans and mortgage-backed and other investment
securities. Deposits provide the funds for the loans and investments we make.
Hudson City Savings has 75 branches located in Bergen, Burlington, Camden,
Essex, Gloucester, Hudson, Middlesex, Monmouth, Morris, Ocean, Passaic, Union
and Warren counties in New Jersey. At December 31, 1998, we had assets of $7.75
billion, deposits of $6.81 billion and equity of $901 million. By asset size, we
are the largest savings bank headquartered in New Jersey and the largest mutual
savings bank in the country.
HUDSON CITY BANCORP, INC.
Hudson City Bancorp, Inc. will be the holding company for Hudson City
Savings Bank after the reorganization. Hudson City Bancorp has not engaged in
any business to date.
HUDSON CITY, MHC
Hudson City, MHC will own more than half of the outstanding common stock of
Hudson City Bancorp after the reorganization. We do not expect that Hudson City,
MHC will engage in any business activity other than owning a majority of the
common stock of Hudson City Bancorp and managing dividends it receives from
Hudson City Bancorp. We do not expect that Hudson City, MHC will waive the
receipt of dividends declared by Hudson City Bancorp.
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FINANCIAL HIGHLIGHTS OF HUDSON CITY SAVINGS INCLUDE:
- - Residential Lending.
Hudson City Savings is the third largest originator of residential mortgage
loans in our market area. We originate the majority of these loans for our
own portfolio, rather than for sale, and we service the loans we originate.
At December 31, 1998, we had $3.57 billion of residential mortgage loans,
representing 97.6% of our total loan portfolio.
- - Commitment to Cost Control.
We have been effective at controlling our costs of operations. As a result
of these efforts, our ratio of operating expenses to average assets was
0.84% for 1998. Our efficiency ratio, a commonly used industry ratio that
measures the cost of producing each dollar of revenue, was 29.58% for 1998.
These ratios are favorable compared to other savings institutions.
- - Interest Rate Strategy.
To reduce the risk that our earnings will be hurt if interest rates change,
we have invested in adjustable-rate mortgage-backed securities that are
guaranteed by U.S. government agencies. At December 31, 1998, we had $2.17
billion of these securities. As part of our interest rate management
strategy, we also originate adjustable-rate residential mortgage loans. At
December 31, 1998, we had $1.85 billion of these loans.
- - Asset Quality.
Through our commitment to residential lending and investment in
mortgage-backed securities, we have had low levels of losses on loans and
late payments. At December 31, 1998, our ratio of non-performing assets to
total assets was 0.21% and our ratio of allowance for loan losses to
non-performing loans was 115.47%. These ratios are favorable compared to
those of most other savings institutions.
- - Capital Strength and Profitability.
Our policy has been to maintain the financial strength of Hudson City
Savings through conservative risk management, a sound financial condition,
consistent earnings and efficient operations. At December 31, 1998, our
ratio of equity to assets was 11.62%, our return on average assets was
1.24% and our return on average equity was 10.90%.
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DESCRIPTION OF OUR STRUCTURE AFTER THE REORGANIZATION
This chart shows our new structure, which is commonly referred to as a mutual
holding company structure, after the reorganization:
[DEPOSITORS IN HUDSON CITY SAVINGS BANK]
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limited voting rights and
rights upon liquidation
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[HUDSON CITY, MHC] [PUBLIC STOCKHOLDERS]
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53% of Hudson City Bancorp's 47% of Hudson City Bancorp's
Common Stock Common Stock
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--------[HUDSON CITY BANCORP, INC.]-------
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100% ownership
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[HUDSON CITY SAVINGS BANK]
PERSONS WHO CAN ORDER STOCK IN THE OFFERING
We are offering the shares of common stock of Hudson City Bancorp in what
we call a "subscription offering" in the order of priority listed below:
(1) Depositors with accounts at Hudson City Savings with total balances of
at least $100 on December 31, 1997;
(2) Our employee stock ownership plan, which will provide retirement
benefits to our employees; and
(3) Depositors with accounts at Hudson City Savings with total balances of
at least $100 on March 31, 1999;
The shares of common stock not purchased in the subscription offering will
be offered in what we call a "community offering" in the order of priority
listed below:
(1) Depositors with accounts at Hudson City Savings with total balances of
at least $100 on April 30, 1999;
(2) Individuals who are "residents" of New Jersey;
(3) Corporations, partnerships, trusts and other entities who are
residents of New Jersey; and
(4) Other members of the public to whom we deliver a prospectus.
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In order to assure a successful offering, we have the right to grant an
overriding priority for institutional investors over purchasers in the community
offering, except for depositors as of April 30, 1999, for up to 25% of the
shares we sell in the offering. We may offer shares of common stock not
purchased in either the subscription offering or community offering to the
public through a selling group of brokers on a best efforts basis or in an
underwritten public offering.
TERMS OF THE OFFERING
We are offering for sale between 49,937,500 and 67,562,500 shares of common
stock of Hudson City Bancorp. The number of shares we sell in the offering may
increase by 15% to 77,696,875 shares as a result of regulatory considerations or
changes in financial markets. If we increase the number of shares we issue, you
will not have the opportunity to change or cancel your stock order. The offering
price is $10.00 per share. Ryan, Beck & Co., Inc. will use its best efforts to
assist us in selling our stock.
HOW WE DETERMINED THE OFFERING RANGE AND THE $10.00 PRICE PER SHARE
The offering range is based on an independent appraisal of Hudson City
Savings by RP Financial, LC., an appraisal firm experienced in appraisals of
savings institutions. RP Financial has estimated that our market value as of
April 16, 1999, is between $1.06 billion and $1.44 billion. This results in an
offering of between 49,937,500 and 67,562,500 shares of stock at an offering
price of $10.00 per share because we are only offering 47% of our stock to the
public. RP Financial's estimate of our market value was based in part upon our
financial condition and results of operations and the effect of the additional
capital to be raised in this offering. RP Financial's independent appraisal will
be updated before we complete our reorganization.
Two of the factors that RP Financial considered in determining our market
value were the price-to-book ratio and the price-to-earnings ratio or P/E ratio.
The price-to-book ratio represents the price per share of stock divided by its
book value per share. After completion of the reorganization, each share of
Hudson City Bancorp common stock, including the shares we issue to Hudson City,
MHC, will have a book value or equity of $10.31, assuming we sell 67,562,500
shares. This means that the price you pay for each share in this offering will
be 96.99% of the book value.
The P/E ratio represents the price per share of stock divided by earnings
or net income per share. In our case, for 1998, our P/E ratio would have been
12.99x, assuming we sold 67,562,500 shares of stock.
The $10.00 price per share was determined by our board of managers and is
the price per share most commonly used in stock offerings involving conversions
and reorganizations of savings institutions.
LIMITS ON YOUR PURCHASE OF THE COMMON STOCK
Your orders for common stock will be limited in the following ways:
(1) the minimum order is 25 shares;
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(2) in the subscription offering, the maximum amount that an individual
may purchase is $500,000;
(3) in the community offering, the maximum amount that an individual
acting together with other may purchase is $500,000; if you purchase
$500,000 of common stock in the subscription offering you may still
purchase up to $500,000 of common stock in the community offering;
(4) the total amount that an individual may purchase, acting together with
other, is $2,500,000; and
(5) if we receive orders for a greater number of shares than we are
offering, then we will allocate the shares that we issue as described
in "The Reorganization and The Offering--Limitations on Common Stock
Purchases;" this may result in your receiving a smaller number of
shares than you ordered.
We may increase both the $500,000 and $2.5 million purchase limitations in our
discretion, if we do not receive orders for at least 49,937,500 shares. For
additional information on these purchase limitations, see "The Reorganization
and The Offering -- Limitations on Common Stock Purchases."
HOW YOU MAY PAY FOR YOUR SHARES
In the subscription offering and the community offering, you may only pay
for your shares by:
(1) personal check, official bank check or money order; or
(2) authorizing us to withdraw money from your deposit accounts maintained
with Hudson City Savings.
See "The Reorganization and The Offering- Procedure for Purchasing Shares in
Subscription and Community Offerings - Payment for Shares - for additional
information on how you may pay for your shares."
YOU MAY NOT SELL OR TRANSFER YOUR SUBSCRIPTION RIGHTS
If you order stock in the subscription offering, you will be state that you
are purchasing the stock for yourself and that you have no agreement or
understanding to sell or transfer your rights. We intend to take legal action
against anyone who sells or gives away their subscription rights. We will not
accept your order if we have reason to believe that you sold or transferred your
subscription rights. If anyone offers to give you money to buy stock in your
name, in exchange for later transferring the stock, or if someone requests to
share in proceeds upon your future sale of Hudson City Bancorp stock, please
inform our Stock Information Center at (800) 541-3187.
DEADLINE FOR ORDERS OF COMMON STOCK
If you wish to purchase shares, you must submit, by mail or by overnight
courier, a properly completed stock order form, together with payment for the
shares, to the Stock Information Center at the address indicated on the enclosed
Stock Order Form, by 10:00 a.m., Eastern Time, on [ ], 1999, unless we extend
this
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deadline. You must submit your order forms by mail or overnight courier. You may
not drop off your order forms at any of our branch offices.
TERMINATION OF THE OFFERING
The subscription offering will terminate at 10:00 a.m., Eastern Time, on [
], 1999. We expect that the community offering will terminate at the same time.
We may extend this expiration date without notice to you, until [ ], 1999,
unless regulators approve a later date. All further extensions, in the
aggregate, may not last beyond [ ].
MARKET FOR THE COMMON STOCK
We expect the common stock to trade on the Nasdaq National Market System of
The Nasdaq Stock Market under the symbol "HCBK." Ryan, Beck intends to make a
market in the common stock but it is under no obligation to do so.
HOW WE INTEND TO USE THE PROCEEDS WE RAISE FROM THE OFFERING
Assuming we sell 67,562,500 shares in the subscription offering, we intend
to distribute the net proceeds from the offering as follows:
- $332.3 million will be contributed to Hudson City Savings;
- $54.1 million will be loaned to the employee stock ownership plan of
Hudson City Savings to fund its purchase of common stock (assuming the
purchase of the shares at $10.00 per share); and
- $278.2 million will be retained by Hudson City Bancorp.
Hudson City Bancorp may use the net proceeds retained from the offering as
a possible source of funds to pay dividends to stockholders, to repurchase
common stock, to finance the possible acquisition of other financial
institutions and other businesses that are related to banking, to invest in
securities or for other general corporate purposes. Hudson City Savings may use
the proceeds it receives to fund new loans, to purchase mortgage-backed
securities and investment securities or for general corporate purposes,
including the possible establishment or acquisition of branch offices.
OUR POLICY REGARDING DIVIDENDS
We currently plan to pay an annual cash dividend of $0.20 per share,
payable quarterly at $0.05 per share starting the first quarter after we
complete the reorganization. We do not guarantee that we will pay dividends, or
that we will not reduce or eliminate dividends in future periods.
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OUR DIRECTORS, OFFICERS AND EMPLOYEES WILL HAVE ADDITIONAL
COMPENSATION AND BENEFIT PROGRAMS AFTER THE REORGANIZATION
We are adding two new benefit plans for our officers and employees at no
cost to them:
- Employee Stock Ownership Plan. This plan will cover most of our
salaried employees. We will lend it money to buy up to 8% of the
shares we sell in the offering. It will buy them either in the
offering or in the open market. The plan will allocate the stock to
employees over a thirty-year period as additional compensation for
their services.
- ESOP Restoration Plan. This plan will provide selected executive
officers additional benefits if the tax laws limit their benefits or
if they retire before the distribution of all stock under the employee
stock ownership plan.
We are also adding the following termination pay arrangements:
- Employment Agreements and Change of Control Agreements. We are
entering into employment agreements with Mr. Gudelski, our Chairman
and Chief Executive Officer, Mr. Hermance, our President and Chief
Operating Officer, and Mr. Tassillo, our Executive Vice President and
Treasurer. If we discharge one of them without cause, or if one of
them resigns because we do not meet our obligations under these
agreements, we must make a termination payment. We are also entering
into change of control agreements with four First Vice Presidents.
These agreements have termination provisions similar to those in the
employment agreements, but they apply only if there is a change of
control.
- Outside Directors Consultation Plan. We have added change of control
protections to this plan. The protections will assure that each of our
outside directors receives benefits if a change of control prematurely
ends his or her service.
We also plan to add the following stock-based benefit plans for our
directors, officers and employees:
- Stock Option Plan. Under this plan, we may grant our officers,
directors and employees options to purchase our stock at a price that
is set on the date we grant the option. The price that we set cannot
be less than our stock's current trading price when we grant the
options, so the options will have value only if our stock price
increases. Recipients of options will have up to ten years to exercise
their options.
- Management Recognition Plan. This plan will allow selected officers,
directors and employees to receive shares of our stock, without making
any payment at all, if they work for us until the end of a specified
service period or attain other performance goals.
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Assuming we sell 67,562,500 shares, we expect to ask our stockholders for
approval to grant options to purchase up to 6,756,250 of our shares and make
stock grants under a management recognition plan of up to 2,702,500 shares under
the plans described above. We will not implement a stock option plan or
management recognition plan unless our stockholders approve them. We do not
expect to ask our stockholders to approve these plans until at least six months
after we complete the offering. We expect to obtain the shares we would need for
these plans through stock repurchases.
The following table presents the dollar value of the shares that we expect
to grant under the employee stock ownership and the contemplated management
recognition plans and of those to be granted under the stock option plan, and
the percentage of Hudson City Bancorp's outstanding common stock that will be
represented by these shares. We based the value of the shares for the employee
stock ownership plan and management recognition plan on a price of $10.00 per
share and the issuance of 67,562,500 shares of common stock.
<TABLE>
<CAPTION>
Percentage of
Value of common stock sold
Benefit plan shares granted in the offering
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(Dollars in thousands)
<S> <C> <C>
Employee stock ownership plan..... $54,050 8%
Management recognition plan ...... 27,025 4%
Stock option plan ................ -- 10%
------- -------
$81,075 22%
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</TABLE>
POSSIBLE CONVERSION OF HUDSON CITY, MHC TO STOCK FORM
In the future, Hudson City, MHC may convert from the mutual to capital
stock form, in a transaction commonly known as a "second-step conversion." If
Hudson City, MHC were to undertake a second-step conversion, Hudson City
Bancorp's public stockholders would own approximately the same percentage of the
resulting entity as they owned prior to the second-step conversion. This
percentage would be adjusted to reflect the assets owned by Hudson City, MHC and
any dividends waived by Hudson City, MHC. The board of managers has no current
plan to undertake a "second-step conversion transaction." For a description of
this possible second-step conversion, see "The Reorganization and The Offering
- -- Possible Conversion of Hudson City, MHC to Stock Form."
HOW YOU MAY OBTAIN ADDITIONAL INFORMATION REGARDING THE OFFERING
If you have any questions regarding the offering or the reorganization,
please call the Stock Information Center at (800) 541-3187, Monday through
Friday, between 9:00 a.m. and 4:00 p.m.
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RISK FACTORS
You should consider carefully the following risk factors before
deciding whether to invest in our common stock.
RISING INTEREST RATES MAY HURT OUR PROFITS.
To be profitable, we have to earn more money in interest and fees than we
pay as interest and other expenses. Of our residential mortgage loans, 48.1%
have interest rates that are fixed for the term of the loan. We originate loans
with terms of up to 30 years, while 70.0% of our deposit accounts consist of
time deposit accounts with remaining terms to maturity of less than one year. If
interest rates rise, the amount of interest we pay on deposits is likely to
increase more quickly than the amount of interest we receive on our loans,
mortgage-backed securities and investment securities. This would cause our
profits to decrease. Rising interest rates may also reduce the value of our
mortgage-backed securities and investment securities. For additional information
on our exposure to interest rates, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Management of Interest Rate
Risk."
LOW DEMAND FOR MORTGAGE LOANS MAY LOWER OUR PROFITABILITY.
Making residential mortgage loans is our primary business and primary
source of profits. If customer demand for residential mortgage loans decreases,
our profits may decrease because our alternative investments earn less revenue
for us than residential mortgage loans. Customer demand for residential mortgage
loans could be reduced by a weaker economy, an increase in unemployment, a
decrease in real estate values or an increase in interest rates.
AFTER THE REORGANIZATION OUR RETURN ON AVERAGE EQUITY WILL BE LOW COMPARED TO
OTHER COMPANIES. THIS COULD HURT THE PRICE OF OUR COMMON STOCK.
We will not be able to deploy the increased capital from this offering
immediately. Our ability to profitably leverage our new capital will be
significantly affected by industry competition for loans and deposits.
Initially, we intend to invest the net proceeds in short term investments which
generally have lower yields than residential mortgage loans. This will reduce
our return on average equity to a level that will be lower than our historical
ratios. For 1998, our return on average equity was 10.90%. Until we can leverage
our increased capital and grow interest-earning assets, we expect our return on
equity to be below the industry average, which may negatively impact the value
of your stock.
STRONG COMPETITION WITHIN OUR MARKET AREA MAY REDUCE OUR CUSTOMER BASE.
Competition in the banking and financial services industry is intense. We
have competed for customers by offering excellent service and competitive rates
on our loans and deposit products. We compete with commercial banks, savings
institutions, mortgage banking firms, credit unions, finance companies, mutual
funds, insurance companies, and brokerage and investment banking firms. Some of
these competitors have greater resources than we do and may
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offer services that we do not provide. For example, we do not provide insurance
products, trust or investment services, telephonic banking, banking services
through home computers or other technologically advanced services. Customers who
seek "one stop shopping" may be drawn to these institutions. Our profitability
depends upon our continued ability to successfully compete in our market area.
THE IMPLEMENTATION OF STOCK-BASED BENEFITS WILL INCREASE OUR FUTURE COMPENSATION
EXPENSE AND REDUCE OUR EARNINGS.
We intend to adopt a stock option plan which will provide for the granting
of options to purchase common stock, to adopt a management recognition plan that
will provide for awards of common stock to our eligible officers, employees and
directors and to have an employee stock ownership plan which will purchase
shares in the reorganization. In addition, we intend to adopt a restoration plan
that will supplement the benefits to select executive officers under the
employee stock ownership plan. These plans will increase our future costs of
compensating our directors and employees. The cost of these plans will vary
based on our stock price.
THE YEAR 2000 ISSUE COULD HURT OUR OPERATIONS AND OUR PROFITS AND COULD LOWER
THE VALUE OF YOUR STOCK.
We rely upon computers to conduct our daily business. Failure of any of our
computer systems, those of the parties we do business with or the public
infrastructure, including the electric and telephone companies, to process the
new year may disrupt our ability to do routine business and to service our
customers. For example, we may not be able to process withdrawals or deposits,
prepare account statements or engage in any of the transactions that constitute
our normal operations. This could hurt our profits. For additional information
regarding the "Year 2000 Issue," see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Issues for the Year 2000."
HUDSON CITY, MHC'S VOTING CONTROL OVER HUDSON CITY BANCORP MAY PREVENT
TRANSACTIONS YOU WOULD LIKE.
Hudson City, MHC will own a majority of Hudson City Bancorp's common stock
after the reorganization. Hudson City, MHC will be managed by the same directors
and officers who manage Hudson City Savings. The board of directors of Hudson
City, MHC will control the outcome of most matters put to a vote of stockholders
of Hudson City Bancorp. We cannot assure you that the votes cast by Hudson City,
MHC will be in your personal best interests as a stockholder. For more
information regarding your lack of voting control over Hudson City Bancorp, see
"Hudson City, MHC" and "Restrictions on Acquisition of Hudson City Bancorp and
Hudson City Savings."
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SELECTED FINANCIAL AND OTHER DATA
The summary information presented below under "Selected Financial Condition
Data," "Selected Operating Data" and "Selected Financial Ratios and Other Data"
at or for each of the years presented is derived in part from the audited
financial statements of Hudson City Savings. The following information is only a
summary and you should read it in conjunction with our financial statements and
notes beginning on Page F-1.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ------------ ------------ ------------ -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets................................. $7,752,260 $7,313,999 $6,672,429 $5,429,142 $4,891,555
Loans........................................ 3,659,407 3,463,803 3,171,458 2,791,802 2,606,059
Investment securities available for sale..... 785,031 654,726 595,870 563,655 263,685
Mortgage-backed securities held to maturity.. 3,070,931 3,022,225 2,710,078 1,865,930 1,642,927
Total cash and cash equivalents.............. 156,875 95,674 121,601 133,032 86,431
Foreclosed real estate, net.................. 1,026 1,410 2,385 3,440 1,942
Total deposits............................... 6,807,339 6,465,956 5,918,971 4,757,813 4,296,932
Total equity................................. 900,606 807,713 719,077 638,944 565,941
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ------------ ------------ ------------ -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Total interest income........................ $520,791 $500,442 $429,278 $363,102 $310,048
Interest expense on deposits................. 311,084 297,484 242,667 195,543 133,746
-------- -------- -------- ------- --------
Net interest income..................... 209,707 202,958 186,611 167,559 176,302
Provision for loans losses................... 2,400 2,850 2,275 1,000 789
-------- -------- -------- -------- --------
Net interest income after provision
for loan losses.................... 207,307 200,108 184,336 166,559 175,513
-------- -------- -------- -------- --------
Non-interest income:
Service charges and other income........ 4,930 4,710 3,896 4,212 3,864
Gains on net securities transactions.... 24 1,594 152 307 482
-------- -------- -------- -------- --------
Total non-interest income.......... 4,954 6,304 4,048 4,519 4,346
-------- -------- -------- -------- --------
Total non-interest expense................... 63,492 62,919 60,958 61,054 65,056
-------- -------- -------- -------- --------
Income before income tax expense............. 148,769 143,493 127,426 110,024 114,803
Income tax expense...................... 55,500 53,500 46,595 42,250 41,778
-------- -------- -------- -------- --------
Net income................................... $ 93,269 $ 89,993 $ 80,831 $ 67,774 $ 73,025
======== ======== ======== ======== ========
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
AT OR FOR THE
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
Return on average assets ................... 1.24% 1.27% 1.33% 1.32% 1.55%
Return on average equity ................... 10.90 11.79 11.93 11.24 13.71
Net interest rate spread(1) ................ 2.16 2.28 2.50 2.70 3.39
Net interest margin(2) ..................... 2.85 2.94 3.14 3.35 3.86
Non-interest expense to average assets ..... 0.84 0.89 1.00 1.19 1.38
Efficiency ratio(3) ........................ 29.58 30.30 32.00 35.54 36.11
Average interest-earning assets to average
interest bearing ......................... 1.16x 1.15x 1.16x 1.17x 1.16x
===== ===== ===== ===== =====
CAPITAL RATIOS:
Average equity to average assets ........... 11.35% 10.79% 11.11% 11.72% 11.32%
Equity to assets ........................... 11.62 11.04 10.78 11.77 11.57
REGULATORY CAPITAL RATIOS:
Leverage capital ........................... 11.93 11.37 11.69 12.24 11.91
Total risk-based capital ................... 39.23 37.60 35.15 33.77 30.73
ASSET QUALITY RATIOS:
Non-performing loans to total loans ........ 0.42 0.47 0.53 0.75 0.84
Non-performing assets to total assets ...... 0.21 0.24 0.29 0.45 0.49
Allowance for loan losses to non-performing
loans..................................... 115.47 96.85 76.89 56.91 52.89
Allowance for loan losses to total loans ... 0.48 0.45 0.41 0.43 0.44
OTHER DATA:
Number of deposit accounts.................. 484,991 480,414 456,847 397,210 368,271
Branches ................................... 75 75 74 71 69
</TABLE>
_____________
(1) We determined this number by subtracting the weighted average cost of
average interest-bearing liabilities from the weighted average yield on
average interest-earning assets.
(2) We determined this ratio by dividing net interest income by average
interest-earning assets.
(3) We determined this ratio by dividing total non-interest expense by the sum
of net interest income and total non-interest income (adjusted to exclude
net gains on securities transactions of $24,000 for 1998, $1,594,000 for
1997, $152,000 for 1996, $307,000 for 1995 and $482,000 for 1994).
14
<PAGE> 16
RECENT DEVELOPMENTS
The summary information presented below under "Selected Financial Condition
Data." "Selected Operating Data" and "Selected Financial Ratios and Other Data"
at or for each of the three months ended March 31, 1999 and 1998 is taken from
the unaudited financial statements of Hudson City Savings. In our opinion, all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the financial condition and results of operations for the
unaudited periods presented have been included. The results of operations and
other data presented for the three months ended March 31, 1999 are not
necessarily indicative of the results of operations for the fiscal year ended
December 31, 1999. The following information is only a summary and you should
read it in conjunction with our audited December 31, 1998 financial statements
and notes beginning on page F-1. See also "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Forward Looking Statements."
<TABLE>
<CAPTION>
At
--------------------------------------
March 31, 1999 December 31, 1998
-------------- -----------------
(In thousands)
<S> <C> <C>
Selected Financial Condition Data:
Total assets.......................................... $7,879,908 $7,752,260
Loans................................................. 3,744,975 3,659,407
Investment securities available for sale.............. 860,517 785,031
Mortgage-backed securities held to maturity........... 3,106,592 3,070,931
Total cash and cash equivalents....................... 85,849 156,875
Foreclosed real estate, net........................... 1,293 1,026
Total deposits........................................ 6,901,129 6,807,339
Total equity.......................................... 920,890 900,606
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
--------------------------------------
1999 1998
-------------- -----------------
(In thousands)
<S> <C> <C>
Selected Operating Data:
Total interest income................................. $130,068 $129,784
Interest expense on deposits.......................... 74,790 76,752
Net interest income................................... 55,278 53,032
Provision for loan losses............................. 600 600
Net interest income after provision for loan losses... 54,678 52,432
Non-interest income:
Service charges and other income...................... 1,206 1,153
Total non-interest expense............................ 17,227 16,655
Income before income tax expense...................... 38,657 36,930
Income tax expense.................................... 14,400 13,175
Net income............................................ $24,257 $23,755
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
At or For the Three
Months Ended March 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
Selected Financial Ratios and Other Data(1):
Performance Ratios:
Return on average assets.................................. 1.24% 1.28%
Return on average equity.................................. 10.62 11.58
Net interest rate spread(2)............................... 2.17 2.20
Net interest margin(3).................................... 2.84 2.88
Non-interest expense to average assets.................... 0.88 0.90
Efficiency ratio(4)....................................... 31.07 31.35
Average interest-earning assets to average
interest-bearing liabilities.............................. 1.17x 1.16x
Capital Ratios:
Average equity to average assets.......................... 11.71% 11.09%
Equity to assets.......................................... 11.69 11.10
Regulatory Capital Ratios:
Leverage capital.......................................... 11.83 11.19
Total risk-based capital.................................. 39.73 37.99
Asset Quality Ratios:
Non-performing loans to total loans....................... 0.36 0.45
Non-performing assets to total assets..................... 0.19 0.23
Allowance for loan losses to non-performing loans......... 135.89 101.89
Allowance for loan losses to total loans.................. 0.49 0.46
Other Data:
Number of deposit accounts................................ 488,050 485,396
Branches.................................................. 75 75
</TABLE>
- --------------
(1) With the exception of end of period ratios, all other ratios are based on
average daily balances during periods indicated and are annualized where
appropriate.
(2) We determined this number by subtracting the weighted average cost of
average interest-bearing liabilities from the weighted average yield on
average interest-earning assets.
(3) We determined this ratio by dividing net interest income by average
interest-earning assets.
(4) We determined this ratio by dividing total non-interest expense by the sum
of net interest income and total non-interest income.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT DEVELOPMENTS
Comparison of Financial Condition at March 31, 1999 and December 31, 1998
Hudson City Savings' total assets increased $127.6 million, or 1.6%, to
$7.88 billion at March 31, 1999 from $7.75 billion at December 31, 1998.
At March 31, 1999, loans increased $85.6 million, or 2.3%, to $3.74
billion, while investment securities available for sale increased $75.5
million, or 9.6%, to $860.5 million. Mortgage-backed securities, which amounted
to 39.4% of total assets at March 31, 1999, increased $35.7 million, or 1.2%,
to $3.11 billion at March 31, 1999 from $3.07 billion at December 31, 1998.
These increases reflect our continued strategy of emphasizing the origination
of one- to four-family residential loans, supplemented by the purchase of
investment securities and mortgage-backed securities. Additionally, there was a
shift of funds from total cash and cash equivalents to higher-yielding loans
and securities as cash and due from banks decreased $31.8 million, or 36.5%, to
$55.3 million and federal funds sold decreased $39.3 million, or 56.3%, to
$30.5 million at March 31, 1999. We believe that the decline in cash and cash
equivalents did not adversely impact our overall liquidity position at March
31, 1999.
The growth in total assets was funded primarily by an increase of $93.8
million, or 1.4%, in total deposits to $6.90 billion at March 31, 1999 from
$6.81 billion at December 31, 1998. Within the mix of total deposits,
interest-bearing deposits, primarily short-term time deposits, increased $108.0
million, or 1.7%, to $6.60 billion at March 31, 1999. The growth in
interest-bearing deposits reflects our strategy of offering competitive interest
rates on time deposits. Partially offsetting the increase in interest-bearing
deposits was a $14.3 million, or 4.6%, decrease in non-interest-bearing
deposits, particularly demand accounts and official checks, to $298.8 million at
March 31, 1999 from $313.1 million at December 31, 1998, reflecting normal
fluctuations in demand type accounts and an increase in customer direct deposits
at year end.
Total equity increased $20.3 million, or 2.3%, to $920.9 million at March
31, 1999 from $900.6 million at December 31, 1998. The increase resulted from
net income of $24.3 million for the three months ended March 31, 1999,
partially offset by a $4.0 million decrease in accumulated other comprehensive
income.
Comparison of Operating Results for the Three Months Ended March 31, 1999 and
1998
General
Net income for the quarter ended March 31, 1999 was $24.3 million
compared with $23.8 million for the quarter ended March 31, 1998. The $0.5
million, or 2.1%, increase is primarily attributable to a $2.0 million decrease
in interest expense on deposits which was offset in part by a $1.2 million
increase in income tax expense and an increase in non-interest expense.
Interest Income
Total interest income remained relatively stable, increasing $0.3
million, or 0.2%, to $130.1 million for the quarter ended March 31, 1999
compared with $129.8 million for the
17
<PAGE> 19
quarter ended March 31, 1998. Interest and fees on first mortgage loans
increased $1.7 million, or 2.6%, to $65.9 million and interest and dividends on
investment securities available for sale-taxable increased $1.4 million, or
11.6%, to $13.5 million for the three months ended March 31, 1999 compared with
the corresponding prior year quarter. These increases were offset by a $2.6
million, or 5.1%, decrease in interest on mortgage-backed securities to $48.2
million for the quarter ended March 31, 1999 compared with $50.8 million for
the quarter ended March 31, 1998.
The average balance of total interest-earning assets increased $411.6
million, or 5.7%, to $7.64 billion for the three months ended March 31, 1999
compared with $7.22 billion for the corresponding quarter of the prior year.
This increase was primarily attributable to an $201.8 million, or 6.0% increase
in the average balance of first mortgage loans, net of to $3.57 billion, an
$144.2 million, or 20.4% increase, to $852.4 million in the average balance of
investment securities, and a $63.1 million, or 2.1% increase, $3.07 billion in
the average balance of mortgage-backed securities. These increases reflect our
strategy of controlled internal growth and increasing interest income while
managing our interest rate risk.
For the three months ended March 31, 1999, the impact on interest income
increase in the average balance of total interest-earning assets was offset by
a 38 basis point decrease in the annualized average yield on total
interest-earning assets to 6.81% compared with 7.19% for the corresponding
quarter in the prior year. The sustained low interest rate environment
continues to result in the downward repricing of our interest-earning assets.
Additionally, the average yield on our first mortgage loans in the first
quarter of 1999 was impacted by the refinancing of our customers' existing
loans to loans with lower interest rates during 1998, which activity continued
during the first quarter of 1999.
Interest Expense
Interest expense on deposits decreased $2.0 million, or 2.6%, to $74.8
million for the first quarter of 1999 from $76.8 million for the first quarter
of 1998. Interest on time deposits, which accounted for 87.5% of interest on
deposits for the quarter ended March 31, 1999, decreased $1.5 million, or 2.3%
to $65.5 million from the corresponding period of the prior year.
The average balance of total interest-bearing liabilities increased $287.8
million, or 4.6%, to $6.53 billion for the quarter ended March 31, 1999
compared with the corresponding quarter of 1998. Of that increase, $278.8
million, or 96.9%, can be attributed to an increase to $5.10 billion in the
average balance of time deposits. The impact on interest expense from the
increase in the average balance of total interest-bearing liabilities was
offset, however, by a 34 basis point decrease in the annualized average cost of
total interest-bearing liabilities to 4.64% compared with 4.98% for the first
quarter of 1998. Among our various deposit account types, the largest decrease
in the annualized average cost occurred in time deposits, which decreased to
5.20% for the quarter ended March 31, 1999 from 5.63% for the quarter ended
March 31, 1998. The decrease in the annualized average cost of total
interest-bearing liabilities reflects the downward repricing of our
interest-bearing liabilities as a result of the lower interest rate environment.
18
<PAGE> 20
Net Interest Income
Net interest income increased 4.3%, or $2.3 million, to $55.3 million for
the first quarter of 1999 compared with $53.0 million for the first quarter of
1998 primarily due to decreased interest expense. On an annualized basis, our
net interest spread declined slightly to 2.17% for the quarter ended March 31,
1999 from 2.20% for the comparable quarter of 1998. Additionally, our
annualized net interest margin decreased slightly to 2.84% from 2.88%.
Provision for Loan Losses
Our provision for loan losses was $0.6 million for each of the quarters
ended March 31, 1999 and 1998. The allowance for loan losses at March 31, 1999
was $18.3 million compared with $16.1 million at March 31, 1998. The allowance
for loan losses at December 31, 1998 was $17.7 million. Non-performing loans at
March 31, 1999 were $13.5 million compared with $15.3 million at December 31,
1998 and $15.8 million at March 31, 1998. The current level of the provision
for loan losses and the increase in the allowance for loan losses were
primarily due to the continued growth in the loan portfolio and the overall
stability of our loan quality.
Non-Interest Income and Non-Interest Expense
Total non-interest income, consisting of service fees and other income,
was $1.2 million for both of the quarters ended March 31, 1999 and 1998. Total
non-interest expense, consisting primarily of salaries and employee benefits,
net occupancy expense and other operating expenses, increased $0.5 million, to
$17.2 million, for the quarter ended March 31, 1999 compared with $16.7 million
for the quarter ended March 31, 1998. The increase in non-interest expense is
primarily attributable to normal increases in salaries and employee benefits
and occupancy expense.
Our efficiency ratio for the first quarter of 1999 was 31.1% compared with
31.3% for the same period a year earlier. Our ratio of non-interest expense to
average assets was 0.88% at March 31, 1999 and 0.90% at March 31, 1998.
Income Taxes
Income tax expense increased $1.2 million, or 9.1%, to $14.4 million for
the three months ended March 31, 1999 compared with $13.2 million for the three
months ended March 31, 1998, due to an increase in income before income tax
expense and a higher effective tax rate in the first quarter of 1999 compared
to the first quarter of 1998.
19
<PAGE> 21
HUDSON CITY SAVINGS BANK
Hudson City Savings is a New Jersey chartered mutual savings bank,
chartered in 1868. We are the largest savings bank by asset size headquarters in
New Jersey. It is the largest mutual savings bank in the country by asset size.
Our deposits are insured by the FDIC. We are examined and regulated by the
Department of Banking and Insurance of the State of New Jersey and the FDIC.
Hudson City Savings Bank's executive offices are located at West 80 Century
Road, Paramus, New Jersey 07652 and its telephone number is (201) 967-1900.
Hudson City Savings is a community and customer oriented-retail savings
bank offering traditional deposit products, residential real estate mortgage
loans and, to a lesser extent, consumer loans. Hudson City Savings operates
through 75 full service banking offices located in Bergen, Burlington, Camden,
Essex, Gloucester, Hudson, Middlesex, Monmouth, Morris, Ocean, Passaic, Union
and Warren counties in New Jersey. As of June 30, 1998, Hudson City maintained a
5.0% share of all New Jersey deposits, and ranked fifth in the size of deposits
overall. In 1997, our deposit base represented 6% of our market area's total
reported deposits, positioning us as the fifth largest (in dollar volume)
depository institution in the area. On a state-wide level, we also ranked as the
fifth largest depository institution with a 4.6% share of all reported funds on
deposit at the end of 1997. At December 31, 1998, we had total assets of $7.75
billion, total deposits of $6.81 billion and total equity of $901 million.
At December 31, 1998, we had total loans of $3.66 billion, of which $3.57
billion, or 97.6%, were first mortgage loans. Of the residential mortgage loans
outstanding at that date, 51.9% were adjustable-rate mortgage loans and 48.1%
were fixed-rate loans. We retain substantially all of the loans that we
originate. We also invest in mortgage-backed and investment securities,
consisting primarily of U.S. government and government agency securities.
Mortgage-backed securities equaled $3.07 billion or 39.6% of our total assets at
December 31, 1998. For further information on our operations and financial
condition, see "Business of Hudson City Savings Bank."
HUDSON CITY BANCORP, INC.
Hudson City Bancorp is a newly organized Delaware corporation organized in
March, 1999. Hudson City Bancorp has not engaged in any business to date, and,
upon completion of the reorganization will serve as the holding company of
Hudson City Savings following the reorganization. A majority of the outstanding
shares of Hudson City Bancorp's common stock will be owned by Hudson City, MHC.
Hudson City Bancorp's executive offices are located at West 80 Century Road,
Paramus, New Jersey 07652 and its telephone number is (201) 967-1900.
HUDSON CITY, MHC
As part of our reorganization in structure, Hudson City Savings will
organize Hudson City, MHC as a New Jersey chartered mutual savings bank holding
company which will be registered as a bank holding company with the Federal
Reserve Board. Persons who had liquidation rights with respect to Hudson City
Savings as of the date of the reorganization will continue to have liquidation
rights solely with respect to Hudson City, MHC. Their liquidation rights in
Hudson City, MHC will exist as long as they maintain a deposit account at Hudson
City
20
<PAGE> 22
Savings. Hudson City, MHC's executive offices are located at West 80 Century
Road, Paramus, New Jersey 07652 and its telephone number is (201) 967-1900.
Hudson City, MHC's principal assets will be the shares of common stock of
Hudson City Bancorp it receives in the reorganization and approximately $200,000
it receives as its initial capitalization. At the present time, we expect that
Hudson City, MHC will not engage in any business activity other than its
investment in a majority of the common stock of Hudson City Bancorp and the
management of any cash dividends received from Hudson City Bancorp. Federal and
state law and regulations require that as long as Hudson City, MHC is in
existence it must own a majority of Hudson City Bancorp's common stock. Federal
and state law, regulations, and the plan of reorganization, permit Hudson City,
MHC to convert to the stock form of organization. For additional information
regarding a stock conversion, see "The Reorganization and The Offering --
Possible Conversion of Hudson City MHC to Stock Form."
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
The net proceeds will depend on the total number of shares of common stock
we sell in the offering, which in turn will depend on RP Financial's appraisal,
regulatory and market considerations, and the expenses incurred in connection
with the offering. Although we will not be able to determine the actual net
proceeds from the sale of the common stock until we complete the offering, we
estimate the net proceeds to be between $490.3 million and $664.6 million.
HUDSON CITY BANCORP INTENDS TO DISTRIBUTE THE NET PROCEEDS FROM THE
OFFERING AS FOLLOWS:
<TABLE>
<CAPTION>
NUMBER OF SHARES SOLD
--------------------------------
49,937,500 67,562,500
------------ ------------
<S> <C> <C>
Offering proceeds ............................... $499,375,000 $675,625,000
Offering expenses ............................... 9,047,000 10,993,000
------------ ------------
Net offering proceeds ........................... 490,328,000 664,632,000
Less:
Proceeds contributed to Hudson City Savings .... 245,164,000 332,316,000
Proceeds used for loan to employee
stock ownership plan(1) ...................... 39,950,000 54,050,000
------------ ------------
Proceeds remaining for general corporate purposes $205,214,000 $278,266,000
============ ============
</TABLE>
_______________
(1) If the employee stock ownership plan buys shares in the market after the
reorganization, the purchase price of those shares may be less or more than $10
per share offering price, which will vary the amount of proceeds used for this
purpose.
If regulatory or market conditions change and we are required to sell
77,696,875 shares of stock, then we estimate the net proceeds to be $764.9
million. If we sell 77,696,875 shares of stock, then our loan to the employee
stock ownership plan would be $62.2 million.
The net proceeds may vary because total expenses relating to the
reorganization may be more or less than our estimates. For example, our expenses
would increase if a syndicated community offering or underwritten public
offering is used to sell shares not purchased in the subscription offering and
community offering. The net proceeds will also vary if the number of shares to
be sold in the offering is adjusted to reflect a change in the estimated pro
forma market value of Hudson City Bancorp and Hudson City Savings. Payments for
shares made through
21
<PAGE> 23
withdrawals from existing deposit accounts will not result in the receipt of new
funds for investment by Hudson City Savings, but will result in a reduction of
Hudson City Savings' deposits and interest expense as funds are transferred from
interest-bearing time deposits or other deposit accounts.
HUDSON CITY BANCORP MAY USE THE PROCEEDS IT RETAINS FROM THE OFFERING:
(1) to pay dividends to stockholders;
(2) to repurchase shares of common stock issued in the offering;
(3) to finance the possible acquisition of financial institutions or other
businesses that are related to banking;
(4) to invest in securities; and
(5) for general corporate purposes.
HUDSON CITY SAVINGS MAY USE THE PROCEEDS IT RECEIVES FROM THE OFFERING:
(1) to fund new loans;
(2) to purchase mortgage-backed securities and investment securities;
(3) to finance the possible establishment or acquisition of branch
offices; and
(4) for general corporate purposes.
We currently plan to open as many as six new branch offices per year. We
are currently evaluating a number of locations within our market area for
prospective sites. Additionally, we will continue to consider growth through
acquisition of branches or whole institutions if such opportunities should
arise. Since the unique characteristics of branch or whole institution
acquisition transactions are currently unknown, we cannot determine the
anticipated cost of these types of transactions.
OUR POLICY REGARDING DIVIDENDS
Hudson City Bancorp currently plans to pay a cash dividend at an annual
rate of $0.20 per share. The dividend would be declared and payable quarterly at
a rate of $0.05 per share starting with the first quarter after the
reorganization. The payment of dividends will be subject to the determination of
our board of directors, which will take into account, among other factors, our
financial condition, results of operations, tax considerations, industry
standards, economic conditions and regulatory restrictions that affect the
payment of dividends by Hudson City Savings to Hudson City Bancorp. We cannot
guarantee that we will pay dividends or that, if paid, that we will not reduce
or eliminate dividends in the future.
If Hudson City Bancorp pays dividends to its stockholders, it will be
required to pay dividends to Hudson City, MHC, unless Hudson City, MHC elects to
waive dividends. We do not currently anticipate that Hudson City, MHC will waive
dividends paid by Hudson City Bancorp. Any decision to waive dividends will be
subject to regulatory approval. See "Regulation of Hudson City Savings Bank and
Hudson City Bancorp -- Dividend Waivers by Hudson City, MHC."
As the principal asset of Hudson City Bancorp, Hudson City Savings will
provide the principal source of funds for the payment of dividends by Hudson
City Bancorp. New Jersey law provides that dividends may be paid by Hudson City
Savings only out of net income, earned
22
<PAGE> 24
surplus or undivided profits. However, Hudson City Savings will not be permitted
to pay dividends on its capital stock if, among other things, its stockholders'
equity would be reduced below the amount required for the liquidation account.
See "The Reorganization and The Offering -- Effects of the Reorganization --
Depositors' Rights if We Liquidate; Liquidation Account."
Hudson City Bancorp is subject to the requirements of Delaware law which
generally limits dividends to an amount equal to the difference between the
amount by which total assets exceed total liabilities and the amount equal to
the aggregate par value of the outstanding shares of capital stock. If there is
no difference between these amounts, dividends are limited to net income for the
current and/or immediately preceding year.
Any payment of dividends by Hudson City Savings to Hudson City Bancorp,
which would be deemed to be drawn out of Hudson City Savings' bad debt reserves,
would require a payment of taxes at the then-current tax rate by Hudson City
Savings on the amount of earnings deemed to be removed from bad debt reserves
for such distribution. Hudson City Savings does not intend to make any
distribution to Hudson City Bancorp that would create this type of a tax
liability. See "Taxation."
Additionally, in connection with the reorganization, Hudson City Bancorp
and Hudson City Savings have committed to the FDIC that during the one-year
period following the consummation of the reorganization, Hudson City Bancorp
will not declare an extraordinary dividend to stockholders which would be
treated by recipient stockholders as a tax-free return of capital for federal
income tax purposes without prior approval of the FDIC.
MARKET FOR THE COMMON STOCK
We have not previously issued common stock, and there is currently no
established market for the common stock. We have received conditional approval
from The Nasdaq Stock Market to have our common stock quoted on the National
Market System of The Nasdaq Stock Market under the symbol "HCBK" after the
reorganization. One of the requirements for continued quotation of the common
stock on The Nasdaq Stock Market is that there be at least three market makers
for the common stock. Ryan, Beck has advised us that it intends to make a market
in the common stock following the reorganization, but is under no obligation to
do so. We will seek to encourage and assist at least two additional market
makers to make a market in our common stock.
Making a market involves maintaining bid and asked quotations and being
able, as principal, to effect transactions in reasonable quantities at those
quoted prices. Various securities laws and other regulatory requirements apply
to these activities. While we believe that there will be other broker-dealers to
act as market makers for our common stock, we cannot guarantee you that there
will be three or more market makers for the common stock.
Additionally, the development of a liquid public market depends on the
existence of willing buyers and sellers, the presence of which is not within our
control, or any market maker. The number of active buyers and sellers of the
common stock at any particular time may be limited. Under such circumstances,
you could have difficulty selling your shares on short notice and therefore you
should not view the common stock as a short-term investment. We cannot assure
you that an active and liquid trading market for the common stock will develop
or that, if it develops, it will continue, nor can we assure you that if you
purchase shares you will be able to sell them at or above $10.00 per share or
that quotations will be available on The Nasdaq Stock Market as contemplated.
23
<PAGE> 25
REGULATORY CAPITAL COMPLIANCE
At December 31, 1998, we exceeded all regulatory capital requirements. Set
forth below is a summary of our capital computed under generally accepted
accounting principles and our compliance with regulatory capital standards at
December 31, 1998, on a historical and pro forma basis. We have assumed that the
indicated number of shares were sold as of December 31, 1998 and that Hudson
City Savings received 50% of the net proceeds from the offering. For purposes of
the table below, the amount expected to be loaned to the employee stock
ownership plan and the cost of the shares expected to be acquired by the
restricted stock plan are deducted from pro forma regulatory capital. For a
discussion of the capital requirements applicable to Hudson City Savings, see
"Regulation of Hudson City Savings Bank and Hudson City Bancorp -- Federal
Banking Regulation -- Capital Requirements."
<TABLE>
<CAPTION>
Pro Forma at December 31, 1998 Based Upon the Sale at $10.00 Per Share
-------------------------------------------------------------------------------------------------------
77,696,875
49,937,500 58,750,000 67,562,500 Shares
Shares Shares Shares (15% Above
Historical at (Minimum of the (Midpoint of the (Maximum of the Maximum of the
December 31, 1998 Range) Range) Range) Range)(1)
------------------- -------------------- -------------------- ------------------- --------------------
Percent Percent Percent Percent Percent
of of of of of
Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2)
-------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital(3)......... $900,606 11.62% 1,085,645 13.68% 1,118,646 14.03% 1,151,647 14.39% 1,189,598 14.79%
Leverage Capital:
Capital Level(4)...... $898,494 11.93% 1,083,533 14.04% 1,116,534 14.40% 1,149,535 14.77% 1,187,486 15.18%
Requirement(5)........ 225,985 3.00% 231,542 3.00% 232,532 3.00% 233,522 3.00% 234,661 3.00%
Excess................ $672,509 1.99% 851,991 11.04% 884,002 11.40% 916,013 11.77% 952,825 12.18%
Tier I Risk-Based
Capital:
Capital Level(4)(6)... $898,494 38.48% 1,083,533 45.32% 1,116,534 46.51% 1,149,535 47.68% 1,187,486 49.03%
4.00% 95,638 4.00% 96,034 4.00% 96,431 4.00% 96,887 4.00%
Excess................ $805,085 34.48% 987,895 41.32% 1,020,500 42.51% 1,053,104 43.68% 1,090,599 45.03%
Total Risk-Based
Capital:
Capital Level(4)(6)... $916,206 39.23% 1,101,245 46.06% 1,134,246 47.24% 1,167,247 48.42% 1,205,198 49.76%
Requirement(5)........ 191,275 8.00% 192,069 8.00% 8.00% 193,774 8.00%
Excess................ $729,388 31.23% 909,970 38.06% 942,177 39.24% 974,385 40.42% 1,011,424 41.76%
</TABLE>
- ------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the estimated price range of up to 15%
as a result of changes in market conditions or general financial and
economic conditions following the commencement of the offering.
(2) Leverage capital levels are shown as a percentage of "total assets," and
risk-based capital levels are calculated on the basis of a percentage of
"risk-weighted assets," each as defined in the FDIC Regulations.
(3) GAAP is defined as Generally Accepted Accounting Principles.
(4) Pro forma capital levels assume receipt by Hudson City Savings of 50% of
the net proceeds from the shares of common stock sold at the minimum,
midpoint and maximum of the offering range. These levels assume funding by
Hudson City Savings of the restricted stock plan equal to 4% of the common
stock issued, including repayment of Hudson City Bancorp's loan to the
employee stock ownership plan to enable the plan to purchase 8% of the
common stock issued.
(5) The current leverage capital requirement for savings banks is 3% of total
adjusted assets for savings banks that receive the highest supervisory
ratings for safety and soundness and that are not experiencing or
anticipating significant growth. The current leverage capital ratio
applicable to all other savings banks of 4% to 5%.
(6) Assumes net proceeds are invested in assets that carry risk-weighting
equal to the actual risk-weighting of Hudson City Savings' assets as of
December 31, 1998.
24
<PAGE> 26
CAPITALIZATION
The following table presents the historical deposits and capitalization of
Hudson City Savings at December 31, 1998, and the pro forma consolidated
capitalization of Hudson City Bancorp after giving effect to the reorganization,
based upon the sale of the number of shares shown below and the other
assumptions set forth under "Pro Forma Data." A change in the number of shares
sold in the offering may affect materially the capitalization.
<TABLE>
<CAPTION>
Pro Forma Capitalization at December 31, 1998
-------------------------------------------------------------------
49,937,500 58,750,000 67,562,500 77,696,875 Shares
Shares Shares Shares (15% Above
(Minimum of Midpoint of (Maximum of (Maximum of
Historical Range) Range) Range) Range)(1)
---------- ----------- ----------- ----------- -----------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2) $6,807,339 $6,807,339 $6,807,339 $6,807,339 $6,807,339
========== ========== ========== ========== ==========
Stockholders' equity:
Preferred stock, $.01 par value, 200,000,000
shares authorized; none to be issued ....... $ -- $ -- $ -- $ -- $ --
Common stock, $.01 par value, 800,000,000
shares authorized; to be issued as
reflected(3) ............................... 1,063 1,250 1,438 1,653
========== ========== ========== ==========
Additional paid-in capital(4) .............. 489,265 576,230 663,194 763,204
========== ========== ========== ==========
Retained earnings(5) ....................... 899,733 899,733 899,733 899,773 899,733
==========
Plus:
Accumulated other comprehensive income ..... 673 673 673 673 673
Less:
Common stock acquired by the employee
stock ownership plan(6) .................... 39,950 47,000 54,050 62,158
========== ========== ========== ==========
Common stock acquired by the restricted
stock plan(7) .............................. 19,975 23,500 27,025 31,079
========== ========== ========== ==========
Total stockholders' equity ................... $ 900,606 $1,330,809 $1,407,386 $1,483,963 $1,572,026
========== ========== ========== ========== ==========
</TABLE>
- ---------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the offering range of up to 15% as a
result of changes in market or general financial and economic conditions
following the commencement of the offering.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
common stock in the offering. Withdrawals from deposit accounts would reduce
pro forma deposits by the amount of such withdrawals.
(3) Reflects shares to be issued to Hudson City, MHC as follows: 56,312,500
shares at the minimum of the estimated valuation range, 66,250,000 shares at
the midpoint, 76,187,500 at the maximum and 87,615,625 at 15% above the
maximum.
(4) Reflects the issuance of shares sold in the offering at a value of $10.00
per share. No effect has been given to the issuance of additional shares of
common stock pursuant to Hudson City Bancorp's proposed stock option plan
intended to be adopted by Hudson City Bancorp and presented for approval of
stockholders at a meeting of stockholders to be held at least six months
following completion of the offering.
(5) The retained earnings of Hudson City Savings will be substantially
restricted after the offering. The reduction in historical retained earnings
of Hudson City Savings reflects the retention by Hudson City, MHC of
$200,000 upon completion of the reorganization as its initial
capitalization.
(6) Assumes that 8% of the shares sold in connection with the offering will be
purchased by the employee stock ownership plan and the funds used to acquire
the employee stock ownership plan shares will be borrowed from Hudson City
Bancorp. The common stock acquired by the employee stock ownership plan is
reflected as a reduction of stockholders' equity. If the employee stock
ownership plan buys shares in the market after the reorganization, the
purchase price of those shares may be less or more than $10 per share
offering price, which will vary the amount of proceeds used for this
purpose.
(7) Assumes that, subsequent to the offering, an amount equal to 4% of the
shares of common stock issued in the offering is purchased by a management
recognition plan through open market purchases. The proposed management
recognition plan is intended to be adopted by Hudson City Bancorp and
presented for approval of stockholders at a meeting of stockholders to be
held at least six months, following completion of the offering. The common
stock purchased by the management recognition plan is reflected as a
reduction of stockholders' equity.
25
<PAGE> 27
PRO FORMA DATA
We cannot determine the actual net proceeds from the sale of the common
stock until the offering is completed. However, we estimate that net proceeds
will be between $490.3 million and $664.6 million, or $764.9 million if the
offering range is increased by 15%, based upon the following assumptions:
- we will sell all shares of common stock in the subscription offering;
- we will pay Ryan, Beck a fee equal to 1.20% of the aggregate purchase
price for sales in the subscription offering except for shares sold to
the employee stock ownership plan, employee benefit plans, and
officers, directors and their immediate families; and
- total expenses, excluding the marketing fees paid to Ryan, Beck, will
be approximately $3.6 million.
We calculated the pro forma consolidated net income and stockholders'
equity of Hudson City Bancorp for 1998, as if the common stock had been sold at
the beginning of the year and the net proceeds had been invested at 4.52%. We
chose this yield because it represents the yield on one-year U.S. Government
securities at December 31, 1998. In light of changes in interest rates in recent
periods, Hudson City Bancorp and Hudson City Savings believe this rate more
accurately reflects pro forma reinvestment rates than the arithmetic average
method. We assumed a tax rate of 37.3% for the period. This results in an
after-tax yield of 2.83% for 1998.
We calculated historical and pro forma per share amounts by dividing
historical and pro forma consolidated net income and stockholders' equity by the
indicated number of shares of common stock. We adjusted these figures to give
effect to the shares purchased by the employee stock ownership plan. We computed
per share amounts for each period as if the common stock was outstanding at the
beginning of the periods, but we did not adjust per share historical or pro
forma stockholders' equity to reflect the earnings on the estimated net
proceeds. Hudson City Bancorp intends to retain 50% of the net proceeds from the
offering and intends to make a loan to the employee stock ownership plan to fund
the employee stock ownership plan's purchase of up to 8% of the common stock.
The table below gives effect to the management recognition plan, which we
expect to adopt following the reorganization and present, along with the stock
option plan, to stockholders for approval at an annual or special meeting of
stockholders to be held at least six months following the completion of the
reorganization. If the management recognition plan is approved by stockholders,
the restricted stock plan will acquire an amount of common stock equal to 4% of
the shares of common stock sold in the offering, either through open market
purchases or from authorized but unissued shares of common stock, if
permissible. In preparing the table below, we assumed that stockholder approval
has been obtained and that the shares acquired by the restricted stock plan are
purchased in the open market at the purchase price.
26
<PAGE> 28
The table below does not give effect to:
(1) the shares to be reserved for issuance under the stock option plan,
which requires stockholder approval at a meeting following the
reorganization;
(2) withdrawals from deposit accounts for the purpose of purchasing common
stock in the reorganization;
(3) Hudson City Bancorp's results of operations after the reorganization;
or
(4) the market price of the common stock after the reorganization.
The following pro forma information may not represent the financial effects
of the reorganization at the date on which the reorganization actually occurs
and you should not use the table to indicate future results of operations. Pro
forma stockholders' equity represents the difference between the stated amount
of assets and liabilities of Hudson City Bancorp computed in accordance with
generally accepted accounting principles. We did not increase or decrease
stockholders' equity to reflect the difference between the carrying value of
loans and other assets and market value. Pro forma stockholders' equity is not
intended to represent the fair market value of the common stock and may be
different than amounts that would be available for distribution to stockholders
if we liquidated.
27
<PAGE> 29
<TABLE>
<CAPTION>
At or for the Year Ended December 31, 1998
------------------------------------------------------------------
49,937,500 77,696,875
Shares Sold at 58,750,000 67,562,500 Shares Sold at
$10.00 Per Shares Sold at Shares Sold at $10.00 Per Share
Share $10.00 Per Share $10.00 Per Share (15% Above
(Minimum of (Midpoint of (Maximum of Maximum of
Range) Range) Range) Range)(6)
-------------- ---------------- ---------------- ----------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds ................................................. $ 499,375 587,500 675,625 776,969
Less: offering expenses and commissions ........................ 9,047 10,020 10,993 12,112
----------- ----------- ----------- ------------
Estimated net proceeds ......................................... 490,328 577,480 664,632 764,857
=========== ============ ============ ============
Less:
Common stock purchased by the employee stock ownership
plan(1) .................................................... 39,950 47,000 54,050 62,158
Common stock purchased by the management recognition
plan(2) .................................................... 19,975 23,500 27,025 31,079
----------- ----------- ----------- ------------
Estimated net proceeds, as adjusted .......................... $ 430,403 506,980 583,557 671,620
=========== ============ ============ ============
Net income:
Historical ..................................................... $ 93,269 $ 93,269 $ 93,269 $ 93,269
Pro forma income on net proceeds, as adjusted .................. 12,180 14,348 16,515 19,007
Pro forma employee stock ownership plan adjustment(1)......... (835) (982) (1,130) (1,299)
Pro forma management recognition plan adjustment(2)........... (2,505) (2,947) (3,389) (3,897)
----------- ----------- ----------- ------------
Pro forma net income ........................................... $ 102,109 103,688 105,265 107,080
=========== ============ ============ ============
Per share net income(3):
Historical .................................................. $ 0.93 $ 0.79 $ 0.68 $ 0.59
Pro forma income on net proceeds, as adjusted ................ 0.12 0.12 0.12 0.12
Pro forma employee stock ownership plan adjustment(1) ........ (0.01) (0.01) (0.01) (0.01)
Pro forma management recognition plan adjustment(2) .......... (0.02) (0.02) (0.02) (0.02)
------------ ------------ ------------ ------------
Pro forma net income per share .................................$ 1.02 $ 0.88 $ 0.77 $ 0.68
============ ============ ============ ============
Number of shares outstanding for pro forma net income per share
calculations(1) .............................................. 100,790,167 118,576,667 136,363,167 156,817,642
============ ============ ============ ============
Stockholders' equity:
Historical ...................................................$ 900,406 $ 900,406 $ 900,406 $ 900,406
Estimated net proceeds ....................................... 490,328 577,480 684,632 764,857
----------- ----------- ----------- ------------
Less: Common stock acquired by employee stock ownership
plan(1) .................................................... (39,950) (47,000) (54,050) (62,158)
----------- ----------- ----------- ------------
Less: Common stock acquired by management recognition
plan(2) .................................................... (19,975) (23,500) (27,025) (31,079)
----------- ----------- ----------- ------------
Pro forma stockholders' equity(2)(4)(5) ........................$ 1,330,809 $ 1,407,386 $ 1,483,963 $ 1,572,026
============ ============ ============ ============
Stockholders' equity per share(3):
Historical ...................................................$ 8.47 $ 7.20 $ 6.26 $ 5.45
Estimated net proceeds........................................ 4.61 4.62 4.62 4.63
Less: Common stock acquired by employee stock ownership
plan(1) .................................................... (0.38) (0.38) (0.38) (0.38)
Less: Common stock acquired by management recognition
plan(2) .................................................... (0.19) (0.19) (0.19) (0.19)
------------ ------------ ------------ ------------
Pro forma stockholders' equity per share(5) ....................$ 12.51 $ 11.25 $ 10.31 $ 9.51
============ ============ ============ ============
</TABLE>
28
<PAGE> 30
<TABLE>
<S> <C> <C> <C> <C>
Offering price as a percentage of pro forma
stockholders' equity per share................... 79.94% 88.89% 96.99% 105.15%
======== ======== ======== =========
Offering price to pro forma net income per share... 9.80x 11.36x 12.99x 14.71x
======== ======== ======== =========
(See footnotes on next page)
</TABLE>
29
<PAGE> 31
- ------------------
(1) It is assumed that 8% of the shares of common stock sold in connection with
our reorganization will be purchased by the employee stock ownership plan.
For purposes of this table, the funds used to acquire such shares are
assumed to have been borrowed by the employee stock ownership plan from
Hudson City Bancorp. If the employee stock ownership plan buys shares in
the market after the reorganization, the purchase price of those shares may
be less or more than $10 per share offering price, which will vary the
amount of proceeds used for this purpose. The amount to be borrowed is
reflected as a reduction of stockholders' equity. Hudson City Savings
intends to make annual contributions to the employee stock ownership plan
in an amount at least equal to the principal and interest requirement of
the debt. Hudson City Savings' total annual payment of the employee stock
ownership plan debt is based upon 30 equal annual installments of
principal, with an assumed interest rate at 7.75%. The pro forma net income
assumes: (i) that Hudson City Savings' contribution to the employee stock
ownership plan is equivalent to the debt service requirement for the year
ended December 31, 1998, and was made at the end of the period; (ii) that
133,167 shares at the minimum of the offering range, 156,667 shares at the
midpoint of the offering range, 180,167 shares at the maximum of the
offering range and 207,192 shares at 15% above the maximum of the offering
range, were committed to be released during the year ended December 31,
1998 at an average fair value of $10.00 per share in accordance with SOP
93-6; and (iii) only the employee stock ownership plan shares committed to
be released were considered outstanding for purposes of the net income per
share calculations.
(2) Gives effect to the management recognition plan expected to be adopted by
Hudson City Bancorp following the offering and presented for approval at a
meeting of stockholders. The management recognition stock plan intends to
acquire an amount of common stock equal to 4% of the shares of common stock
issued in connection with the offering, or 1,997,500 shares at the minimum
of the offering range, 2,350,000 shares at the midpoint of the offering
range, 2,702,500 shares at the maximum of the offering range and 3,107,875
shares at 15% above the maximum of the offering range, either through open
market purchases, if permissible, or from authorized but unissued shares of
common stock or treasury stock of Hudson City Bancorp, if any. In
calculating the pro forma effect of the management recognition plan, it is
assumed that the shares were acquired by the management recognition plan at
the beginning of the period presented in open market purchases at the
purchase price and that 20% of the amount contributed was an amortized
expense during such period. The issuance of authorized but unissued shares
of Hudson City Bancorp's common stock to the restricted stock plans instead
of open market purchases would dilute the voting interests of existing
stockholders by approximately 0.87% and pro forma net income per share
would be $0.99 at the minimum of the offering range, $0.86 at the midpoint
of the offering range, $0.76 at the maximum of the offering range and $0.67
at 15% above the maximum of the offering range. There can be no assurance
that the actual purchase price of the shares granted under the restricted
stock plan will be equal to the purchase price.
(3) The per share calculation are determined by adding the number of shares
assumed to be issued to Hudson City, MHC and sold in the offering and for
purposes of calculating income per share, in accordance with SOP 93-6,
subtracting 3,861,833 shares at the minimum of the offering range,
4,543,333 shares at the midpoint of the offering range, 5,224,833 shares at
the maximum of the offering range and 6,008,558 shares at 15% above the
maximum of the offering range, representing the employee stock ownership
plan shares which have not been committed for release during the year ended
December 31, 1998. Thus, it is assumed at December 31, 1998 that
106,250,000 shares of common stock are outstanding at the minimum of the
offering range, 125,000,000 shares of common stock are outstanding at the
midpoint of the offering range, 143,750,000 shares of common stock are
outstanding at the maximum of the offering range and 165,312,500 shares of
common stock are outstanding at 15% above the maximum of the offering
range. Assuming the uncommitted employee stock ownership plan shares were
not subtracted from the number of shares of common stock outstanding at
December 31, 1998, the offering price as a multiple of pro forma net income
per share would be 10.20x at the minimum of the offering range and 15.15x
at 15% above the maximum of the estimated offering range, respectively. For
purposes of calculating pro forma stockholders' equity per share, it is
assumed that shares outstanding total 106,250,000 shares at the minimum of
the offering range, 125,000,000 shares at the midpoint of the offering
range, 143,750,000 shares at the maximum of the offering range and
165,312,500 shares at 15% above the maximum of the offering range.
(4) No effect has been given to the issuance of additional shares of common
stock pursuant to the stock option plan expected to be adopted by Hudson
City Bancorp following the offering. Hudson City Bancorp expects to present
the stock option plan for approval at a meeting of stockholders. Under the
stock option plan, an amount equal to 10% of the common stock issued in
connection with the offering, or 4,993,750 shares at the minimum of the
offering range, 5,875,000 shares at the midpoint of the offering range,
6,756,250 shares at the maximum of the offering range and 7,769,688 shares
at 15% above the maximum of the offering range, will be reserved for future
issuance upon the exercise of options to be granted under the stock option
plan. The issuance of common stock pursuant to the exercise of options
under the stock option plan will result in the dilution of existing
stockholders' interests. Assuming all options were exercised at the
beginning of the period at an exercise price of $10.00 per share, the pro
forma net income per share would be $0.98 at the minimum of the offering
range, $0.84 at the midpoint of the offering range, $0.75 at the maximum of
the offering range and $0.66 at 15% above the maximum of the offering
range, and pro forma stockholders' equity per share would be $12.42 at the
minimum of the offering range, $11.22 at the midpoint of the offering
range, $10.32 at the maximum of the offering range and $9.54 at 15% above
the maximum of the offering range.
(5) The retained earnings of Hudson City Savings will continue to be
substantially restricted after the offering. Pro forma retained earnings
have been reduced by $200,000 to reflect the initial capitalization of
Hudson City, MHC.
(6) Assuming 100% of the outstanding common stock of Hudson City Bancorp is
issued to the public rather than 47%, the offering price as a percentage
of pro forma stockholders' equity per share would be 58.38% at the minimum
of the offering range, 63.05% at the midpoint of the offering range, 66.96%
at the maximum of the offering range and 70.82% at 15% above the maximum
of the offering range and the ratio of the offering price to pro forma net
income per share would be 8.40x at the minimum of the offering range, 9.62x
at the midpoint of the offering range, 10.75x at the maximum of the
offering range and 12.05x at 15% above the maximum of the offering range.
(7) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the offering range of up to 15% as a
result of changes in market or general regulatory considerations or changes
in market or general financial and economic conditions following the
commencement of the offering.
30
<PAGE> 32
HUDSON CITY SAVINGS BANK
STATEMENTS OF INCOME
These Statements of Income of Hudson City Savings for the years ended December
31, 1998, 1997 and 1996 have been audited by KPMG LLP, independent certified
public accountants. The Independent Auditors' Report thereon appears on page F-2
of this prospectus. These Statements of Income should be read in conjunction
with the Financial Statements and accompanying Notes to Financial Statements
beginning on page F-7 of this prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income:
Interest and fees on first mortgage loans .................................. $259,320 $245,432 $221,930
Interest and fees on consumer and other loans .............................. 7,272 7,685 8,135
Interest on mortgage-backed securities ..................................... 201,592 201,323 157,050
Interest on investment securities held to maturity:
Taxable .................................................................... 54 -- --
Exempt from federal taxes ................................................. 48 61 112
Interest and dividends on investment securities available for sale - taxable 49,666 43,140 37,587
Interest on federal funds sold ............................................. 2,839 2,801 4,464
-------- -------- --------
Total interest income ................................................ 520,791 500,442 429,278
Interest expense on deposits ................................................ 311,084 297,484 242,667
-------- -------- --------
Net interest income ......................................................... 209,707 202,958 186,611
Provision for loan losses ................................................... 2,400 2,850 2,275
-------- -------- --------
Net interest income after provision for loan losses ........................ 207,307 200,108 184,336
-------- -------- --------
Non-interest income:
Service charges and other income ........................................... 4,930 4,710 3,896
Gains on net securities transactions ....................................... 24 1,594 152
-------- -------- --------
Total non-interest income ............................................ 4,954 6,304 4,048
-------- -------- --------
Non-interest expense:
Salaries and employee benefits ............................................. 39,260 38,781 37,034
Net occupancy expense ...................................................... 11,753 11,888 11,941
Federal deposit insurance assessment ....................................... 783 757 43
Amortization of goodwill ................................................... 1,610 1,771 2,030
Computer and related services .............................................. 1,212 1,104 1,150
Other expense .............................................................. 8,874 8,618 8,760
-------- -------- --------
Total non-interest expense ........................................... 63,492 62,919 60,958
-------- -------- --------
Income before income tax expense ............................................ 148,769 143,493 127,426
Income tax expense .......................................................... 55,500 53,500 46,595
-------- -------- --------
Net income .................................................................. $ 93,269 $ 89,993 $ 80,831
======== ======== ========
</TABLE>
31
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis reflects Hudson City Savings' financial statements
and other relevant statistical data and is intended to enhance your
understanding of our financial condition and results of operations. You should
read the information in this section in conjunction with Hudson City Savings'
Financial Statements and accompanying Notes to Financial Statements beginning on
page F-7 of this prospectus, and the other statistical data provided elsewhere
in this prospectus.
GENERAL
Hudson City Savings' results of operations depend primarily on net interest
income. Net interest income is the difference between the interest income we
earn on our interest-earning assets, primarily mortgage loans, mortgage-backed
securities and investment securities, and the interest we pay on our
interest-bearing liabilities, primarily time deposits and savings deposits. Our
results of operations are also affected by our provision for loan losses,
non-interest income, and non-interest expense. Non-interest expense consists
primarily of salaries and employee benefits, occupancy expenses and other
general and administrative expenses. Non-interest income consists mainly of
service fees and charges.
Our results of operations may also be affected significantly by general and
local economic and competitive conditions, particularly those with respect to
changes in market interest rates, government policies and actions of regulatory
authorities. Future changes in applicable law, regulations or government
policies may materially impact us. Additionally, our lending activity is
concentrated in loans secured by real estate located in New Jersey. Accordingly,
our results of operations are affected by regional market and economic
conditions.
FORWARD LOOKING STATEMENTS
This prospectus contains certain "forward-looking statements" which may be
identified by the use of such words as "believe," "expect," "anticipate,"
"should," "planned," "estimated" and "potential." Examples of forward-looking
statements include, but are not limited to, estimates with respect to our
financial condition, results of operations and business that are subject to
various factors which could cause actual results to differ materially from these
estimates. These factors include, but are not limited to, general and local
economic conditions, changes in interest rates, deposit flows, demand for
mortgage and other loans, real estate values, and competition; changes in
accounting principles, policies, or guidelines; changes in legislation or
regulation; and other economic, competitive, governmental, regulatory, and
technological factors affecting our operations, pricing, products and services.
MANAGEMENT STRATEGY
Our primary management strategy has been to offer savings deposits and
residential mortgage loans to increase earnings and manage growth. We seek to
differentiate ourselves by providing high quality service to our customers while
maintaining low costs. We also try to limit our exposure to changes in interest
rates by monitoring and managing our interest rate-sensitive assets and
liabilities. To accomplish these strategies, we:
32
<PAGE> 34
(1) emphasize the origination of one- to four-family residential mortgage
loans;
(2) purchase adjustable-rate mortgage-backed securities to supplement loan
originations and to assist in the management of interest rate risk;
(3) offer competitive rates to attract new deposits and to maintain our
existing deposit base;
(4) seek to be a low cost provider of financial services by controlling
operating expenses;
(5) manage growth primarily through internal expansion; and
(6) provide attentive service to customers.
After completion of the reorganization, we expect to continue to grow
through expansion using borrowings to supplement deposits as a funding source.
We may increase our borrowings to $900 million over the three years following
the reorganization, which we expect to use to purchase mortgage-backed and other
securities. See "Business of Hudson City Savings Bank-Sources of
Funds-Borrowings" for a discussion of possible borrowings. We also intend to
grow by adding new branch offices. This strategy has been successful for us in
the past. We may also use proceeds from the offering to acquire branch offices
and make other acquisitions. See "How We Intend to Use the Proceeds from the
Offering."
MANAGEMENT OF INTEREST RATE RISK
As a financial institution, our primary component of market risk is
interest rate volatility. Fluctuations in interest rates will ultimately impact
both our level of income and expense recorded on a large portion of our assets
and liabilities. Fluctuations in interest rates will also affect the market
value of all interest-earning assets, other than those which possess a short
term to maturity.
During 1998, we operated under a "flat yield curve" in a low interest rate
environment. A flat yield curve environment features little difference in
interest rates offered on short-term and long-term investments. In that
environment, we experienced both increased interest rate competition related to
loan originations and above-average prepayment rates related to mortgage loans
and mortgage-backed securities, both of which adversely impact long-term
profitability. The flat yield curve environment and modest declines in market
interest rates experienced during 1998 reduced our interest rate spread compared
to the prior year. Recent troubled economic conditions in several nations
throughout Europe, Asia, and South and Central America have created interest
rate volatility for U.S. government and agency obligations. We cannot predict
at this time what, if any, effect these conditions will have on the local and
regional economy, and real estate market.
Due to the nature of our operations, we are not subject to foreign currency
exchange or commodity price risk. Instead, our real estate loan portfolio,
concentrated in New Jersey, is subject to risks associated with the local
economy. We do not own any trading assets. We did not engage in any hedging
transactions that use derivative instruments (such as interest rate swaps and
caps) during 1998 and did not have any such hedging transactions in place at
33
<PAGE> 35
December 31, 1998. In the future, we may, with approval of our board of
directors, engage in hedging transactions utilizing derivative instruments.
The primary objectives of our interest rate management strategy are to:
(1) evaluate the interest rate risk inherent in certain balance sheet
accounts;
(2) determine the appropriate level of interest rate risk given our
business plan, the current business environment and our capital and
liquidity requirements; and
(3) manage interest rate risk in a manner consistent with the approved
guidelines and policies set by our board of managers.
We seek to coordinate asset and liability decisions so that, under changing
interest rate scenarios, earnings will remain within an acceptable range.
To achieve the objectives of managing interest rate risk, our Asset
Liability Committee meets weekly to discuss and monitor the market interest rate
environment compared to interest rates that are offered on our products. This
committee consists of the Chief Executive Officer, the Chief Operating Officer
and the Investment Officer. The Asset Liability Committee presents periodic
reports to the board of managers at its regular meetings, as well as a
comprehensive quarterly report to the Asset Management Committee of the board of
managers. The quarterly reports address the results of activities and strategies
and the effect that changes in interest rates will have on our results of
operations and the present value of our equity.
Historically, our lending activities have emphasized one- to four-family
first and second mortgage loans. Our primary source of funds has been deposits,
consisting primarily of time deposits, which have substantially shorter terms to
maturity than the loan portfolio. We have employed certain strategies to manage
the interest rate risk inherent in the asset/liability mix, including:
(1) purchasing mortgage-backed securities with adjustable-rate features;
(2) purchasing shorter-term federal agency securities with call options;
and
(3) emphasizing the origination of 15 year fixed-rate and adjustable-rate
first mortgage loans.
We believe that the frequent repricing of our adjustable-rate mortgage
loans and adjustable-rate securities, which reduces the exposure to interest
rate fluctuations, will benefit our long-term profitability. Although we have
emphasized the origination of variable-rate mortgage products, the prevailing
low interest rate environment has resulted in the increased demand for
fixed-rate first mortgage loans. The result has been an increase in the
proportion of fixed-rate loans in our portfolio. This may have an adverse impact
on our net interest income, particularly in a rising interest rate environment.
In addition, the actual amount of time before mortgage loans and
mortgage-backed securities are repaid can be significantly impacted by changes
in mortgage prepayment rates and market interest rates. Mortgage prepayment
rates will vary due to a number of factors, including the regional economy in
the area where the underlying mortgages were originated, seasonal
34
<PAGE> 36
factors, demographic variables and the assumability of the underlying mortgages.
However, the major factors affecting prepayment rates are prevailing interest
rates, related mortgage refinancing opportunities and competition. We monitor
interest rate sensitivity so that we can make adjustments to our asset and
liability mix on a timely basis.
Gap Analysis. The matching of the repricing characteristics of assets and
liabilities may be analyzed by examining the extent to which such assets and
liabilities are "interest rate sensitive" and by monitoring a financial
institution's interest rate sensitivity "gap." An asset or liability is said to
be "interest rate sensitive" within a specific time period if it will mature or
reprice within that time period. The interest rate sensitivity gap is defined as
the difference between the amount of interest-earning assets maturing or
repricing within a specific time period and the amount of interest-bearing
liabilities maturing or repricing within that same time period.
A gap is considered positive when the amount of interest-earning assets
maturing or repricing within a specific time period exceeds the amount of
interest-bearing liabilities maturing or repricing within that specific time
period. A gap is considered negative when the amount of interest-bearing
liabilities maturing or repricing within a specific time period exceeds the
amount of interest-earning assets maturing or repricing within the same period.
During a period of rising interest rates, a financial institution with a
negative gap position would be expected, absent the effects of other factors, to
experience a greater increase in the costs of its liabilities relative to the
yields of its assets and thus a decrease in the institution's net interest
income. An institution with a positive gap position would be expected, absent
the effect of other factors, to experience the opposite result. Conversely,
during a period of falling interest rates, a negative gap would tend to result
in an increase in net interest income while a positive gap would tend to reduce
net interest income.
At December 31, 1998, based on the assumptions below, our interest-bearing
liabilities maturing or repricing within one year exceeded our interest-earning
assets maturing or repricing within the same period by $1.29 billion. This
represented a negative cumulative one-year interest rate sensitivity gap of
16.6%, and a ratio of interest-earning assets maturing or repricing within one
year to interest-bearing liabilities maturing or repricing within one year of
74.6%. Our negative gap position could more adversely impact our net interest
income in a rising rate environment than if we had a positive gap position. Our
policy sets a maximum negative cumulative one-year gap as a percent of total
assets at 22%, and a maximum positive cumulative one-year gap as a percent of
total assets at 5%. Our policy also sets the ratio of interest-earning assets
maturing or repricing within one year to interest-bearing liabilities at one
year to a minimum of 65% and a maximum of 107%.
The following table presents the amounts of our interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1998, which we
anticipate to reprice or mature in each of the future time periods shown. Except
as stated below, we determined the amounts of assets and liabilities shown which
reprice or mature during a particular period in accordance with the earlier of
the term to repricing or the contractual maturity of the asset or liability. The
information presented in the following table is also based on the following
assumptions:
(1) we assumed an annual prepayment rate of 16.0% for mortgage loans
repricing or maturing after one year;
35
<PAGE> 37
(2) we assumed an annual prepayment rate of 20.0% for mortgage-backed
securities repricing or maturing after one year;
(3) we reported federal agency securities with call options, that we
believed would be called, at the earlier of the next call date or
contractual maturity date;
(4) we reported savings and interest-bearing demand accounts that had no
stated maturity using decay rates of: 2.5% in less than six months,
2.5% in six months to one year, 25% in one year to two years, 30% in
two years to three years, 20% in three years to five years, and 20% in
over five years; and
(5) we reported money market accounts using decay rates of: 25% in less
than six months, 25% in six months to one year, 25% in one year to two
years, and 25% in two years to three years.
Deposit decay rates, as reflected in items 4 and 5 above, are based on
regulatory guidance, as modified by our historical experience. Deposit decay
rates, prepayment rates and anticipated call dates can have a significant impact
on the estimated interest sensitivity gap. While we believe that our assumptions
are reasonable, they may not be indicative of actual future deposit decay
activity, mortgage and mortgage-backed securities prepayments, and the actual
timing of federal agency calls. We have excluded non-accrual loans from the
table.
36
<PAGE> 38
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
--------------------------------------------------------------------------
SIX MORE THAN MORE THAN MORE THAN
MONTHS SIX MONTHS ONE YEAR TWO YEARS TO
OR LESS TO ONE YEAR TO TWO YEARS THREE YEARS
----------- ----------- ------------ -----------
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS:
<S> <C> <C> <C> <C>
First mortgage loans .................. $ 429,749 $ 460,492 $ 474,957 $ 439,691
Consumer and other loans .............. 28,347 952 1,783 2,731
Federal funds sold .................... 69,800 -- -- --
Mortgage-backed securities ............ 1,228,497 1,127,667 143,131 115,710
Investment securities (1) ............. 401,027 34,716 419 1,105
----------- ----------- ----------- -----------
Total interest-earning assets .... 2,157,420 1,623,827 620,290 559,237
----------- ----------- ----------- -----------
INTEREST-BEARING LIABILITIES:
Savings accounts ....................... 21,453 22,346 207,621 249,145
Interest-bearing demand accounts ....... 2,511 2,511 25,109 30,131
Money market accounts .................. 126,300 126,300 126,300 126,301
Time deposits .......................... 3,345,325 1,419,844 254,084 22,331
----------- ----------- ----------- -----------
Total interest-bearing liabilities 3,495,589 1,571,001 613,114 427,908
----------- ----------- ----------- -----------
Interest sensitivity gap ................... $(1,338,169) $ 52,826 $ 7,176 $ 131,329
=========== =========== =========== ===========
Cumulative interest sensitivity gap ........ $(1,338,169) $(1,285,343) $(1,278,167) $(1,146,838)
=========== =========== =========== ===========
Cumulative interest sensitivity gap
as a percentage of total assets ........ (17.26)% (16.58)% (16.49)% (14.79)%
Cumulative interest-earning
assets as a percentage of
interest-bearing liabilities ........... 61.72% 74.63% 77.50% 81.22%
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
----------------------------------------------------
MORE THAN
THREE YEARS MORE THAN
TO FIVE YEARS FIVE YEARS TOTAL
------------- ----------- -----------
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS:
<S> <C> <C> <C>
First mortgage loans .................. $ 456,614 $ 1,298,101 $ 3,559,604
Consumer and other loans .............. 13,883 38,891 86,587
Federal funds sold .................... -- -- 69,800
Mortgage-backed securities ............ 92,862 363,064 3,070,931
Investment securities (1) ............. 194,127 155,030 786,424
----------- ----------- -----------
Total interest-earning assets .... 757,486 1,855,086 7,573,346
----------- ----------- -----------
INTEREST-BEARING LIABILITIES:
Savings accounts ....................... 166,097 166,097 832,759
Interest-bearing demand accounts ....... 20,087 20,087 100,436
Money market accounts .................. -- -- 505,201
Time deposits .......................... 14,298 -- 5,055,882
----------- ----------- -----------
Total interest-bearing liabilities 200,482 186,184 6,494,278
----------- ----------- -----------
Interest sensitivity gap ................... $ 557,004 $ 1,668,902 $ 1,079,068
=========== =========== ===========
Cumulative interest sensitivity gap ........ $ (589,834) $ 1,079,068
=========== ===========
Cumulative interest sensitivity gap
as a percentage of total assets ........ (7.61)% 13.92%
Cumulative interest-earning
assets as a percentage of
interest-bearing liabilities .......... 90.65% 116.62%
</TABLE>
(1) If we classified our investment securities available for sale at
December 31, 1998 within the one-year maturing or repricing category,
net interest-bearing liabilities maturing or repricing within one year
would have exceeded interest-earning assets maturing or repricing
within the same time period by $936.1 million, representing a
cumulative one-year gap of negative 12.07% of total assets.
37
<PAGE> 39
The methods used in the previous table have some shortcomings. For example,
although certain assets and liabilities may have similar maturities or periods
to repricing, they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities may fluctuate
in advance of changes in market interest rates, while interest rates on other
types may lag behind changes in market rates. Certain assets, such as
adjustable-rate loans, have features which limit changes in interest rates on a
short-term basis and over the life of the loan. If interest rates change,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of borrowers to
make payments on their adjustable-rate loans may decrease if interest rates
increase.
Present Value of Equity. In addition to the gap analysis table, we also use
a simulation model to monitor interest rate risk. This model reports the present
value of equity in different interest rate environments, assuming an
instantaneous and permanent interest rate shock to all interest rate-sensitive
assets and liabilities. The present value of equity is the difference between
the present value of expected cash flows of interest rate-sensitive assets and
liabilities. The changes in market value of assets and liabilities due to
changes in interest rates reflect the interest sensitivity of those assets and
liabilities as their values are derived from the characteristics of the asset or
liability (i.e., fixed rate, adjustable-rate, caps, floors) relative to the
current interest rate environment. For example, in a rising interest rate
environment the fair market value of a fixed rate asset will decline, whereas
the fair market value of an adjustable-rate asset, depending on its repricing
characteristics, may not decline. Increases in the market value of assets will
increase the present value of equity whereas decreases in market value of assets
will decrease the present value of equity. Conversely, increases in the market
value of liabilities will decrease the present value of equity whereas decreases
in the market value of liabilities will increase the present value of equity.
The following table presents the estimated present value of equity over a
range of interest rate change scenarios at December 31, 1998. The present value
ratio shown in the table is the present value of equity as a percent of the
present value of total assets in each of the different rate environments. For
purposes of this table, we have made assumptions such as prepayment rates and
decay rates similar to those used for the gap analysis table.
38
<PAGE> 40
<TABLE>
<CAPTION>
PRESENT VALUE OF EQUITY AS PERCENT OF
PRESENT VALUE OF EQUITY PRESENT VALUE OF ASSETS
CHANGE IN -------------------------------------------- --------------------------------------
INTEREST RATES DOLLAR DOLLAR PERCENT PRESENT VALUE PERCENT
(BASIS POINTS) AMOUNT CHANGE CHANGE RATIO CHANGE
- -------------- ---------- ---------- -------- ------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
200 $ 892,561 $ (239,291) (21.14)% 11.92% (17.45)%
150 961,328 (170,524) (15.07) 12.68 (12.19)
100 1,029,126 (102,726) (9.08) 13.40 (7.20)
50 1,085,211 (46,641) (4.12) 13.98 (3.19)
0 1,131,852 -- -- 14.44 --
(50) 1,132,983 1,131 0.10 14.40 (0.28)
(100) 1,119,106 (12,746) (1.13) 14.20 (1.66)
(150) 1,108,808 (23,044) (2.04) 14.03 (2.84)
(200) 1,092,321 (39,531) (3.49) 13.80 (4.43)
</TABLE>
As in the case of the gap analysis table, the methods we used in the
previous table have some shortcomings. This type of modeling requires that we
make assumptions which may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. For example, we assume the
composition of the interest rate-sensitive assets and liabilities will remain
constant over the period being measured and that all interest rate shocks will
be uniformly reflected across the yield curve, regardless of the duration to
maturity or repricing. The table assumes that we will take no action in response
to the changes in interest rates. In addition, prepayment estimates and other
assumptions within the model are subjective in nature, involve uncertainties,
and, therefore, cannot be determined with precision. Accordingly, although the
present value of equity model may provide an estimate of our interest rate risk
at a particular point in time, such measurements are not intended to and do not
provide a precise forecast of the effect of changes in interest rates on our
present value of equity.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between the interest income
we earn on our interest-earning assets, such as mortgage loans, mortgage-backed
securities and investment securities, and the expense we pay on interest-bearing
liabilities, such as time deposits. Net interest income depends on our volume of
interest-earning assets and interest-bearing liabilities and the interest rates
we earned or paid on them.
39
<PAGE> 41
Average Balance Sheet.
The following table presents certain information regarding Hudson City
Savings' financial condition and net interest income for 1998, 1997 and 1996.
The table presents the average yield on interest-earning assets and the average
cost of interest-bearing liabilities for the periods indicated. We derived the
yields and costs by dividing income or expense by the average balance of
interest-earning assets or interest-bearing liabilities, respectively, for the
periods shown. We derived average balances from daily balances over the periods
indicated. Interest income includes fees which we considered adjustments to
yields.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997
-------------------------------- --------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
---------- ---------- ------- ---------- ---------- -------
ASSETS: (DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C>
First mortgage loans, net (1) ................. $3,426,309 $ 259,320 7.57% $3,193,099 $ 245,432 7.69%
Consumer and other loans ...................... 84,782 7,272 8.58 86,476 7,685 8.89
Federal funds sold ............................ 55,264 2,839 5.14 52,760 2,801 5.31
Mortgage-backed securities .................... 3,053,628 201,592 6.60 2,949,557 201,323 6.83
Investment securities ......................... 743,151 49,768 6.70 629,050 43,201 6.87
---------- ---------- ---------- ----------
Total interest-earning assets ............... 7,363,134 520,791 7.07 6,910,942 500,442 7.24
---------- ----------
Non-interest-earning assets ................... 172,142 164,203
---------- ----------
Total assets ................................ $7,535,276 $7,075,145
========== ==========
LIABILITIES AND EQUITY:
INTEREST-BEARING LIABILITIES:
Savings accounts .............................. $ 834,057 $ 22,777 2.73% $ 845,600 $ 23,837 2.82%
Interest-bearing demand accounts .............. 92,276 1,959 2.12 88,924 1,868 2.10
Money market accounts ......................... 498,337 14,329 2.88 508,218 14,859 2.92
Time deposits ................................. 4,913,089 272,019 5.54 4,556,812 256,920 5.64
---------- ---------- ---------- ----------
Total interest-bearing liabilities .......... 6,337,759 311,084 4.91 5,999,554 297,484 4.96
---------- ---------- ---------- ----------
NON-INTEREST-BEARING LIABILITIES:
Non-interest-bearing deposits ................. 286,322 262,072
Other non-interest-bearing liabilities ........ 55,667 50,117
---------- ----------
Total non-interest-bearing liabilities ......... 341,989 312,189
---------- ----------
Total liabilities ........................... 6,679,748 6,311,743
Equity ........................................ 855,528 763,402
---------- ----------
Total liabilities and equity ................ $7,535,276 $7,075,145
========== ==========
Net interest income/net interest rate spread (2) $ 209,707 2.16% $ 202,958 2.28%
========== ==========
Net interest-earning assets/net
interest margin (3) ........................... $1,025,375 2.85% $ 911,388 2.94%
========== ==========
Ratio of interest-earning assets to
interest-bearing liabilities .................. 1.16X 1.15X
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------------------
AVERAGE
AVERAGE YIELD/
BALANCE INTEREST COST
---------- ---------- -------
ASSETS: (DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS:
<S> <C> <C> <C>
First mortgage loans, net (1) ................. $2,858,926 $ 221,930 7.76%
Consumer and other loans ...................... 90,045 8,135 9.03
Federal funds sold ............................ 86,551 4,464 5.16
Mortgage-backed securities .................... 2,336,817 157,050 6.72
Investment securities ......................... 566,784 37,699 6.65
---------- ----------
Total interest-earning assets ............... 5,939,123 429,278 7.23
----------
Non-interest-earning assets ................... 156,815
----------
Total assets ................................ $6,095,938
==========
LIABILITIES AND EQUITY:
INTEREST-BEARING LIABILITIES:
Savings accounts .............................. $ 881,291 $ 25,209 2.86%
Interest-bearing demand accounts .............. 85,031 1,820 2.14
Money market accounts ......................... 534,558 15,825 2.96
Time deposits ................................. 3,631,959 199,813 5.50
---------- ----------
Total interest-bearing liabilities .......... 5,132,839 242,667 4.73
---------- ----------
NON-INTEREST-BEARING LIABILITIES:
Non-interest-bearing deposits ................. 242,615
Other non-interest-bearing liabilities ........ 43,191
----------
Total non-interest-bearing liabilities ......... 285,806
----------
Total liabilities ........................... 5,418,645
Equity ........................................ 677,293
----------
Total liabilities and equity ................ $6,095,938
==========
Net interest income/net interest rate spread (2) $ 186,611 2.50%
==========
Net interest-earning assets/net
interest margin (3) ........................... $ 806,284 3.14%
==========
Ratio of interest-earning assets to
interest-bearing liabilities .................. 1.16X
</TABLE>
- --------------------------------
(1) Amount is net of deferred loan fees and allowance for loan losses and
includes non-performing loans.
(2) We determined net interest spread by subtracting the weighted average
cost of average interest-bearing liabilities from the weighted average
yield on average interest-earning assets.
(3) We determined net interest margin by dividing net interest income by
average interest-earning assets.
40
<PAGE> 42
Rate/Volume Analysis. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected our interest income and interest
expense during the periods indicated. Information is provided in each category
with respect to:
(1) changes attributable to changes in volume (changes in volume
multiplied by prior rate);
(2) changes attributable to changes in rate (changes in rate multiplied by
prior volume); and
(3) the net change.
The changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
<TABLE>
<CAPTION>
1998 COMPARED TO 1997 1997 COMPARED TO 1996
------------------------------------ ------------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
IN NET INTEREST INCOME DUE TO IN NET INTEREST INCOME DUE TO
------------------------------------ ------------------------------------
VOLUME RATE NET VOLUME RATE NET
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
First mortgage loans, net ....... $ 17,698 $ (3,810) $ 13,888 $ 25,705 $ (2,203) $ 23,502
Consumer and other loans ........ (149) (264) (413) (319) (131) (450)
Federal funds sold .............. 130 (92) 38 (1,790) 127 (1,663)
Mortgage-backed securities ...... 6,983 (6,714) 269 41,787 2,486 44,273
Investment securities ........... 7,665 (1,098) 6,567 4,245 1,257 5,502
-------- -------- -------- -------- -------- --------
Total .................... 32,327 (11,978) 20,349 69,628 1,536 71,164
-------- -------- -------- -------- -------- --------
INTEREST-BEARING LIABILITIES:
Savings accounts ................ (322) (738) (1,060) (1,010) (362) (1,372)
Interest-bearing demand accounts 71 20 91 82 (34) 48
Money market accounts ........... (286) (244) (530) (772) (194) (966)
Time deposits ................... 19,793 (4,694) 15,099 52,032 5,075 57,107
-------- -------- -------- -------- -------- --------
Total ................... 19,256 (5,656) 13,600 50,332 4,485 54,817
-------- -------- -------- -------- -------- --------
Net change in net interest income $ 13,071 $ (6,322) $ 6,749 $ 19,296 $ (2,949) $ 16,347
======== ======== ======== ======== ======== ========
</TABLE>
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1998 AND DECEMBER 31, 1997
Hudson City Savings' total assets increased $438.3 million, or 6.0%, to
$7.75 billion at December 31, 1998 from $7.31 billion at December 31, 1997.
At December 31, 1998, loans increased $195.6 million, or 5.7%, to $3.66
billion, while investment securities available for sale increased $130.3
million, or 19.9%, to $785.0 million. Mortgage-backed securities held to
maturity, which amounted to 39.6% of total assets at December 31, 1998,
increased $48.7 million, or 1.6%, to $3.07 billion at December 31, 1998 from
$3.02 billion at December 31, 1997. These increases reflect our strategy of
emphasizing the origination of one- to four-family residential mortgage loans,
supplemented by the purchase of investment securities and mortgage-backed
securities. Additionally, federal funds sold which are overnight investments,
increased $45.2 million, or 183.7%, to $69.8 million at December 31, 1998 from
$24.6 million at December 31, 1997. Levels of federal funds sold may vary
significantly as they represent our daily investment of excess liquidity.
41
<PAGE> 43
The growth in total assets was funded primarily by an increase of $341.4
million, or 5.3%, in total deposits to $6.81 billion at December 31, 1998,
compared with $6.47 billion at December 31, 1997. Interest-bearing deposits
accounted for $300.6 million, or 88.0%, of the growth in total deposits and were
$6.49 billion at December 31, 1998, an increase of 4.9% from $6.19 billion at
December 31, 1997. Of our interest-bearing deposits, time deposits increased
$288.2 million, or 6.0%, to $5.06 billion at December 31, 1998 from $4.77
billion at December 31, 1997. The increase in time deposits primarily reflects
an increase in time deposits with original maturities of less than twenty-four
months. The growth in interest-bearing deposits primarily reflects our strategy
of offering competitive interest rates on time deposits and the relative
stability of the remainder of the deposit base.
Total equity increased $92.9 million, or 11.5%, to $900.6 million at
December 31, 1998, from $807.7 million at December 31, 1997, primarily due to
$93.3 million of net income for 1998.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
GENERAL
Net income was $93.3 million for 1998, an increase of $3.3 million, or
3.7%, compared with net income of $90.0 million for 1997. The increase was
primarily attributable to a $6.7 million increase in net interest income offset
by a $1.4 million decrease in total non-interest income and a $2.0 million
increase in income tax expense.
INTEREST INCOME
Total interest income increased $20.4 million, or 4.1%, to $520.8 million
for 1998 compared with $500.4 million for 1997. Interest and fees on first
mortgage loans accounted for $13.9 million, or 68.1%, of the increase in total
interest income as it increased to $259.3 million for 1998. This represents a
5.7% increase over interest and fees on first mortgage loans of $245.4 million
for 1997. Interest and dividends on investment securities available for sale -
taxable increased $6.6 million, or 15.3%, to $49.7 million for 1998 compared
with $43.1 million for 1997.
The increase in total interest income was due to a $452.2 million, or 6.5%,
increase in the average balance of total interest-earning assets to $7.36
billion for 1998 compared with $6.91 billion for 1997. The average balance of
first mortgage loans, net, increased $233.2 million, or 7.3%, to $3.43 billion
for 1998 compared with $3.19 billion for 1997. This increase primarily reflects
our continued emphasis on one- to four-family mortgage loan originations, which
increased $268.1 million, or 39.6%, to $944.9 million during 1998 from $676.8
million in 1997. The average balance of mortgage-backed securities increased
$104.1 million, or 3.5%, to $3.05 billion for 1998 compared with $2.95 billion
for 1997. The average balance of investment securities increased $114.1 million,
or 18.1%, to $743.2 million for 1998 compared with $629.1 million for 1997.
These increases reflect our continued strategy of controlled internal growth and
the use of our investments to increase interest income while managing interest
rate risk.
The increase in total interest-earning assets was partially offset by a 17
basis point decrease in the average yield on interest-earning assets to 7.07%
for 1998 from 7.24% for 1997.
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The average yield on first mortgage loans, net, decreased 12 basis points to
7.57% for 1998 compared with 7.69% for the prior year. The average yield on
mortgage-backed securities decreased 23 basis points to 6.60% for 1998 compared
with 6.83% for 1997. The average yield on investment securities decreased 17
basis points to 6.70% for 1998 compared with 6.87% for 1997. The lower interest
rate environment along with the relatively flat yield curve that prevailed
during 1998 and the end of 1997 resulted in the downward repricing of our
interest rate-sensitive assets. In addition, the average yield on our assets was
affected by the refinancing of many of our existing loans to loans with lower
interest rates.
INTEREST EXPENSE
Interest expense on deposits increased $13.6 million, or 4.6%, to $311.1
million for 1998 compared with $297.5 million for 1997. Interest expense on time
deposits, which accounted for 87.4% of interest expense on deposits, increased
$15.1 million, or 5.9%, to $272.0 million for 1998 from $256.9 million for 1997.
The increase of $15.1 million in interest expense on time deposits was partially
offset by a $1.0 million, or 4.2%, decrease in interest expense on savings
accounts to $22.8 million for 1998 from $23.8 million for 1997.
The overall increase in interest expense was attributable to an increase of
$338.2 million, or 5.6%, in the average balance of total interest-bearing
liabilities to $6.34 billion for 1998 compared with $6.00 billion for 1997. The
major component of the increase in the average balance of interest-bearing
liabilities was a $356.3 million, or 7.8%, increase to $4.91 billion in the
average balance of time deposits during 1998 compared with an average balance of
time deposits of $4.56 billion during 1997. This increase reflects our strategy
of funding asset growth through competitive pricing of our time deposit
products. The impact of the increase in the average balance of total
interest-bearing liabilities was slightly offset by a 5 basis point decrease in
the average cost of total interest-bearing liabilities to 4.91% for 1998
compared with 4.96% for 1997. This decrease reflects the overall lower interest
rate environment that prevailed during 1998 and the end of 1997.
NET INTEREST INCOME
Net interest income for 1998 increased $6.7 million, or 3.3%, to $209.7
million compared with $203.0 million for 1997. Net interest rate spread, the
difference between the average yield on average total interest-earning assets
and the average cost of average total interest-bearing liabilities, decreased 12
basis points to 2.16% for 1998 from 2.28% for the prior year. Net interest
margin, represented by net interest income divided by average total
interest-earning assets, decreased 9 basis points to 2.85% for 1998 compared
with 2.94 % for 1997. These decreases were primarily due to slight declines in
interest rates we paid on our interest-bearing deposits, while interest-earning
assets continued to reprice downward more significantly in 1998.
PROVISION FOR LOAN LOSSES
During 1998 we provided $2.4 million for loan losses, compared to $2.9
million for 1997. Net loan charge-offs were approximately $0.3 million for both
1998 and 1997. This resulted in the allowance for loan losses, which is
established through a provision for loan losses charged
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against income, increasing by $2.1 million, or 13.5%, to $17.7 million at
December 31, 1998, from $15.6 million at December 31, 1997.
The decrease in the provision for loan losses reflects a decline in
non-performing loans. The increase in the allowance for loan losses reflects the
continued growth in the loan portfolio. At December 31, 1998, the allowance for
loan losses as a percentage of loans was 0.48% compared with 0.45% at December
31, 1997. As a percentage of non-performing loans at December 31, 1998, the
allowance for loan losses was 115.5%, compared with 96.9% for 1997.
Non-performing loans which we defined as non-accruing loans and accruing loans
delinquent 90 days or more decreased $0.8 million, or 5.0%, to $15.3 million at
December 31, 1998 from $16.1 million at December 31, 1997.
Future provisions for loan losses will continue to be based upon our
assessment of the overall loan portfolio and the underlying collateral, trends
in non-performing loans, current economic conditions and other relevant factors
in order to maintain the allowance for loan losses at adequate levels to provide
for estimated losses.
NON-INTEREST INCOME
Non-interest income includes service fees on deposit accounts, other
service charges and net gains on sales of securities. Total non-interest income
decreased $1.3 million, or 20.6%, to $5.0 million for 1998 compared with $6.3
million for 1997. The decrease is primarily due to a $1.6 million decrease in
the gain on net securities transactions from the prior year. In 1997,
substantially all of our gain on net securities transactions was from the sale
of common stock of a federal government agency.
NON-INTEREST EXPENSE
Total non-interest expense increased $0.6 million, or 1.0%, to $63.5
million during 1998 compared with $62.9 million for the prior year. Salaries and
employee benefits and net occupancy expense comprised 80.4% of total
non-interest expense for 1998. Salaries and employee benefits increased $0.5
million, or 1.3%, to $39.3 million for 1998 compared with $38.8 million for
1997, reflecting routine salary increases partially offset by a decrease in
benefits expense. Non-interest expense also includes amortization of goodwill of
$1.6 million for 1998. We expect to fully amortize the remaining goodwill during
1999.
Our efficiency ratio (determined by dividing non-interest expense by the
sum of net interest income and non-interest income, excluding gains on
securities transactions) was 29.6% for 1998 compared with 30.3% for 1997. The
efficiency ratio reflects our efforts to control operating expenses by
increasing operating efficiencies. The ratio of non-interest expense to average
assets was 0.84% for 1998 and 0.89% for 1997.
INCOME TAXES
Income tax expense increased $2.0 million, or 3.7%, to $55.5 million for
1998 compared with $53.5 million for 1997, resulting in a stable effective tax
rate of 37.3% for both 1998 and 1997.
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COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND 1996
Hudson City Savings' total assets increased $641.6 million, or 9.6%, to
$7.31 billion at December 31, 1997 from $6.67 billion at December 31, 1996.
At December 31, 1997, loans increased $292.3 million, or 9.2%, to $3.46
billion, while investment securities available for sale increased $58.8 million,
or 9.9%, to $654.7 million. Mortgage-backed securities held to maturity, which
comprised 41.3% of total assets at December 31, 1997, increased $312.1 million,
or 11.5%, to $3.02 billion at December 31, 1997. Federal funds sold decreased
$27.6 million, or 52.9%, to $24.6 million at December 31, 1997 from $52.2
million at December 31, 1996.
The growth in total assets was funded primarily by an increase of $547.0
million, or 9.2%, in total deposits to $6.47 billion at December 31, 1997
compared with $5.92 billion at December 31, 1996. Interest-bearing deposits
accounted for $524.5 million, or 95.9%, of the growth in total deposits and were
$6.19 billion at December 31, 1997, an increase of 9.3% from $5.67 billion at
December 31, 1996. Of our interest-bearing deposits, time deposits increased
$565.0 million, or 13.5%, to $4.77 billion at December 31, 1997 from $4.20
billion at December 31, 1996. Slightly offsetting the increase in time deposits
at December 31, 1997 was a decrease in savings deposits of $22.6 million, or
2.6%, to $835.1 million compared with $857.7 million at December 31, 1996. Money
market deposits at December 31, 1997 were $500.0 million, reflecting a decrease
of $20.1 million, or 3.9%, from $520.1 million at December 31, 1996. Demand
deposits increased to $272.3 million at December 31, 1997, an increase of $22.5
million, or 9.0%, compared with $249.8 million at December 31, 1996.
Our total equity increased $88.6 million, or 12.3%, to $807.7 million at
December 31, 1997, from $719.1 million at December 31, 1996, primarily due to
$90.0 million of net income for 1997, partially offset by $1.4 million of
accumulated other comprehensive income related to unrealized losses on
investment securities available for sale.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
GENERAL
Net income was $90.0 million for 1997, an increase of $9.2 million, or
11.4%, compared with net income of $80.8 million for 1996. The increase was
primarily attributable to a $16.4 million increase in net interest income and an
increase of $2.3 million in total non-interest income offset by an increase in
total non-interest expense and income tax expense of $2.0 million and $6.9
million, respectively.
INTEREST INCOME
Total interest income increased $71.1 million, or 16.6%, to $500.4 million
for 1997 compared with $429.3 million for 1996. Interest on mortgage-backed
securities accounted for $44.2 million, or 62.2%, of the 1997 increase in total
interest income. The increase of $44.2 million in interest on mortgage-backed
securities represented a 28.1% increase to $201.3 million for 1997 compared with
$157.1 million for 1996. Interest and fees on first mortgage loans increased
$23.5 million, or 10.6%, to $245.4 million for 1997, compared with $221.9
million for
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the prior year. Additionally, interest and dividends on investment securities
available for sale-taxable increased $5.5 million, or 14.6%, to $43.1 million
for 1997 from $37.6 million for 1996, while interest on federal funds sold
decreased $1.7 million, or 37.8% to $2.8 million for 1997.
The increase in total interest income was primarily due to a $971.8
million, or 16.4 %, increase in the average balance of total interest-earning
assets to $6.91 billion for 1997 compared with $5.94 billion for 1996. During
1996 and 1997 it was our strategy to significantly increase our size through
internal growth. The focus of this growth was increasing our deposit base and
deploying the funds generated by increasing loan originations and investments in
mortgage-backed securities. The significant increase in the average balance of
total interest-earning assets in 1997 was the result of our deployment of the
funds we generated by deposit growth during 1996 and 1997. The average balance
of first mortgage loans, net, increased $334.2 million, or 11.7%, to $3.19
billion for 1997 compared with $2.86 billion for 1996, while the average balance
of mortgage-backed securities increased $612.7 million, or 26.2%, to $2.95
billion for 1997 compared with $2.34 billion for 1996. In addition, the average
balance of investment securities increased by $62.3 million, or 11.0%, to $629.1
million in 1997 compared with $566.8 million in 1996, reflecting the deployment
of excess funding from the increase in deposits.
The average yield on interest-earning assets remained constant at 7.24% for
1997 compared with 7.23% for 1996. The average yield on first mortgage loans,
net, decreased 7 basis points, to 7.69% for 1997 from 7.76% for the prior year.
The average yield on mortgage-backed securities increased 11 basis points to
6.83% for 1997 from 6.72% for 1996. The average yield on investment securities
increased 22 basis points to 6.87% for 1997 from 6.65% for 1996. A slight upward
trend in overall market interest rates during 1996 allowed us to invest deposits
in higher-yielding mortgage-backed securities and investment securities. This
resulted in higher yields on mortgage-backed securities and investment
securities for 1997.
INTEREST EXPENSE
Interest expense on deposits increased $54.8 million, or 22.6%, to $297.5
million for 1997 compared with $242.7 million for 1996. Interest expense on time
deposits, which accounted for 86.4% of interest expense on deposits, increased
$57.1 million, or 28.6%, to $256.9 million for 1997 from $199.8 million for
1996. The $57.1 million increase in interest expense on time deposits was
partially offset by a $1.4 million, or 5.6 %, decrease in interest expense on
savings accounts to $23.8 million for 1997 from $25.2 million for 1996.
The overall increase in interest expense on deposits was attributable to an
increase of $866.7 million, or 16.9%, in the average balance of total
interest-bearing liabilities to $6.00 billion for 1997 compared with $5.13
billion for 1996. The increase reflects our intent in 1996 and 1997 to
significantly increase our deposit base by aggressively pricing our time
deposits. Accordingly, the major component of the net increase in the average
balance of interest-bearing liabilities was a $924.9 million, or 25.5%, increase
to $4.56 billion in the average balance of time deposits during 1997 compared
with $3.63 billion during 1996. The average balance of interest-bearing demand
accounts increased $3.9 million, or 4.6%, to $88.9 million for 1997 from $85.0
million for 1996. The increases in the average balance of time deposits and
interest-bearing demand accounts during 1997 were partially offset by a $35.7
million, or 4.1%, decrease in the average balance of lower-costing savings
accounts to $845.6 million during 1997 from $881.3 million during 1996.
Additionally, the average balance of lower-costing money market accounts
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decreased $26.4 million, or 4.9%, to $508.2 million during 1997 compared with
$534.6 million for 1996.
The average cost of total interest-bearing deposits increased to 4.96% for
1997 compared with 4.73% for 1996, primarily due to our aggressive pricing
strategy and the resulting shift in the deposit mix to higher-costing time
deposits.
NET INTEREST INCOME
Net interest income for 1997 increased $16.4 million, or 8.8%, to $203.0
million compared with $186.6 million for 1996. Net interest rate spread
decreased 22 basis points to 2.28% for 1997 from 2.50% for the prior year. Net
interest margin decreased 20 basis points to 2.94% for 1997 compared with 3.14%
for 1996. While we grew significantly during 1996, the cost of that growth, in
terms of a flat average yield on interest-earning assets and an overall increase
in the cost of interest-bearing deposits, resulted in a lower net interest
spread and net interest margin.
PROVISION FOR LOAN LOSSES
During 1997 and 1996, we provided $2.9 million and $2.3 million,
respectively, for loan losses. Net loan charge-offs were $0.3 million for 1997
and $1.1 million for 1996. This resulted in the allowance for loan losses
increasing $2.6 million, or 20.0%, to $15.6 million at December 31, 1997, from
$13.0 million at December 31, 1996. The increase in the provision reflects the
continued increase in the loan portfolio during 1997. At December 31, 1997, the
allowance for loan losses as a percentage of loans was 0.45% compared with 0.41%
at December 31, 1996. As a percentage of non-performing loans at December 31,
1997, the allowance for loan losses was 96.9% compared with 76.9% at December
31, 1996. Non-performing loans, defined as non-accruing loans and accruing loans
delinquent 90 days or more, decreased $0.9 million, or 5.3%, to $16.1 million at
December 31, 1997 from $17.0 million at December 31, 1996.
Historically, the majority of the loans we originated have been one- to
four-family mortgage loans. At December 31, 1997, 97.5% of our total loan
portfolio was comprised of first mortgage loans, substantially all of which were
secured by properties located in the state of New Jersey.
NON-INTEREST INCOME
Total non-interest income for 1997 was $6.3 million, an increase of $2.3
million, or 57.5%, from $4.0 million for 1996. The increase was primarily due to
a $1.4 million increase in gain on net securities transactions from the sale of
common stock of a federal government agency. Additionally, service fees and
other income were $4.7 million, an increase of $0.8 million, or 20.5%, from $3.9
million for 1996. The increase was primarily due to service fees generated from
increased levels of deposits.
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NON-INTEREST EXPENSE
Total non-interest expense increased $1.9 million, or 3.1%, to $62.9
million during 1997 compared with $61.0 million for the prior year. Salaries and
employee benefits and net occupancy expense comprised 80.5% of total
non-interest expense for 1997. Salaries and employee benefits increased $1.8
million, or 4.9%, to $38.8 million for 1997 compared with $37.0 million for
1996, primarily due to routine salary increases. Net occupancy expense remained
stable at $11.9 million for both 1997 and 1996.
The ratio of non-interest expense to average assets was 0.89% for 1997 and
1.00% for 1996. Our efficiency ratio was 30.3% for 1997 compared with 32.0% for
1996.
INCOME TAXES
Income tax expense increased $6.9 million, or 14.8%, to $53.5 million for
1997 compared with $46.6 million for 1996, resulting in effective tax rates of
37.3% and 36.6% for 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The term "liquidity" refers to our ability to generate adequate amounts of
cash to fund loan originations, loan purchases, deposit withdrawals and
operating expenses. Our primary sources of funds are deposits, scheduled
amortization and prepayments of loan principal and mortgage-backed securities,
maturities and calls of investment securities and funds provided by our
operations. We also have a written agreement that allows us to borrow up to
$25.0 million in federal funds from a correspondent bank. In addition, we may
enter into reverse repurchase agreements with approved broker-dealers. Reverse
repurchase agreements are agreements which allow us to borrow money using our
securities as collateral. At December 31, 1998, we had no outstanding
borrowings.
Loan repayments and maturing investment securities are a relatively
predictable source of funds. However, deposit flows, calls of investment
securities and prepayments of loans and mortgage-backed securities are strongly
influenced by interest rates, general and local economic conditions and
competition in the marketplace. These factors reduce the predictability of the
timing of these sources of funds.
Our primary investing activities are the origination and purchase of one-
to four-family real estate loans, the purchase of mortgage-backed securities,
and to a lesser extent, the purchase of investment securities. During 1998 we
originated and purchased loans of approximately $1.02 billion and during 1997 we
originated and purchased loans of approximately $722.1 million. Purchases of
mortgage-backed securities were $1.22 billion for 1998 and $883.5 million for
1997, while purchases of investment securities were $790.0 million for 1998 and
$522.1 million for 1997.
These investing activities were funded by deposit growth, principal
payments on mortgage loans and mortgage-backed securities, calls and maturities
on investment securities, and funds provided by our operating activities.
Principal repayments on loans and mortgage-backed securities totaled $1.99
billion during 1998, compared to $995.0 million during 1997.
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Maturities and calls of investment securities totaled $659.7 million during 1998
and $418.5 million during 1997. Sales of loans and investment securities
provided cash flows of $4.1 million during 1998 and $43.8 million during 1997.
At December 31, 1998, Hudson City Savings had loan commitments to borrowers
of approximately $161.5 million, and available home equity and overdraft lines
of credit of approximately $53.4 million. Commitments to purchase
mortgage-backed securities were approximately $256.7 million at December 31,
1998. Total deposits increased $341.4 million during 1998 and $547.0 million
during 1997. Deposit flows are affected by the level of interest rates, the
interest rates and products offered by competitors and other factors. Time
deposit accounts scheduled to mature within one year were $4.77 billion at
December 31, 1998. Based on our deposit retention experience and current pricing
strategy, we anticipate that a significant portion of these time deposits will
remain with Hudson City Savings. We are committed to maintaining a strong
liquidity position; therefore, we monitor our liquidity position on a daily
basis. We anticipate that we will have sufficient funds to meet our current
funding commitments.
At December 31, 1998, we exceeded each of the applicable regulatory capital
requirements. Our leverage (tier 1) capital was $898.5 million, or 11.93%, at
December 31, 1998. In order to be classified as "well-capitalized" by the FDIC
we were required to have leverage (tier 1) capital of $376.6 million, or 5.00%.
To be classified as a well-capitalized bank by the FDIC, we must also have a
risk-based total capital ratio of 10.00%. At December 31, 1998, we had a
risk-based total capital ratio of 39.23%. See "Regulation of Hudson City Savings
Bank and Hudson City Bancorp" for a discussion of the regulatory capital
requirements applicable to Hudson City Savings and see "Regulatory Capital
Compliance" for information regarding the impact of the offering on our capital
position.
We do not anticipate any material capital expenditures, nor do we have any
balloon or other payments due on any long-term obligations or any off-balance
sheet items other than the commitments and unused lines of credit noted above.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." Under SFAS No. 123, an entity
may elect to recognize stock-based compensation expense based on the fair value
of the awards, or they may elect to account for stock-based compensation under
APB Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB No. 25").
If an entity elects to account for stock-based compensation under APB No. 25, it
is not required to recognize expense based on the fair value of the awards.
However, the entity must disclose in the financial statements the effects of
SFAS No. 123, as if the recognition provisions of SFAS No. 123 were adopted.
Currently, Hudson City Savings does not provide stock-based compensation to
its employees. Upon completion of the reorganization, subject to stockholder
approval, we will establish certain stock-based compensation plans. If
established, we have evaluated the alternatives available under the provisions
of SFAS No. 123 and currently expect that we will not adopt the recognition
provisions of the statement, but will provide the required footnote disclosures.
Therefore, we do not expect that the adoption of SFAS No. 123 will have a
material impact on our financial position or results of operations.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." This statement established standards for computing
and presenting earnings per share (EPS) and applies to entities with publicly
held common stock or potential common stock. SFAS No. 128 simplifies the
standards for computing EPS previously found in APB Opinion No. 15, "Earnings
Per Share," and makes them more comparable with international EPS standards.
Hudson City Savings, as a mutual savings bank does not have common stock
authorized, issued or outstanding and we do not calculate or present EPS. Upon
completion of the reorganization, we will calculate and present EPS in
accordance with SFAS No. 128.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value.
SFAS No. 133 is effective for all quarters of those years beginning after
June 15, 1999. This statement should not be applied retroactively to financial
statements of prior periods. We do not expect that our adoption of SFAS No. 133
will have a material impact on our financial position or results of operations.
In October 1998, the Financial Accounting Standards Board issued SFAS No.
134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise." This statement is an amendment of SFAS No. 65, "Accounting for
Certain Mortgage Banking Activities" and requires that after the
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securitization of mortgage loans held for sale, an entity engaged in mortgage
banking activities classify the resulting mortgage-backed securities or other
retained interests on the basis of its ability and intent to sell or hold those
investments. This statement is effective for the first quarter beginning after
December 15, 1998. Our adoption of SFAS No. 134 will not have a material impact
on our financial position or results of operations.
ISSUES FOR THE YEAR 2000
Background. A significant challenge that is confronting the business
community, including Hudson City Savings and its competitors, centers on the
inability of many computer systems and software applications to recognize the
Year 2000 (referred to as the "Y2K issue"). Many existing computer systems and
software applications originally were programmed to provide only two digits to
identify the calendar year. With the Year 2000 (Y2K) approaching, these systems
and applications may recognize "00" as 1900 rather than the Year 2000. If the
Y2K issue is not resolved, our operations could be adversely affected due to the
date-sensitive nature of much of our financial information.
Financial institution regulators have focused on Y2K compliance in recent
years and have issued guidance concerning the responsibilities of our management
and our board of managers. The Federal Financial Institutions Examination
Council (FFIEC), a group comprised of representatives from the various financial
institution regulators, has issued several interagency statements on Y2K issues.
These statements have required financial institutions to evaluate their Y2K
exposure, measure their risk to Y2K issues and prepare a plan to remedy the Y2K
issue. Financial institutions also are required to examine the Y2K implications
of their reliance on third-party vendors and the potential impact of Y2K issues
on customers, borrowers and suppliers.
Federal banking regulators have also issued safety and soundness guidelines
to be used in conjunction with routine regulatory examinations. Failure by
federally-regulated institutions to adequately address the Y2K issue may result
in supervisory action, including the reduction of the institution's supervisory
rating, the denial of applications for approval of mergers or acquisitions, the
denial of applications for approval of new branch openings, or the imposition of
civil money penalties.
Risk. Similar to other financial institutions and companies that utilize
computer technology, our operations may be significantly affected by the Y2K
issue because of our reliance on electronic data processing technology and
date-sensitive information. The Y2K issue also impacts other aspects of our
non-technical business processes. If the Y2K issue is not adequately addressed,
and systems are not modified to properly identify the Year 2000, computer
systems and software applications may fail or create erroneous information.
If we are affected by the Y2K issue, information that relies on dates, such
as interest calculations, loan payment schedules and other operating functions,
could be significantly incorrect. We may not be able to process withdrawals or
deposits, prepare account statements, or engage in any of the many transactions
that constitute our normal operations. Our inability to adequately address the
Y2K issue could also have a significant adverse effect on our suppliers and
service providers. Should we experience a Y2K failure that cannot readily be
fixed, it may result in a significant adverse impact on our financial condition
and results of operations.
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State of Readiness. We believe that technology plays a critical role in our
overall business strategy. We have consistently attempted to stay current with
technological advances in the industry. In this regard, the board of managers
and senior management have consistently supported investment in established and
proven technologies. Because of this philosophy, the board of managers and
senior management have been actively engaged in managing our Year 2000 project.
Management has consistently allocated both human and financial resources to this
project to achieve the objectives and time frames mandated by the FFIEC. As
discussed below, we believe that we have considered all material Year 2000
issues and that we are taking the proper action to correct them.
The core of our computer processing system is an in-house,
vendor-maintained and supported main frame computer and a vendor-maintained and
supported integrated financial systems software package. We completed our
conversion to the current system in 1993. We believe that many of our
applications critical to daily operations have been Y2K compliant for some time.
Calculations involving dates for maturities beyond 1999 on both savings and
mortgage instruments have been in place and functioning since the systems'
conversion in 1993.
Our Action Plan for the Year 2000, in accordance with regulatory guidance,
outlines our plans to achieve a successful transition to the Year 2000. The
following summarizes the various phases of our Y2K plan:
Awareness Phase - This initial phase of the Y2K project involved the
appointment of the Y2K review team in August 1996 and the subsequent
development of a formal Action Plan in June 1997. The review team, through
the development of the Action Plan, identified the issues to be resolved,
defined objectives to be achieved and outlined an approach to resolve our
Y2K issues.
Assessment Phase - During this phase, the review team, with
significant input from department leaders, developed an inventory listing
of all internal computer systems and software applications, as well as
third-party vendors and suppliers upon whom we rely for goods and services.
The Compliance Control Sheet identifies and monitors Y2K readiness for all
systems and applications identified during this phase. Initially, we
prioritized the items based on their perceived business impact on our
operations. We decided to fix, upgrade, replace or abandon any systems that
we identified as having Y2K issues. Although we update the Compliance
Control Sheet as we acquire new technology, and the status of individual
items changes as systems go through subsequent phases, this assessment
phase of the project is substantially complete.
We also have reviewed our customer base to determine whether they pose
any significant Y2K risks. Our customer base consists primarily of
individual depositors and residential mortgage loan borrowers. We have no
major multi-family or commercial borrowers. We do not anticipate any
significant Y2K risks posed by our potential borrowers as they are
individuals or families seeking residential mortgage loans which would be
collateralized by the underlying property. These customers are not likely
to pose significant Y2K risks to our operations. However, it is not
possible at this time to evaluate the indirect risks which could be faced
if the employers of our individual customers encounter unresolved Y2K
issues.
Renovation Phase - As previously discussed, our most mission-critical
system is the integrated financial systems software package that includes
our loans, deposits, general ledger and other miscellaneous applications.
This integrated mainframe software system was developed by, and is
currently maintained and supported by, a recognized provider. The mainframe
computer system was also manufactured by, and is currently maintained by, a
well-known national computer hardware company.
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<PAGE> 53
Our information services department is actively involved with both of
these providers as large customers of each. We were a test-site for the Y2K
compliant upgrade that was received in May 1998 for the integrated
financial systems software package. By July 1998, the Y2K upgrade for this
package was put into current production without Y2K-related problems. Other
significant systems have generally been upgraded to Y2K compliant versions
of vendor-supported software. In certain situations, we replaced existing
non-compliant systems with new Y2K compliant hardware and software. We have
relatively few data transmission interfaces with third-party servicers and
substantially all of these systems have been renovated for Year 2000
compliance. We have no mission-critical systems that we developed on our
own.
The review team continues to monitor the Y2K progress of those
third-parties who provide us with services or products to ensure that they
are taking adequate measures in addressing the Y2K issue. We are seeking
written assurances from these third-parties as to their current Year 2000
compliance or that they are in the process of addressing the Y2K issue.
However, we cannot assure you that these third-parties will be prepared
for the Y2K issue. The failure of these third-parties to achieve Y2K
compliance may have an adverse impact on our operations.
Validation/Implementation Phases - The validation phase is considered
to be the most critical stage of the Y2K readiness process. It is designed
to test the ability of the renovated systems to accurately process
date-sensitive data. In July 1998, after the Y2K compliant version of our
integrated financial systems software package was put into current
production, we commenced Y2K testing by creating a separate test
environment dedicated to this task. After initial testing by our
information services department, we undertook a bank-wide testing
initiative. Individual department personnel, the Training Department and
the Internal Audit Department, all became involved in the testing of this
operationally critical software. The validation phase of this
mission-critical system was completed by December 31, 1998 and it will
continue to be tested throughout 1999 as new, more routine, upgrades are
received. During the testing process to date, we have not identified any
significant Y2K problems relating to any upgraded system. All Y2K compliant
upgraded systems have been installed and put into production.
Use of Resources. Managing the Year 2000 project has resulted in additional
direct and indirect costs. Direct costs include charges by third-party software
vendors for product replacements, upgrades and enhancements, costs involved in
testing for Y2K compliance, costs for customer awareness programs, etc. Indirect
costs consist primarily of time devoted to the project by existing employees for
project development and implementation, the testing of systems, monitoring
third-party vendor and service provider progress, and the development of
contingency plans. The costs of the Y2K project have not been significant to
date, and we believe that the total cost of the project will not be material to
our results of operations or financial condition in any one year. Although we
currently estimate that the total cost of the Y2K project, excluding the
reallocation of internal resources, will be approximately $1.0 million, of which
we have already incurred $0.8 million, we cannot guarantee that such costs
would not become material in the future.
Contingency Planning. Regulatory guidance requires that we consider two
types of contingency planning:
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<PAGE> 54
(1) remediation contingency planning, which addresses the failure of an
institution to successfully fix, test or implement its Y2K readiness
plan; and
(2) business resumption contingency planning, which addresses the risks
associated with the failure of systems at critical dates, such as
January 1, 2000.
The regulatory guidance provides that if a mission-critical application or
system has been remediated, tested and implemented, a remediation contingency
plan is not required. Based on the overall progress of our Y2K project,
specifically the testing and implementation results relative to the integrated
financial systems software package, our review team has concluded that a
remediation contingency plan is not required for mission-critical applications.
While we expect to complete our Y2K project in a timely manner, we cannot
guarantee that the systems of companies with whom we conduct business; will also
be completed in a timely manner. The failure of these entities to adequately
address the Y2K issue could adversely affect our ability to conduct business.
To address the risks associated with the failure of mission-critical systems at
critical dates, we are currently developing a business resumption contingency
plan. We are developing contingency or alternate plans for our mission-critical
systems on a department-by-department basis in anticipation of potential
unplanned system difficulties or third-party failures at January 1, 2000 or
dates beyond. However, the review team understands that certain events beyond
our control may diminish our ability to provide minimum levels of service.
Management considers the worst-case scenario to be extended power outages and
loss of telecommunications. Failure of these services will affect companies,
individuals and the government, and cannot be remedied by anyone other than the
responsible party. We are preparing to provide minimum levels of service during
sporadic power outages and temporary loss of telecommunications. However, during
extensive losses of power and/or telecommunications, we may temporarily close
our operations.
For some systems, contingency plans will consist of using or reverting to manual
systems until the problems can be corrected. Consistent with regulatory
guidance, we expect to complete our business resumption contingency plan by June
30, 1999. We do not anticipate any adverse material impact on our operations as
a result of the Y2K issue.
IMPACT OF INFLATION AND CHANGING PRICES
The Financial Statements and accompanying Notes of Hudson City Savings have
been prepared in accordance with generally accepted accounting principles
(GAAP). GAAP generally requires the measurement of financial position and
operating results in terms of historical dollars without consideration for
changes in the relative purchasing power of money over time due to inflation.
The impact of inflation is reflected in the increased cost of our operations.
Unlike industrial companies, our assets and liabilities are primarily monetary
in nature. As a result, changes in market interest rates have a greater impact
on performance than do the effects of inflation.
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<PAGE> 55
BUSINESS OF HUDSON CITY SAVINGS BANK
GENERAL
Hudson City Savings is a community and customer-oriented retail savings
bank offering traditional deposit products, residential real estate mortgage
loans and, to a lesser extent, consumer loans. In addition, Hudson City Savings
purchases mortgage-backed securities, securities issued by the U.S. Government
and agencies and other investments permitted by applicable laws and regulations.
Except for community-related investments, we have not recently originated or
invested in commercial real estate loans or loans secured by multi-family
residences or commercial/industrial business loans, although we have the legal
authority to make such loans. We retain substantially all of the loans we
originate.
Our revenues are derived principally from interest on our mortgage loans
and mortgage-backed securities and interest and dividends on our investment
securities. Our primary sources of funds are deposits, scheduled amortization
and prepayments of loan principal and mortgage-backed securities, maturities and
calls of investment securities and funds provided by operations. We have not
borrowed funds in recent years, although we expect to do so in the future. See
" -- Source of Funds."
MARKET AREA
We conduct our operations out of our executive office in Paramus, Bergen
County, New Jersey, and 75 branches located in 13 counties throughout the state
of New Jersey. As of June 30, 1998, we had a 5.0% share of all New Jersey
deposits and we ranked fifth in size of deposits overall. We operate in three
primary markets: northern New Jersey, the New Jersey shore, and southwestern New
Jersey in the suburbs outside of Philadelphia. Overall, the counties in which we
operate reflect 82% of the entire population of New Jersey, providing us with
access to a large base of potential customers.
Our market areas provide distinct differences in demographics and economic
characteristics. The northern New Jersey market (including Bergen, Essex,
Hudson, Middlesex, Morris, Passaic, Union and Warren Counties) represents the
greatest concentration of population, deposits and income in the State. The
combination of these counties represents 54% of the entire New Jersey population
and 55% of New Jersey households. The northern New Jersey market also represents
the greatest concentration of Hudson City Savings retail operations -- both
lending and deposit gathering -- and based on its high level of economic
activity, we believe that the northern New Jersey markets provide the most
significant opportunities for future growth. The New Jersey shore market
(including Monmouth and Ocean counties) represents a strong concentration of
population and income, and is an increasingly popular resort and retirement
economy -- providing healthy opportunities for deposit growth and residential
lending. The southwestern New Jersey market (including Burlington, Camden and
Gloucester counties) consists of communities adjacent to the Philadelphia
metropolitan area and represents the smallest concentration of deposits for
Hudson City Savings.
Our future growth opportunities will be influenced by the growth; and
stability of the statewide and regional economies, other demographic population
trends and the competitive environment. We believe that we have developed
lending products and marketing strategies to address the diverse credit-related
needs of the residents in our market area.
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<PAGE> 56
COMPETITION
We face intense competition both in making loans and attracting deposits.
New Jersey has a high concentration of financial institutions, many of which are
branches of large money center and regional banks which have resulted from the
consolidation of the banking industry in New Jersey and surrounding states. Some
of these competitors have greater resources than we do and may offer services
that we do not provide. For example, we do not provide insurance products, trust
or investment services, telephonic banking, banking services through home
computers or other technologically advanced services. Customers who seek "one
stop shopping" may be drawn to these institutions.
Our competition for loans comes principally from commercial banks, savings
institutions, mortgage banking firms, credit unions, finance companies, mutual
funds, insurance companies and brokerage and investment banking firms. Our most
direct competition for deposits has historically come from commercial banks,
savings banks, savings and loan associations and credit unions. We face
additional competition for deposits from short-term money market funds and other
corporate and government securities funds and from brokerage firms and insurance
companies.
LENDING ACTIVITIES
Loan Portfolio Composition. Our loan portfolio primarily consists of one-
to four-family residential first mortgage loans. To a lesser degree, the loan
portfolio includes consumer and other loans, including home equity credit lines
and fixed-rate second mortgage loans. We have not originated commercial real
estate loans or loans secured by multi-family residences since the early 1980's
and we do not originate construction loans. We stopped originating commercial/
industrial business loans in 1993, although we have the legal authority to make
such loans. In 1998, we purchased participation interests in multi-family and
commercial first mortgage loans through community-based organizations amounting
to $0.8 million.
At December 31, 1998, we had total loans of $3.66 billion, of which $3.57
billion, or 97.6%, were first mortgage loans. Of residential mortgage loans
outstanding at that date, 51.9% were adjustable-rate mortgage or ARM loans and
48.1% were fixed-rate loans. The remainder of our loans at December 31, 1998,
amounting to $86.6 million, or 2.4% of total loans, consisted of consumer and
other loans, primarily home equity credit lines and fixed-rate second mortgage
loans. Commercial real estate and multi-family mortgage loans outstanding at
December 31, 1998 totaled $2.9 million, or 0.1% of total loans. We also
originate guaranteed student loans.
Our loans are subject to federal and state law and regulations. The
interest rates we charge on loans are affected principally by the demand for
loans, the supply of money available for lending purposes and the interest rates
offered by our competitors. These factors are, in turn, affected by general and
local economic conditions, monetary policies of the federal government,
including the Federal Reserve Board, legislative tax policies and governmental
budgetary matters.
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The following table presents the composition of our loan portfolio in
dollar amounts and in percentages of the total portfolio at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------
1998 1997 1996
PERCENT PERCENT PERCENT
OF OF OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
---------- ------- ---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FIRST MORTGAGE LOANS:
One- to four-family ............. $3,516,947 96.10% $3,327,371 96.07% $3,039,412 95.84%
FHA/VA .......................... 52,958 1.45 45,868 1.32 37,541 1.18
Multi-family and commercial ..... 2,911 0.08 3,553 0.10 6,517 0.21
---------- ------ ---------- ------ ---------- ------
Total first mortgage loans ... 3,572,816 97.63 3,376,792 97.49 3,083,470 97.23
---------- ------ ---------- ------ ---------- ------
CONSUMER AND OTHER LOANS:
Fixed-rate second mortgages ...... 56,118 1.53 50,198 1.45 45,808 1.44
Home equity credit lines ......... 28,045 0.77 30,211 0.87 33,511 1.06
Guaranteed student ............... 216 0.01 4,315 0.12 6,085 0.19
Other ............................ 2,212 0.06 2,287 0.07 2,584 0.08
---------- ------ ---------- ------ ---------- ------
Total consumer and other loans 86,591 2.37 87,011 2.51 87,988 2.77
---------- ------ ---------- ------ ---------- ------
Total loans ............. 3,659,407 100.00% 3,463,803 100.00% 3,171,458 100.00%
====== ====== ======
LESS:
Deferred loan fees ............... 11,146 12,076 11,622
Allowance for loan losses......... 17,712 15,625 13,045
---------- ---------- ----------
Net loans .................... $3,630,549 $3,436,102 $3,146,791
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------
1995 1994
PERCENT PERCENT
OF OF
AMOUNT TOTAL AMOUNT TOTAL
---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FIRST MORTGAGE LOANS:
One- to four-family ............. $2,642,117 94.64% $2,433,987 93.40%
FHA/VA .......................... 46,365 1.66 57,142 2.19
Multi-family and commercial ..... 11,163 0.40 16,396 0.63
---------- ------ ---------- ------
Total first mortgage loans ... 2,699,645 96.70 2,507,525 96.22
---------- ------ ---------- ------
CONSUMER AND OTHER LOANS:
Fixed-rate second mortgages ...... 42,508 1.52 41,394 1.59
Home equity credit lines ......... 37,960 1.36 42,856 1.64
Guaranteed student ............... 7,990 0.29 9,691 0.37
Other ............................ 3,699 0.13 4,593 0.18
---------- ------ ---------- ------
Total consumer and other loans 92,157 3.30 98,534 3.78
---------- ------ ---------- ------
Total loans ............. 2,791,802 100.00% 2,606,059 100.00%
====== ======
LESS:
Deferred loan fees ............... 11,170 11,269
Allowance for loan losses......... 11,906 11,566
---------- ----------
Net loans .................... $2,768,726 $2,583,224
========== ==========
</TABLE>
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Loan Maturity. The following table presents the contractual maturity of our
loans at December 31, 1998. The table does not include the effect of prepayments
or scheduled principal amortization. Prepayments and scheduled principal
amortization on first mortgage loans totaled $784.3 million for 1998, $396.9
million for 1997 and $376.6 million for 1996.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
---------------------------------------------------
FIRST MORTGAGE CONSUMER
LOANS AND OTHER LOANS TOTAL
-------------- --------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
AMOUNTS DUE:
Within one year ............... $ 441 $ 1,773 $ 2,214
---------- ---------- ----------
After one year:
One to three years ........ 7,701 3,611 11,312
Three to five years ....... 28,048 14,511 42,559
Five to ten years ......... 443,963 22,965 466,928
Ten to twenty years ....... 863,049 43,731 906,780
Over twenty years ......... 2,229,614 -- 2,229,614
---------- ---------- ----------
Total due after one year 3,572,375 84,818 3,657,193
---------- ---------- ----------
Total loans ............ $3,572,816 $ 86,591 3,659,407
========== ==========
LESS:
Deferred loan fees ............ 11,146
Allowance for loan losses .. 17,712
----------
Net loans .............. $3,630,549
==========
</TABLE>
The following table presents, as of December 31, 1998, the dollar amount of
all loans, due after December 31, 1999, and whether these loans have fixed
interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
DUE AFTER DECEMBER 31, 1999
--------------------------------------------------
FIXED ADJUSTABLE TOTAL
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
First mortgage loans ............ $1,719,680 $1,852,695 $3,572,375
Consumer and other loans ........ 56,773 28,045 84,818
---------- ---------- ----------
Total loans due after one-year $1,776,453 $1,880,740 $3,657,193
========== ========== ==========
</TABLE>
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The following table presents our loan originations, purchases, sales and
principal payments for the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Total loans:
Balance outstanding at beginning of period $3,463,803 $3,171,458 $2,791,802
---------- ---------- ----------
Originations:
First mortgage loans .................... 944,911 676,831 756,141
Consumer and other loans ................. 41,375 29,037 28,224
---------- ---------- ----------
Total originations .................. 986,286 705,868 784,365
---------- ---------- ----------
Purchases:
One- to four-family first mortgage loans . 22,900 -- 8,558
FHA/VA first mortgage loans .............. 14,952 15,948 --
Other first mortgage loans ............... 787 250 --
---------- ---------- ----------
Total purchases ..................... 38,639 16,198 8,558
---------- ---------- ----------
Less:
Principal repayments:
First mortgage loans ..................... 784,289 396,906 376,633
Consumer and other loans ................. 37,546 28,913 31,249
---------- ---------- ----------
Total principal payments ............ 821,835 425,819 407,882
---------- ---------- ----------
Transfers to foreclosed real estate ........... 3,353 2,801 4,241
---------- ---------- ----------
Loan sales - guaranteed student loans ......... 4,133 1,101 1,144
---------- ---------- ----------
Balance outstanding at end of period .... $3,659,407 $3,463,803 $3,171,458
========== ========== ==========
</TABLE>
Residential Mortgage Lending. Our primary lending emphasis is the
origination of first mortgage loans secured by one- to four-family properties
that serve as the primary or secondary residence of the owner. We do not allow
any borrower to have more than two outstanding first mortgage loans with us at
any one time. We do not offer loans secured by cooperative apartment units or
interests therein. In addition to our loan originations, we have purchased one-
to four-family first mortgage loans in recent years including purchases of $37.9
million in 1998. Since the early 1980's, we have originated substantially all of
our one- to four-family first mortgage loans for retention in our portfolio.
Most of our loan originations are from existing or past customers, members
of our local communities or referrals from local real estate agents, attorneys
and builders. We believe that our extensive branch network is a significant
source of new loan generation. We also employ a small staff of representatives
who call on real estate professionals to disseminate information regarding our
loan programs and take applications directly from their clients. These
representatives are paid for each origination. In addition, we use the services
of licensed mortgage bankers and brokers for mortgage loan originations.
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We currently offer loans that conform to underwriting standards that are
based on standards specified by FannieMae ("conforming loans") and also
originate non-conforming loans, as described below. These loans may be
fixed-rate one- to four-family mortgage loans or adjustable-rate one- to
four-family mortgage loans with maturities of between 5 and 30 years. The
non-conforming loans generally follow FannieMae guidelines except for the loan
amounts and the loans processed as limited documentation loans, as discussed
below. FannieMae guidelines limit loans to $240,000; our non-conforming loans
may exceed such limits. The average size of our one- to four-family mortgage
loans originated in 1998 was approximately $207,000. The overall average size of
our one- to four-family first mortgage loans was approximately $139,000 at
December 31, 1998. We are an approved seller/servicer for FannieMae and an
approved servicer for FreddieMac. From time to time we have sold loans in the
secondary market although we have not done so recently.
Our originations of first mortgage loans amounted to $944.9 million in
1998, $676.8 million in 1997 and $756.1 million in 1996. A significant number of
our first mortgage loan originations have been the result of refinancing of our
existing loans due to the relatively low interest rate levels over the past
three years. Total refinancings of our existing first mortgage loans were as
follows:
<TABLE>
<CAPTION>
PERCENTAGE OF FIRST
MORTGAGE LOAN
AMOUNT ORIGINATIONS
------------- -------------------
(IN MILLIONS)
<S> <C> <C>
1998 $204.0 21.6%
1997 50.0 7.4
1996 77.8 10.3
</TABLE>
We offer a variety of ARMs and fixed-rate one- to four-family mortgage
loans with maximum loan-to-value ratios that depend on the type of property and
the size of loan involved. The loan-to-value ratio is the loan amount divided by
the appraised value of the property. The loan-to-value ratio is a measure
commonly used by financial institutions to determine exposure to risk. Except
for loans to low to moderate income home mortgage applicants, described below,
loans on owner-occupied one- to four-family homes of up to $500,000 are subject
to a maximum loan-to-value ratio of 80%. However, we make loans in amounts up to
$400,000 with a 90% loan-to-value ratio if the borrower obtains private mortgage
insurance. Loans secured by single family investment properties are subject to a
maximum loan-to-value ratio of 75%. loan-to-value ratios of 75% or less are also
required for one- to four-family loans in excess of $500,000 and less than
$750,000. Loans in excess of $750,000 and up to $1,000,000 are subject to a
maximum 70% loan-to-value ratio.
We currently offer fixed-rate mortgage loans in amounts up to $1.0 million
with a maximum term of 30 years secured by one- to four-family residences. We
price our interest rates on fixed rate loans to be competitive in light of
market conditions.
We currently offer a variety of ARM loans secured by one- to four-family
residential properties that initially adjust after one year, five years or ten
years. After the initial adjustment period, ARM loans adjust on an annual basis.
The ARM loans that we currently originate have a maximum 30 year amortization
period and are subject to the same loan-to-value ratios applicable
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<PAGE> 61
to fixed-rate mortgage loans described above. The interest rates on ARM
loans fluctuate based upon a fixed spread above the monthly average yield on
United States treasury securities, adjusted to a constant maturity of one year
("constant treasury maturity index") and generally are subject to a maximum
increase of 2% per adjustment period and a limitation on the aggregate
adjustment of either 5% or 6% over the life of the loan, depending upon the type
of loan. We offer ARM loans with initial interest rates below the interest rate
that we determine by a fixed spread above the monthly constant treasury maturity
index ("fully indexed rate"). As of December 31, 1998, the initial discounted
rate on these loans was 75 to 288 basis points below the current fully indexed
rate. We originated $294.0 million of one- to four-family ARM loans in 1998. At
December 31, 1998, 51.9% of our one- to four-family mortgage loans consisted of
ARM loans.
The volume and types of ARM loans we originate have been affected by the
level of market interest rates, competition, consumer preferences and the
availability of funds. During 1998, we experienced a decreased demand for ARM
loans due to the continued low interest rate environment. Although we will
continue to offer ARM loans, we cannot guarantee that we will be able to
originate a sufficient volume of ARM loans to increase or maintain the
proportion that these loans bear to our total loans.
The retention of ARM loans in our loan portfolio helps reduce our exposure
to increases in interest rates. However, ARM loans can pose credit risks
different from the risks inherent in fixed-rate loans, primarily because as
interest rates rise, the underlying payments of the borrower may rise. This
increases the potential for default. The marketability of the underlying
property also may be adversely affected. In order to minimize risks, we evaluate
borrowers of one-year ARM loans based on their ability to repay the loans at the
fully indexed rate. In an effort to further reduce interest rate risk, we have
not in the past, nor do we currently, originate ARM loans which provide for
negative amortization of principal.
In addition to our full documentation loan program, we process some loans
as limited documentation loans. We have originated these loans for 10 years.
Loans eligible for limited documentation processing are ARM loans and 15- and
30-year fixed-rate loans to owner-occupied primary and second home applicants.
These loans are available in amounts up to 75% of the lower of the appraised
value or purchase price of the property. The maximum loan amount for limited
documentation loans is $500,000. We do not charge borrowers additional fees for
limited documentation loans. We require applicants for limited documentation
loans to complete a Freddie Mac/Fannie Mae loan application and request income,
assets and credit history information from the borrower. Additionally, we obtain
credit reports from outside vendors on all borrowers. We also look at other
information to ascertain the credit history of the borrower. Applicants with
delinquent credit histories usually do not qualify for the limited documentation
processing, although relatively minor delinquencies which are adequately
explained will not prohibit processing as a limited documentation loan. We
reserve the right to verify income and asset information and verify such
information where we believe circumstances require verification.
Limited documentation loans involve higher risks compared to loans with
full documentation as there is a greater opportunity for borrowers to falsify
their income and ability to service their debt. We believe that the limited
documentation program has not had a material adverse effect on our asset
quality. See "-- Asset Quality." Unseasoned limited documentation loans are not
readily salable in the secondary market as whole loans. In addition, these loans
may not readily be pooled or securitized. We do not believe that an inability to
sell such loans will
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have a material adverse impact on our liquidity needs, because internally
generated sources of liquidity are expected to be sufficient to meet our
liquidity needs. See "Managements' Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and "--
Sources of Funds."
In addition to our standard mortgage and consumer credit products, since
1992, we have developed mortgage programs designed to address the credit needs
of low- to moderate-income home mortgage applicants, first-time home buyers and
low- to moderate-income home improvement loan applicants. We define low-to
moderate-income applicants as borrowers residing in low-to-moderate income
census tracts or households with income not greater than 80% of the median
income in the county where the subject property is located. Our low- to
moderate-income home improvement loans are discussed under "-- Consumer Loans."
Among the features of the low- to moderate-income home mortgage and first-time
home buyer's programs are reduced rates, lower down payments, reduced fees and
closing costs, and generally less restrictive requirements for qualification
compared with our traditional one- to four-family mortgage loans. For instance,
certain of these programs currently provide for loans with up to 95%
loan-to-value ratios and rates which are 25 to 75 basis points lower than our
traditional mortgage loans. In 1998, we provided $69.8 million in mortgage loans
to home buyers under these programs.
Consumer Loans. At December 31, 1998, $86.6 million, or 2.4%, of our total
loans consisted of consumer and other loans, primarily home equity credit lines
and fixed-rate second mortgage loans. Consumer loans generally have shorter
terms to maturity, which reduces our exposure to changes in interest rates.
Consumer loans also carry higher rates of interest than do one- to four-family
residential mortgage loans. In addition, we believe that offering consumer loan
products helps to expand and create stronger ties to our existing customer base
by increasing the number of customer relationships and providing cross-marketing
opportunities.
Our home equity credit line loans, which totaled $28.1 million, or 0.8% of
total loans at December 31, 1998, are adjustable-rate loans secured by a second
mortgage on owner-occupied one- to four-family residences located in the state
of New Jersey. Current interest rates on home equity credit lines are based on
the "prime rate" as published in the "Money Rates" section of The Wall Street
Journal (the "index"). Interest rates on home equity credit lines are adjusted
monthly based upon changes in the index. Minimum monthly principal payments on
currently offered home equity lines of credit are based on 1/240th of the
outstanding principal balance or $100 whichever is greater. The maximum credit
line available is $200,000. The underwriting standards applicable to these loans
generally are the same as one- to four-family first mortgage loans, except that
the combined loan-to-value ratio, including the balance of the first mortgage,
cannot exceed 80% of the appraised value of the property.
We also offer fixed-rate second mortgage loans in amounts up to $200,000
secured by owner-occupied one- to four-family residences for terms of up to 15
years. At December 31, 1998 these loans totaled $56.1 million, or 1.5% of total
loans. Interest rates on fixed-rate second mortgage loans are periodically set
by our Consumer Loan Department based on market conditions. The underwriting
terms and procedures applicable to these loans are substantially the same as for
our home equity credit line loans.
We also offer fixed-rate second mortgage loans to low-to-moderate income
borrowers in amounts up to $20,000. The borrower must use a portion of the loan
proceeds for home
61
<PAGE> 63
improvements or the satisfaction of an existing obligation. The underwriting
standards under this program are similar to those for standard second mortgage
loans, except that the combined maximum loan-to-value ratio is 90%.
At December 31, 1998, guaranteed student loans amounted to $0.2 million, as
a result of the sale of $4.1 million of our total student loan portfolio during
the year to the Student Loan Marketing Association (Sallie Mae). We currently
participate in a program sponsored by Sallie Mae through which we expect to sell
all future student loans to Sallie Mae. We will sell these loans after we
completely disburse loan proceeds. We originated total student loans of $0.4
million during 1998.
In the past, we offered commercial/industrial loans primarily for business
investment, business expansion and working capital requirements, generally to
businesses located within our market areas. We no longer make such loans, and at
December 31, 1998 we had three remaining commercial/industrial loans totaling
$0.7 million. Other consumer loans totaled $1.5 million at December 31, 1998
and consisted of collateralized passbook loans, overdraft protection loans,
automobile loans and unsecured personal loans.
Multi-family and Commercial Real Estate Loans. In the past, we originated
loans secured by multi-family properties (primarily apartment buildings) and
commercial real estate properties (primarily warehouses and shopping centers)
and commercial business properties. We have not originated a multi-family
mortgage loan or commercial real estate loan since the early 1980's except for
our purchase of participations in multi-family and commercial first mortgage
loans through community-based organizations, amounting to $0.8 million in 1998.
Loans secured by multi-family and commercial real estate properties are
generally larger and involve a greater degree of credit risk than one- to
four-family residential mortgage loans. Such loans typically involve large
balances to single borrowers or groups of related borrowers. Because payments on
loans secured by multi-family and commercial real estate properties are often
dependent on the successful operation or management of the properties, repayment
of such loans may be subject to adverse conditions in the real estate market or
the economy. If the cash flow from the project decreases, or if leases are not
obtained or renewed, the borrower's ability to repay the loan may be impaired.
Loan Approval Procedures and Authority. Our lending policies provide that
our Mortgage Officer and Assistant Mortgage Officer have authority to approve
one- to four-family mortgage loans in amounts up to $500,000. Loans in excess of
$500,000 require the approval of either of the foregoing officers as well as our
Chief Executive Officer or Chief Operating Officer. Home equity credit lines and
fixed-rate second mortgage loans in principal amounts of $25,000 or less are
approved by one of our designated loan underwriters. Home equity loans in excess
of $25,000, up to the $200,000 maximum, are approved by an underwriter and
either our Consumer Loan Officer, Chief Executive Officer or Chief Operating
Officer. A weekly listing of loan approvals is entered into the minutes of the
Executive Committee of the board of managers.
The following describes our current lending procedures. Upon receipt of a
completed loan application from a prospective borrower, we order a credit report
and, except for loans originated as limited documentation loans, we verify
certain other information. If necessary, we obtain additional financial or
credit-related information. We require an appraisal for all mortgage loans,
except for some loans made to refinance existing mortgage loans. Appraisals are
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<PAGE> 64
performed by our in-house appraisal department or by licensed or certified
third-party appraisal firms. Currently most appraisals are performed by
third-party appraisers and are reviewed by our appraisal department. We require
title insurance on all mortgage loans, except for home equity credit lines and
fixed-rate second mortgage loans. For these loans, we require evidence of
previous title insurance. We require borrowers to obtain hazard insurance and we
may require borrowers to obtain flood insurance prior to closing. We require
borrowers to advance funds on a monthly basis together with each payment of
principal and interest to a mortgage escrow account from which we make
disbursements for items such as real estate taxes, flood insurance and private
mortgage insurance premiums, if required.
ASSET QUALITY
One of our key operating objectives has been and continues to be to
maintain a high level of asset quality. Through a variety of strategies,
including, but not limited to, borrower workout arrangements and aggressive
marketing of owned properties, we have been proactive in addressing problem and
non-performing assets. These strategies, as well as our concentration on one- to
four-family mortgage lending, our maintenance of sound credit standards for new
loan originations and relatively favorable economic and real estate market
conditions have resulted in historically low delinquency ratios and, in recent
years, a reduction in non-performing assets. These factors have helped
strengthen our financial condition.
Delinquent Loans and Foreclosed Assets. When a borrower fails to make
required payments on a loan, we take a number of steps to induce the borrower to
cure the delinquency and restore the loan to a current status. In the case of
mortgage loans, our mortgage servicing department is responsible for collection
procedures from the 15th day up to the 90th day of delinquency. Specific
procedures include a late charge notice being sent at the time a payment is over
15 days past due with a second notice being sent at the time the payment becomes
30 days past due. We also establish telephone contact at that time with the
borrower. We send additional letters if no contact is established by
approximately the 45th day of delinquency. On the 60th day of delinquency, we
send another letter followed by continued telephone contact. Between the 30th
and the 60th day of delinquency, if telephone contact has not been established,
an independent contractor makes a physical inspection of the property. When
contact is made with the borrower at any time prior to foreclosure, we attempt
to obtain full payment or work out a repayment schedule with the borrower in
order to avoid foreclosure. It has been our experience that most loan
delinquencies are cured within 90 days and no legal action is taken.
We send foreclosure notices when a loan is 90 days delinquent and we
transfer the loan to the foreclosure/bankruptcy section for referral to legal
counsel. We commence foreclosure proceedings if the loan is not brought current
between the 90th and 120th day of delinquency unless specific limited
circumstances warrant an exception. We hold property foreclosed upon as
foreclosed real estate. We carry foreclosed real estate at its fair market value
less estimated selling costs. If a foreclosure action is commenced and the loan
is not brought current, paid in full or refinanced before the foreclosure sale,
we either sell the real property securing the loan by a foreclosure sale, or
sell the property as soon thereafter as practicable. The collection procedures
for Federal Housing Association (FHA) and Veterans' Association (VA) one- to
four-family mortgage loans follow the collection guidelines outlined by those
agencies.
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<PAGE> 65
The collection procedures for consumer and other loans, excluding student
loans, include our sending periodic late notices to a borrower once a loan is
past due. We attempt to make direct contact with a borrower once a loan becomes
30 days past due. Supervisory personnel in our Consumer Loan Collection
Department review loans 60 days or more delinquent on a regular basis. If
collection activity is unsuccessful after 90 days, we may charge-off a loan or
refer the matter to our legal counsel for further collection effort. Loans we
deem to be uncollectible are proposed for charge-off by our Collection
Department. Charge-offs of consumer loans require the approval of our Consumer
Loan Officer and our Chief Executive Officer or Chief Operating Officer. The
collection procedures for guaranteed student loans follow those specified by
federal and state guidelines.
Our policies require that management continuously monitor the status of the
loan portfolio and report to the board of managers on a monthly basis. These
reports include information on delinquent loans and foreclosed real estate.
At December 31, 1998, 1997 and 1996, loans delinquent 60 days to 89 days
and 90 days or more were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------- -----------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
-------------------- -------------------- ------------------- -------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
NO. OF BALANCE OF NO. OF BALANCE OF NO. OF BALANCE OF NO. OF BALANCE OF
LOANS LOANS LOANS LOANS LOANS LOANS LOANS LOANS
------- ---------- ------- ---------- ------ ---------- ------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family
first mortgages . 58 $ 5,660 116 $13,554 78 $ 9,095 126 $15,214
FHA/VA first
mortgages ....... 23 769 36 1,781 33 346 45 595
Consumer and other
loans ........... 3 47 8 4 14 215 51 325
------- ------- ------- ------- ------ ------- ------ -------
Total delinquent
loans ........... 84 $ 6,476 160 $15,339 125 $ 9,656 222 $16,134
======= ======= ======= ======= ====== ======= ====== =======
Delinquent loans to
total loans ..... 0.18% 0.42% 0.28% 0.47%
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------------------------
60-89 DAYS 90 DAYS OR MORE
-------------------- --------------------
PRINCIPAL PRINCIPAL
NO. OF BALANCE OF NO. OF BALANCE OF
LOANS LOANS LOANS LOANS
------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
One- to four-family
first mortgages . 83 $ 9,406 117 $15,715
FHA/VA first
mortgages ....... 38 497 51 758
Consumer and other
loans ........... 40 186 70 493
------- ------- ------- -------
Total delinquent
loans ........... 161 $10,089 238 $16,966
======= ======= ======= =======
Delinquent loans to
total loans ..... 0.32% 0.53%
</TABLE>
Non-performing assets totaled $16.4 million at December 31, 1998 compared
with $17.5 million at December 31, 1997. Our $15.3 million in loans delinquent
90 days or more at December 31, 1998 were comprised primarily of 152 one- to
four-family first mortgage loans (including FHA/VA first mortgage loans) with an
average principal balance of approximately $101,000. At December 31, 1998, our
largest loan delinquent 90 days or more had a balance of $497,000.
The following table presents information regarding non-accrual mortgage and
consumer and other loans, accruing loans delinquent 90 days or more, and
foreclosed real estate as of the dates indicated. If all non-accrual loans had
been performing in accordance with their original terms and had been outstanding
from the earlier of the beginning of the period or origination, we would have
recorded interest income on these loans of approximately $0.8 million for 1998,
as compared to $0.2 million, which was included in interest income.
64
<PAGE> 66
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual first mortgage loans ........ $13,212 $15,103 $15,546 $19,226 $19,070
Non-accrual consumer and other loans .... 4 325 493 666 1,245
Accruing loans delinquent 90 days or more 2,123 706 927 1,028 1,551
------- ------- ------- ------- -------
Total non-performing loans ............. 15,339 16,134 16,966 20,920 21,866
Foreclosed real estate, net ............. 1,026 1,410 2,385 3,440 1,942
------- ------- ------- ------- -------
Total non-performing assets ............ $16,365 $17,544 $19,351 $24,360 $23,808
======= ======= ======= ======= =======
Non-performing loans to total loans ..... 0.42% 0.47% 0.53% 0.75% 0.84%
Non-performing assets to total assets ... 0.21 0.24 0.29 0.45 0.49
</TABLE>
With the exception of first mortgage loans insured or guaranteed by the FHA
or VA or for which the borrower has obtained private mortgage insurance, we stop
accruing income on loans when interest or principal payments are 90 days in
arrears or earlier when the timely collectibility of such interest or principal
is doubtful. We designate loans on which we stop accruing income as non-accrual
loans and we reverse outstanding interest that we previously credited. We may
recognize income in the period that we collect it, when the ultimate
collectibility of principal is no longer in doubt. We return a non-accrual loan
to accrual status when factors indicating doubtful collection no longer exist.
We define the population of impaired loans to be all non-accrual commercial
real estate and multi-family loans. Impaired loans are individually assessed to
determine whether a loan's carrying value is not in excess of the fair value of
the collateral or the present value of the loan's cash flows. Smaller balance
homogeneous loans that are collectively evaluated for impairment, such as
residential mortgage loans and consumer loans, are specifically excluded from
the impaired loan portfolio. We had no loans classified as impaired at December
31, 1998 and 1997. In addition, at December 31, 1998 and 1997, we had no loans
classified as troubled debt restructurings, as defined in SFAS No. 15.
Foreclosed real estate consists of property we acquired through foreclosure
or deed in lieu of foreclosure. Foreclosed real estate properties are initially
recorded at the lower of the recorded investment in the loan or fair value.
Thereafter, we carry foreclosed real estate at fair value less estimated selling
costs, net of a valuation allowance account established through provisions
charged to income, which result from the ongoing periodic valuations of
foreclosed real estate properties.
65
<PAGE> 67
Allowance for Loan Losses. The following table presents the activity in our
allowance for loan losses at or for the periods indicated.
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period ......... $ 15,625 $ 13,045 $ 11,906 $ 11,566 $ 11,261
-------- -------- -------- -------- --------
Provision for loan losses .............. 2,400 2,850 2,275 1,000 789
-------- -------- -------- -------- --------
Charge-offs:
First mortgage loans .............. 283 288 1,002 652 466
Consumer and other loans .......... 53 42 158 35 89
-------- -------- -------- -------- --------
Total charge-offs .............. 336 330 1,160 687 555
Recoveries ............................. (23) (60) (24) (27) (71)
-------- -------- -------- -------- --------
Net charge-offs ................... 313 270 1,136 660 484
-------- -------- -------- -------- --------
Balance at end of period ............... $ 17,712 $ 15,625 $ 13,045 $ 11,906 $ 11,566
======== ======== ======== ======== ========
Net charge-offs to average loans ....... 0.01% 0.01% 0.04% 0.02% 0.02%
Allowance for loan losses to total loans 0.48 0.45 0.41 0.43 0.44
Allowance for loan losses to
non-performing loans ................. 115.47 96.85 76.89 56.91 52.89
</TABLE>
The allowance for loan losses is a valuation account that reflects our
evaluation of the losses inherent in our loan portfolio. We maintain the
allowance through provisions for loan losses that we charge to income. We charge
losses on loans against the allowance for loan losses when we believe the
collection of loan principal is unlikely.
We establish the provision for loan losses after considering the results of
our review of delinquency and charge-off trends, the amount of the allowance for
loan losses in relation to the total loan balance, loan portfolio growth,
generally accepted accounting principles and regulatory guidance. We have
applied this process consistently and we have made minimal changes in the
assumptions used.
As part of our analysis, each month we prepare an allowance for loan loss
worksheet monthly. This worksheet categorizes the entire loan portfolio by
certain risk characteristics such as loan type, guarantees associated with a
group of loans and payment status. Loans with known potential losses are
categorized separately. We assign a potential loss factors to the categories on
the basis of our assessment of each category's status and the potential risk
inherent in that type of lending. We use this worksheet, together with loan
portfolio balances and delinquency reports, to evaluate the adequacy of the
allowance for loan losses. Other key factors we consider in this process are
current real estate market conditions, changes in the trends of non-performing
loans, the current state of the local and national economy, and loan portfolio
growth.
Our primary lending emphasis is the origination of one-to four-family first
mortgage loans on residential properties and, to a lesser extent, second
mortgage loans on one-to four-family residential properties. We currently do not
originate multi-family and commercial mortgage loans or commercial/industrial
loans. At December 31, 1998, multi-family and commercial mortgages amounted to
$2.9 million and commercial/industrial loans were $0.7 million. We view our
portfolio as smaller balance homogeneous loans which we evaluate collectively
for impairment. Accordingly, the most significant factor in recent years
impacting the evaluation of the allowance for loan losses and the establishment
of the provision for loan losses has been growth of the loan portfolio.
Although we believe that we have established and maintained the allowance
for loan losses at adequate levels, future additions may be necessary if
economic and other conditions in the future differ substantially from the
current operating environment. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review our loan and
foreclosed real estate portfolios and the related allowance for loan losses and
valuation allowance for foreclosed real estate. These agencies, including the
FDIC, may require us to increase the allowance for loan losses or the valuation
allowance for foreclosed real estate based on their judgments of information
available to them at the time of their examination, thereby adversely affecting
our results of operations.
During 1998, we increased our allowance for loan losses through a $2.4
million provision for loan losses based on our evaluation of the items discussed
above. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Comparison of Operating Results for the Years Ended
December 31, 1998 and 1997 -- Provision for Loan Losses."
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<PAGE> 68
The following table presents our allocation of the allowance for loan
losses by loan category and the percentage of loans in each category to total
loans at December 31, 1998, 1997, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------------- ------------------- -------------------- -------------------- --------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
OF OF OF OF OF
LOANS IN LOANS IN LOANS IN LOANS IN LOANS IN
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
LOAN CATEGORY AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
- ------------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
First mortgage loans:
One-to four-
family ........... $11,168 96.10% $ 9,409 96.07% $ 8,770 95.84% $ 9,076 94.64% $ 8,692 93.40%
Other ............. 29 1.53 48 1.42 65 1.39 121 2.06 213 2.82
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total first
mortgage loans .... 11,197 97.63 9,457 97.49 8,835 97.23 9,197 96.70 8,905 96.22
Consumer and
other loans ......... 656 2.37 662 2.51 675 2.77 715 3.30 821 3.78
Unallocated .......... 5,859 -- 5,506 -- 3,535 -- 1,994 -- 1,840 --
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total allowance
for loan losses .. $17,712 100.00% $15,625 100.00% $13,045 100.00% $11,906 100.00% $11,566 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
INVESTMENT ACTIVITIES
Investment Securities. The board of managers reviews and approves our
investment policy on an annual basis. The Chief Executive Officer, Chief
Operating Officer and Investment Officer, as authorized by the board, implement
this policy. Management reports securities transactions to the Executive
Committee of the board of managers on a weekly basis. The board of managers
reviews our investment activity on a monthly basis.
Our investment policy is designed primarily to manage the interest rate
sensitivity of our assets and liabilities, to generate a favorable return
without incurring undue interest rate and credit risk, to complement our lending
activities and to provide and maintain liquidity within established guidelines.
In establishing our investment strategies, we consider our interest rate
sensitivity or "gap" position, the types of securities to be held, liquidity and
other factors. New Jersey chartered savings banks have authority to invest in
various types of assets, including U.S. Treasury obligations, securities of
various federal agencies, mortgage-backed securities, certain time deposits of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements, loans of federal funds, and, subject to certain limits, corporate
debt and equity securities, commercial paper and mutual funds.
Our investment policy prohibits participation in hedging programs, options
or futures transactions or interest rate swaps and also prohibits the purchase
of non-investment grade bonds. In the future we may amend our policy to allow us
to engage in hedging transactions. Our investment policy also provides that we
will not engage in any practice that the FFIEC considers to be an unsuitable
investment practice. In addition, the policy provides that we shall attempt to
maintain primary liquidity consisting of investments in cash, cash in banks,
money market investments and securities with remaining maturities of less than
five years in an amount equal to 5% of total deposits. At December 31, 1998, our
primary liquidity ratio was 7.1%. For information regarding the carrying values,
yields and maturities of our investment securities and mortgage-backed
securities, see "-- Carrying Values, Yields and Maturities."
67
<PAGE> 69
We classify securities as trading, held to maturity, or available for sale
at the date of purchase. Held to maturity securities are reported at cost,
adjusted for amortization of premium and accretion of discount. Available for
sale securities are reported at fair market value. We currently have no
securities classified as trading. We classify obligations of the U.S. Government
and federal agencies, corporate bonds, and common stock as "available for sale."
We classify municipal bonds as held to maturity. We have both the ability and
positive intent to hold these investments to maturity. We did not sell any
investment securities during 1998.
Mortgage-backed Securities. All of our mortgage-backed securities are
directly or indirectly insured or guaranteed by FreddieMac, GNMA or FannieMae.
We classify our entire mortgage-backed securities portfolio as "held to
maturity" and we have both the ability and positive intent to hold these
securities to maturity.
At December 31, 1998, mortgage-backed securities held to maturity totaled
$3.07 billion, or 39.6% of total assets. At December 31, 1998, the
mortgage-backed securities portfolio had a weighted average yield of 6.82% and a
market value of approximately $3.11 billion. Of the mortgage-backed securities
we held at December 31, 1998, $897.2 million, or 29.2%, had fixed rates and
$2.17 billion, or 70.8%, had adjustable-rates. Mortgage-backed securities at
December 31, 1998 included real estate mortgage investment conduits (REMICs),
which are securities derived by reallocating cash flows from mortgage
pass-through securities or from pools of mortgage loans held by a trust. REMICS
are a form of, and are often referred to as, collateralized mortgage obligations
(CMOs). We classify all of these securities as held to maturity.
Our REMICs have fixed coupon rates ranging from 5.00% to 7.50% and had a
weighted average yield of 5.81% at December 31, 1998. At December 31, 1998,
REMICs totaled $62.9 million, which constituted 2.1% of the mortgage-backed
securities portfolio, or 0.8% of total assets. Our REMICs had an expected
average life of one year at December 31, 1998. For a further discussion of our
investment policies, including those for mortgage-backed securities, see "--
Investment Securities." Purchases of mortgage-backed securities may decline in
the future to offset any significant increase in demand for one- to four-family
mortgage loans. We did not sell any of our mortgage-backed securities during
1998.
Mortgage-backed securities generally yield less than the loans that
underlie such securities because of the cost of payment guarantees or credit
enhancements that reduce credit risk. However, mortgage-backed securities are
more liquid than individual mortgage loans and may be used to collateralize our
borrowings. In general, mortgage-backed securities issued or guaranteed by GNMA,
FannieMae and FreddieMac are weighted at no more than 20% for risk-based capital
purposes, compared to the 50% risk weighting assigned to most non-securitized
residential mortgage loans.
While mortgage-backed securities carry a reduced credit risk as compared to
whole loans, they remain subject to the risk of a fluctuating interest rate
environment. Along with other factors, such as the geographic distribution of
the underlying mortgage loans, changes in interest rates may alter the
prepayment rate of those mortgage loans and affect both the prepayment rates and
value of mortgage-backed securities.
68
<PAGE> 70
The following table presents our investment securities and mortgage-backed
securities activities for the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
INVESTMENT SECURITIES:
Carrying value at beginning of period ...... $ 656,192 $ 596,945 $ 565,967
----------- ----------- -----------
Purchases:
Held to maturity ....................... 403 600 --
Available for sale ..................... 789,577 521,529 404,929
Calls:
Held to maturity ....................... (476) (209) (1,211)
Available for sale ..................... (607,651) (337,547) (80,072)
Maturities:
Held to maturity ....................... -- -- (25)
Available for sale ..................... (51,550) (80,700) (288,463)
Sales:
Available for sale ...................... -- (41,163) (55)
Premium and discount amortization, net ..... 536 (1,074) (2,999)
Decrease in unrealized gains ............... (607) (2,189) (1,126)
----------- ----------- -----------
Net increase in investment securities ...... 130,232 59,247 30,978
----------- ----------- -----------
Carrying value at end of period ............ $ 786,424 $ 656,192 $ 596,945
=========== =========== ===========
MORTGAGE-BACKED SECURITIES HELD TO MATURITY:
Carrying value at beginning of period ...... $ 3,022,225 $ 2,710,078 $ 1,865,930
----------- ----------- -----------
Purchases .................................. 1,222,352 883,502 1,227,291
Principal payments ......................... (1,168,674) (569,189) (382,631)
Premium and discount amortization, net ..... (4,972) (2,166) (512)
----------- ----------- -----------
Net increase in mortgage-backed securities . 48,706 312,147 844,148
----------- ----------- -----------
Carrying value at end of period ............ $ 3,070,931 $ 3,022,225 $ 2,710,078
=========== =========== ===========
</TABLE>
69
<PAGE> 71
The following table presents the composition of our money market
investments, investment securities and mortgage-backed securities portfolios in
dollar amount and in percentage of each investment type at the dates indicated.
It also presents the coupon type for the mortgage-backed securities portfolio.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------
1998 1997
---------------------------------- -----------------------------------
CARRYING PERCENT OF FAIR CARRYING PERCENT OF FAIR
VALUE TOTAL (1) VALUE VALUE TOTAL (1) VALUE
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET INVESTMENTS:
Federal funds sold ........................ $ 69,800 100.00% $ 69,800 $ 24,600 100.00% $ 24,600
========== ======== ========== ========== ======== ==========
INVESTMENT SECURITIES:
HELD TO MATURITY:
Municipal bonds .......................... $ 1,393 0.18% $ 1,420 $ 1,466 0.22% $ 1,503
---------- -------- ---------- ---------- -------- ----------
AVAILABLE FOR SALE:
United States government and agencies .... 782,436 99.49 782,436 650,014 99.06 650,014
Corporate bonds (2) ...................... 2,595 0.33 2,595 4,712 0.72 4,712
---------- -------- ---------- ---------- -------- ----------
Total available for sale ................ 785,031 99.82 785,031 654,726 99.78 654,726
---------- -------- ---------- ---------- -------- ----------
Total investment securities ............. $ 786,424 100.00% $ 786,451 $ 656,192 100.00% $ 656,229
========== ======== ========== ========== ======== ==========
MORTGAGE-BACKED SECURITIES HELD TO MATURITY:
BY ISSUER:
GNMA pass-through certificates ............ $2,093,591 68.17% $2,111,219 $2,061,928 68.23% $2,114,789
FNMA pass-through certificates ............ 674,061 21.95 686,275 568,479 18.81 577,930
FHLMC pass-through certificates ........... 240,414 7.83 245,995 293,802 9.72 301,632
FHLMC, FNMA and GNMA - REMICs ............. 62,865 2.05 62,880 98,016 3.24 97,385
---------- -------- ---------- ---------- -------- ----------
Total mortgage-backed securities .......... $3,070,931 100.00% $3,106,369 $3,022,225 100.00% $3,091,736
========== ======== ========== ========== ======== ==========
BY COUPON TYPE:
Adjustable-rate .......................... $2,173,728 70.78% $2,187,054 $2,174,034 71.93% $2,223,690
Fixed-rate ............................... 897,203 29.22 919,315 848,191 28.07 868,046
---------- -------- ---------- ---------- -------- ----------
Total mortgage-backed securities ......... $3,070,931 100.00% $3,106,369 $3,022,225 100.00% $3,091,736
========== ======== ========== ========== ======== ==========
TOTAL INVESTMENT PORTFOLIO ................. $3,927,155 $3,962,620 $3,703,017 $3,772,565
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------
1996
----------------------------------
CARRYING PERCENT OF FAIR
VALUE TOTAL (1) VALUE
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
MONEY MARKET INVESTMENTS:
Federal funds sold ........................ $ 52,200 100.00% $ 52,200
========== ======== ==========
INVESTMENT SECURITIES:
HELD TO MATURITY:
Municipal bonds .......................... $ 1,075 0.18% $ 1,110
---------- -------- ----------
AVAILABLE FOR SALE:
United States government and agencies .... 556,442 93.21 556,442
Corporate bonds (2) ...................... 39,428 6.61 39,428
---------- -------- ----------
Total available for sale ................ 595,870 99.82 595,870
---------- -------- ----------
Total investment securities ............. $ 596,945 100.00% $ 596,980
========== ======== ==========
MORTGAGE-BACKED SECURITIES HELD TO MATURITY:
BY ISSUER:
GNMA pass-through certificates ............ $1,704,383 62.89% $1,744,977
FNMA pass-through certificates ............ 540,087 19.93 539,006
FHLMC pass-through certificates ........... 313,044 11.55 318,799
FHLMC, FNMA and GNMA - REMICs ............. 152,564 5.63 151,753
---------- -------- ----------
Total mortgage-backed securities .......... $2,710,078 100.00% $2,754,535
========== ======== ==========
BY COUPON TYPE:
Adjustable-rate .......................... $1,840,985 67.93% $1,877,097
Fixed-rate ............................... 869,093 32.07 877,438
---------- -------- ----------
Total mortgage-backed securities ......... $2,710,078 100.00% $2,754,535
========== ======== ==========
TOTAL INVESTMENT PORTFOLIO ................. $3,359,223 $3,403,715
========== ==========
</TABLE>
(1) Based on carrying value for each investment type.
(2) In 1996, includes common stock with a carrying and fair value of
$1,335.
70
<PAGE> 72
Carrying Values, Yields and Maturities. The table below presents
information regarding the carrying values, weighted average yields and
contractual maturities of our money market investments, investment securities
and mortgage-backed securities at December 31, 1998. Mortgage-backed securities
are presented by issuer and by coupon type. Yields on tax exempt obligations
were not computed on a tax equivalent basis.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
-----------------------------------------------------------------------------------
MORE THAN ONE YEAR MORE THAN FIVE YEARS TO
ONE YEAR OR LESS TO FIVE YEARS TEN YEARS
------------------------ ------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD
-------- ------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET INVESTMENTS:
Federal funds sold ......................... $ 69,800 4.75% $ -- --% $ -- --%
==========
INVESTMENT SECURITIES:
HELD TO MATURITY:
Municipal bonds .......................... $ -- -- $ 100 6.28 $ 390 6.22
-------- -------- --------
AVAILABLE FOR SALE:
United States government and agencies .... 10,169 4.78 306,156 6.02 466,111 6.54
Corporate bonds .......................... 25 9.00 2,291 6.62 279 5.22
-------- -------- --------
Total available for sale ................. 10,194 4.79 308,447 6.02 466,390 6.54
-------- -------- --------
Total investment securities .............. $ 10,194 4.79 $308,547 6.02 $466,780 6.54
======== ======== ========
MORTGAGE-BACKED SECURITIES HELD TO MATURITY:
BY ISSUER:
GNMA pass-through certificates ........... $ -- -- $ 735 7.92 $ 18,722 9.83
FNMA pass-through certificates ........... -- -- -- -- 132,047 6.73
FHLMC pass-through certificates .......... -- -- 3,179 9.65 14,607 9.16
FHLMC, FNMA and GNMA - REMICs ............ 3,743 6.21 -- -- 48,730 5.56
-------- -------- --------
Total mortgage-backed securities ......... $ 3,743 6.21 $ 3,914 9.33 $214,106 6.90
======== ======== ========
BY COUPON TYPE:
Adjustable-rate .......................... $ -- -- $ -- -- $ 934 7.21
Fixed-rate ............................... 3,743 6.21 3,914 9.33 213,172 6.90
-------- -------- --------
Total mortgage-backed securities ......... $ 3,743 6.21 $ 3,914 9.33 $214,106 6.90
======== ======== ========
TOTAL INVESTMENT PORTFOLIO ................. $ 83,737 4.82% $312,461 6.07% $680,886 6.65%
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
----------------------------------------------------------
MORE THAN TEN YEARS TOTAL
-------------------------- -------------------------
WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD
---------- --------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
MONEY MARKET INVESTMENTS:
Federal funds sold ......................... $ -- --% $ 69,800 4.75%
==========
INVESTMENT SECURITIES:
HELD TO MATURITY:
Municipal bonds .......................... $ 903 6.43 $ 1,393 6.36
---------- ----------
AVAILABLE FOR SALE:
United States government and agencies .... -- -- 782,436 6.31
Corporate bonds .......................... -- -- 2,595 6.49
---------- ----------
Total available for sale ................. -- -- 785,031 6.31
---------- ----------
Total investment securities .............. $ 903 6.43 $ 786,424 6.31
========== ==========
MORTGAGE-BACKED SECURITIES HELD TO MATURITY:
BY ISSUER:
GNMA pass-through certificates ........... $2,074,134 6.73 $2,093,591 6.76
FNMA pass-through certificates ........... 542,014 7.00 674,061 6.95
FHLMC pass-through certificates .......... 222,628 7.16 240,414 7.31
FHLMC, FNMA and GNMA - REMICs ............ 10,392 6.82 62,865 5.81
---------- ----------
Total mortgage-backed securities ......... $2,849,168 6.82 $3,070,931 6.82
========== ==========
BY COUPON TYPE:
Adjustable-rate .......................... $2,172,794 6.73 $2,173,728 6.73
Fixed-rate ............................... 676,374 7.09 897,203 7.05
---------- ----------
Total mortgage-backed securities ......... $2,849,168 6.82 $3,070,931 6.82
========== ==========
TOTAL INVESTMENT PORTFOLIO ................. $2,850,071 6.82% $3,927,155 6.68%
========== ==========
</TABLE>
71
<PAGE> 73
SOURCES OF FUNDS
General. Deposits, scheduled amortization and prepayments of loan principal
and mortgage-backed securities, maturities and calls of investments securities
and funds provided by operations are our primary sources of funds for use in
lending, investing and for other general purposes. We currently do not use
borrowings or reverse repurchase agreements as sources of funds, although we
have the ability to purchase up to $25.0 million in federal funds from a
correspondent bank. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Deposits. We offer a variety of deposit accounts having a range of interest
rates and terms. We currently offer regular savings deposits (consisting of
passbook and statement savings accounts), interest-bearing demand accounts,
non-interest-bearing demand accounts, money market accounts and time deposits.
We also offer IRA and Keogh accounts.
Deposit flows are influenced significantly by general and local economic
conditions, changes in prevailing interest rates, pricing of deposits and
competition. Our deposits are primarily obtained from areas surrounding our
offices and we rely primarily on paying competitive rates, service and
long-standing relationships with customers to attract and retain these deposits.
We do not use brokers to obtain deposits.
When we determine our deposit rates, we consider local competition, U.S.
Treasury securities offerings and the rates charged on other sources of funds.
Core deposits (defined as regular savings deposits, money market accounts and
demand accounts) represented 25.7% of total deposits on December 31, 1998. At
December 31, 1998 time deposits with remaining terms to maturity of less than
one year amounted to $4.77 billion. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Analysis of Net Interest
Income" for information relating to the average balances and costs of our
deposit accounts for the years ended December 31, 1998, 1997 and 1996.
The following table presents our deposit activity for the periods
indicated:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total deposits at beginning of period $6,465,956 $5,918,971 $4,757,813
Net deposits ........................ 30,301 249,525 918,358
Interest credited, net penalties .... 311,082 297,460 242,800
---------- ---------- ----------
Total deposits at end of period ..... $6,807,339 $6,465,956 $5,918,971
========== ========== ==========
Net increase ........................ $ 341,383 $ 546,985 $1,161,158
========== ========== ==========
Percentage increase ................. 5.28% 9.24% 24.41%
</TABLE>
72
<PAGE> 74
At December 31, 1998, we had $516.1 million in time deposits with balances
of $100,000 and over maturing as follows:
<TABLE>
<CAPTION>
<S> <C>
MATURITY PERIOD AMOUNT
- ------------------------------------ --------------
(IN THOUSANDS)
Three months or less ............... $241,133
Over three months through six months 133,512
Over six months through 12 months .. 120,840
Over 12 months ..................... 20,599
--------
Total ............................. $516,084
========
</TABLE>
The following table presents the distribution of our deposit accounts at
the dates indicated by dollar amount and percent of portfolio, and the weighted
average nominal interest rate on each category of deposits.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------------------
1998 1997
-------------------------------------- --------------------------------------
WEIGHTED WEIGHTED
PERCENT AVERAGE PERCENT AVERAGE
OF TOTAL NOMINAL OF TOTAL NOMINAL
AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE
---------- -------- -------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Savings ............................. $ 832,759 12.23% 2.60% $ 835,062 12.91% 2.75%
Interest-bearing demand ............. 100,436 1.48 2.00 90,869 1.41 2.00
Money market ........................ 505,201 7.42 2.78 500,029 7.73 2.93
Demand .............................. 313,061 4.60 -- 272,326 4.21 --
---------- ------ ---------- ------
Total ............................. 1,751,457 25.73 2.15 1,698,286 26.26 2.32
---------- ------ ---------- ------
Time Deposits:
Time deposits $100,000 and over .... 516,084 7.58 5.26 460,982 7.13 5.60
Time deposits less than $100,000
with original maturities of:
Three months or less .............. 436,186 6.41 4.88 473,105 7.32 5.27
Over three months to twelve months 1,351,892 19.86 5.18 1,328,888 20.55 5.60
Twelve months to twenty-four months 1,942,691 28.54 5.37 1,695,908 26.24 5.72
Twenty-four months to thirty-six
months ............................ 238,792 3.51 5.54 232,782 3.60 5.68
Thirty-six months to forty-eight
months ............................ 20,628 0.30 5.30 32,142 0.50 5.65
Forty-eight months to sixty months 4,539 0.07 5.50 8,017 0.12 5.34
Sixty months and over ............. 39,140 0.57 5.51 58,362 0.90 5.36
IRA and Keogh accounts ............ 505,930 7.43 5.46 477,484 7.38 5.66
---------- ------ ---------- ------
Total time deposits ............... 5,055,882 74.27 5.29 4,767,670 73.74 5.62
---------- ------ ---------- ------
Total deposits .................... $6,807,339 100.00% 4.48% $6,465,956 100.00% 4.75%
========== ====== ==== ========== ====== ====
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------
1996
---------------------------------------
WEIGHTED
PERCENT AVERAGE
OF TOTAL NOMINAL
AMOUNT DEPOSITS RATE
---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Savings ............................. $ 857,731 14.49% 2.80%
Interest-bearing demand ............. 88,557 1.50 2.00
Money market ........................ 520,141 8.79 2.93
Demand .............................. 249,857 4.22 --
---------- ------
Total ............................. 1,716,286 29.00 2.39
---------- ------
Time Deposits:
Time deposits $100,000 and over .... 375,399 6.34 5.62
Time deposits less than $100,000
with original maturities of:
Three months or less .............. 474,269 8.01 5.54
Over three months to twelve months 1,387,771 23.44 5.69
Twelve months to twenty-four months 1,189,676 20.10 5.47
Twenty-four months to thirty-six
months ............................ 215,375 3.64 5.76
Thirty-six months to forty-eight
months ............................ 50,444 0.85 5.40
Forty-eight months to sixty months 16,373 0.28 5.03
Sixty months and over ............. 61,517 1.04 5.35
IRA and Keogh accounts ............ 431,861 7.30 5.53
---------- ------
Total time deposits ............... 4,202,685 71.00 5.58
---------- ------
Total deposits .................... $5,918,971 100.00% 4.66%
========== ====== ====
</TABLE>
73
<PAGE> 75
The following table presents, by rate category, the amount of our time
deposit accounts outstanding at December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
TIME DEPOSIT ACCOUNTS: (IN THOUSANDS)
4.00% or less.............. $ 1,530 $ 1,755 $ 1,712
4.01%-4.50% ............... 4,335 8 4,314
4.51%-5.00% ............... 1,501,902 39,212 62,513
5.01%-5.50% ............... 2,342,518 659,235 715,937
5.51%-6.00% ............... 1,196,373 4,040,522 3,321,591
over 6.01% ................ 9,224 26,938 96,618
---------- ---------- ----------
Total .................. $5,055,882 $4,767,670 $4,202,685
========== ========== ==========
</TABLE>
The following table presents, by rate category, the remaining period to
maturity of time deposit accounts outstanding as of December 31, 1998.
<TABLE>
<CAPTION>
PERIOD TO MATURITY FROM DECEMBER 31, 1998
------------------------------------------------------------------------------------------------
WITHIN THREE TO SIX MONTHS ONE TO TWO TWO TO THREE OVER THREE
THREE MONTHS SIX MONTHS TO ONE YEAR YEARS YEARS YEARS TOTAL
------------ ---------- ----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
TIME DEPOSIT ACCOUNTS: (IN THOUSANDS)
4.00% or less................ $ 1,530 $ -- $ -- $ -- $ -- $ -- $ 1,530
4.01%-4.50% ................. 349 684 1,397 1,905 -- -- 4,335
4.51%-5.00% ................. 531,874 483,845 439,690 38,393 4,326 3,774 1,501,902
5.01%-5.50% ................. 824,194 565,982 814,216 111,128 16,474 10,524 2,342,518
5.51%-6.00% ................. 646,646 288,947 160,304 99,088 1,388 -- 1,196,373
over 6.01% .................. 502 772 4,237 3,570 143 -- 9,224
------------ ---------- ----------- ---------- ----------- ---------- ----------
Total .................. $ 2,005,095 $1,340,230 $ 1,419,844 $ 254,084 $ 22,331 $ 14,298 $5,055,882
============ ========== =========== ========== =========== ========== ==========
</TABLE>
Borrowings. We do not currently borrow funds to finance our lending and
investing activities. We intend, however, to borrow funds in the future. We
currently expect to borrow up to $900 million in the three years following the
reorganization. These borrowings may take the form of reverse repurchase
agreements, whereby we sell an asset with an agreement to repurchase it at some
future date. We are not a member of the Federal Home Loan Bank System, however,
we may consider becoming a member in the future. Membership in the Federal Home
Loan Bank System would provide us with additional sources for borrowings.
74
<PAGE> 76
PROPERTIES
We conduct our business through our executive office, operations center and
75 banking offices, which had an aggregate net book value of $24.1 million as of
December 31, 1998. We are changing the location of our office in Garfield, New
Jersey. The lease at our current location in Garfield expires in 2000. We have
signed a new lease to expire in 2009.
<TABLE>
<CAPTION>
ORIGINAL DATE
LEASED OR LEASED OR DATE OF LEASE
LOCATION OWNED ACQUIRED EXPIRATION
<S> <C> <C> <C>
EXECUTIVE OFFICE:
West 80 Century Road
Paramus, NJ .................................. Owned 1978 --
OPERATIONS CENTER:
161 Harristown Road
Glen Rock, NJ ................................ Leased 1995 2000
BERGEN COUNTY:
680-684 Anderson Avenue
Cliffside Park, NJ ........................... Owned 1973 --
80 Union Avenue
Cresskill, NJ ................................ Owned 1974 --
408 East Madison Avenue
Dumont, NJ ................................... Leased 1995 2005
330 Kinderkamack Road
Emerson, NJ .................................. Owned 1974 --
50 East Palisade Avenue
Englewood, NJ ................................ Leased 1987 2001
303 Main Street
Fort Lee, NJ ................................. Owned 1977 --
169 Lanza Avenue
Garfield, NJ ................................. Leased 1981 2000
897 Prospect Street
Glen Rock, NJ ................................ Owned 1972 --
304 Essex Street
Lodi, NJ ..................................... Owned 1973 --
115 Franklin Turnpike
Mahwah, NJ ................................... Leased 1997 2007
715 River Road
New Milford, NJ .............................. Owned 1978 --
379 Ramapo Valley Road
Oakland, NJ .................................. Owned 1976 --
249 Kinderkamack Road
Oradell, NJ .................................. Owned 1970 --
West 80 Century Road
Paramus, NJ .................................. Owned 1978 --
57 West Main Street
Ramsey, NJ ................................... Leased 1976 2006
89 Interstate Shopping Center
Ramsey, NJ ................................... Leased 1995 2010
94 North Maple Avenue
Ridgewood, NJ ................................ Leased 1976 2002
</TABLE>
75
<PAGE> 77
<TABLE>
<CAPTION>
ORIGINAL DATE
LEASED OR LEASED OR DATE OF LEASE
LOCATION OWNED ACQUIRED EXPIRATION
<S> <C> <C> <C>
1070 Main Street
River Edge, NJ ............................... Leased 1976 2010
632 Westwood Avenue
River Vale, NJ ............................... Leased 1979 2009
790 Queen Anne Road
Teaneck, NJ .................................. Owned 1971 --
7 East Prospect Street
Waldwick, NJ ................................. Owned 1969 --
261 Godwin Avenue
Wyckoff, NJ .................................. Leased 1971 2003
BURLINGTON COUNTY:
1406 Route 130
Cinnaminson, NJ .............................. Leased 1979 2004
CAMDEN COUNTY:
90 Barclay Center
Cherry Hill, NJ .............................. Leased 1974 2004
2335 Church Road
Cherry Hill, NJ .............................. Owned 1976 --
116 Kings Highway East
Haddonfield, NJ .............................. Owned 1975 --
ESSEX COUNTY:
232 South Livingston Avenue
Livingston, NJ ............................... Owned 1975 --
277 Eisenhower Parkway
Livingston, NJ ............................... Leased 1995 2010
62-64 Main Street
Millburn, NJ ................................. Leased 1974 2000
157 Seventh Avenue
Newark, NJ ................................... Leased 1950 2010
72 Mount Vernon Place
Newark, NJ ................................... Leased 1955 2003
60 Park Place
Newark, NJ ................................... Leased 1988 2002
313 Henry Street
Orange, NJ ................................... Owned 1963 --
288 Main Street
Orange, NJ ................................... Leased 1954 2001
187 Eagle Rock Avenue
Roseland, NJ ................................. Owned 1958 --
767 Bloomfield Avenue
West Caldwell, NJ ............................ Leased 1975 2009
GLOUCESTER COUNTY:
1002 Mantua Pike
Woodbury Heights, NJ ......................... Owned 1977 --
HUDSON COUNTY:
1018 Washington Street
Hoboken, NJ .................................. Leased 1996 2006
587 Summit Avenue
Jersey City, NJ .............................. Owned 1920 --
</TABLE>
76
<PAGE> 78
<TABLE>
<CAPTION>
ORIGINAL DATE
LEASED OR LEASED OR DATE OF LEASE
LOCATION OWNED ACQUIRED EXPIRATION
<S> <C> <C> <C>
600 Summit Avenue (Drive-In)
Jersey City, NJ .............................. Owned 1977 --
2530 Kennedy Boulevard
Jersey City, NJ .............................. Owned 1928 --
532 Ocean Avenue
Jersey City, NJ .............................. Owned 1947 --
495 Manila Avenue
Jersey City, NJ .............................. Owned 1970 --
216 Passaic Avenue
Kearny, NJ ................................... Leased 1980 2006
7533 Bergenline Avenue
North Bergen, NJ ............................. Owned 1958 --
MIDDLESEX COUNTY:
355 Applegarth Road
Cranbury, NJ ................................. Leased 1981 2010
MONMOUTH COUNTY:
351 West Main Street
Freehold, NJ ................................. Leased 1977 2003
455 County Road
Marlboro, NJ ................................. Leased 1996 2006
75 Highway 35
Middletown, NJ ............................... Leased 1983 2002
1 Paddock Plaza
West Long Branch, NJ ......................... Leased 1977 2017
MORRIS COUNTY:
641 Shunpike Road
Chatham, NJ .................................. Leased 1970 2005
209 Route 206 South
Chester, NJ .................................. Leased 1982 2002
10 West Main Street
Denville, NJ ................................. Leased 1981 2010
18 James Street
Florham Park, NJ ............................. Leased 1974 2009
977 Valley Road
Gillette, NJ ................................. Leased 1974 2009
340 Main Street
Madison, NJ .................................. Leased 1974 2000
240 Baldwin Road
Parsippany, NJ ............................... Owned 1992 --
150 Newark-Pompton Turnpike
Pequannock, NJ ............................... Leased 1969 2002
148 Center Grove Road
Randolph, NJ ................................. Leased 1979 1999
OCEAN COUNTY:
335 Atlantic City Boulevard
Bayville, NJ ................................. Leased 1991 2001
731 Brick Boulevard
Brick, NJ .................................... Owned 1974 --
55 Brick Boulevard
Brick, NJ .................................... Leased 1974 2004
</TABLE>
77
<PAGE> 79
<TABLE>
<CAPTION>
ORIGINAL DATE
LEASED OR LEASED OR DATE OF LEASE
LOCATION OWNED ACQUIRED EXPIRATION
<S> <C> <C> <C>
782 Lacey Road
Forked River, NJ ............................. Leased 1981 2000
2100 Route 70
Lakehurst, NJ ................................ Owned 1981 --
167-169 Kennedy Boulevard
Lakewood, NJ ................................. Leased 1976 2002
1328 River Avenue
Lakewood, NJ ................................. Leased 1989 2004
1000 Route 70
Lakewood, NJ ................................. Leased 1994 2004
577 Lakehurst Road
Toms River, NJ ............................... Owned 1974 --
PASSAIC COUNTY:
887 Allwood Road
Clifton, NJ .................................. Land Lease 1974 2010
217 Berdan Avenue
Wayne, NJ .................................... Leased 1991 2004
35A Marshall Hill Road
West Milford, NJ ............................. Leased 1981 2005
UNION COUNTY:
341 Springfield Avenue
Summit, NJ ................................... Owned 1979 --
365 Tucker Avenue
Union, NJ .................................... Owned 1975 --
119 Central Avenue
Westfield, NJ ................................ Leased 1974 2002
WARREN COUNTY:
200 Grand Avenue
Hackettstown, NJ ............................. Leased 1970 2002
1965 Route 57
Mansfield, NJ ................................ Leased 1978 2003
</TABLE>
LEGAL PROCEEDINGS
Except for the cases described below, we are not involved in any pending
legal proceedings other than routine legal proceedings occurring in the ordinary
course of business. We believe that these routine legal proceedings, in the
aggregate, are immaterial to our financial condition and results of operations.
On October 2, 1997, a purported class action entitled James W. Smith, et
al. v. Hudson City Savings Bank (L-11184-97) was commenced in the Law Division
of New Jersey Superior Court, Essex County against Hudson City Savings on behalf
of persons who obtained loans from Hudson City Savings secured by residential
real property in New Jersey, and who paid an attorney review fee to Hudson City
in connection with their loans. Plaintiff alleges further that the potential
class includes thousands of borrowers and involves millions of dollars in review
fees. Plaintiff claims that the attorney fees paid to Hudson City violate a
provision of New Jersey law which prescribes circumstances under which such fees
can be charged by a lender and a provision of New Jersey law prohibiting
consumer fraud. Plaintiff seeks an injunction, an order requiring a form of
warning or public notice, compensatory damages, treble damages, costs,
attorneys' fees,
78
<PAGE> 80
an order requiring disgorgement, interest and punitive damages. Hudson City
Savings filed an answer denying liability. This suit was voluntarily stayed by
the parties on or about September 9, 1998 pending the outcome of an appeal (the
"Appeal") in certain other New Jersey attorney review fee lawsuits involving
different parties.
The Appeal, heard on a consolidated basis in the cases of Kelly v. Chase
Manhattan Mortgage Corp., Iverson v. Collective Bank and Turner v. First Union,
was decided by the Appellate Division of the New Jersey Superior Court on or
about July 9, 1998. The Appellate Division ruled, among other things, that
lenders are permitted to charge attorney review fees for the review of loan
documents submitted by a borrower or by the borrower's attorney and clarified
the interpretation of part of the statute's language.
Following the Appellate Division's decision in the Appeal, the Supreme
Court of New Jersey granted a motion for leave to appeal on or about November
18, 1998 and a motion for leave to cross-appeal on or about January 27, 1999.
The New Jersey Supreme Court will review the Appellate Division's ruling in the
appeal. Meanwhile, the Smith action remains stayed.
On or about April 30, 1998, a purported class action was commenced against
Hudson City Savings, in the Law Division of New Jersey Superior Court, Bergen
County entitled Elizabeth C. Bogdanowicz, et al. v. Hudson City Savings Bank
(L-4110-98) on behalf of a putative class of persons who borrowed funds from
Hudson City from and after January 29, 1993. Plaintiffs allege that the putative
class consists of thousands of borrowers who were charged attorney review fees
by Hudson City Savings. Plaintiffs claim that the attorney review fee violated
the New Jersey fee statute. Plaintiffs also assert claims for unjust enrichment.
Plaintiffs seek compensatory damages, costs, fees, injunctive relief and treble
damages. This action has also been stayed voluntarily by the parties pending the
outcome of the Appeal.
We believe that these two lawsuits are without merit and we intend to
aggressively defend our interests.
PERSONNEL
As of December 31, 1998, we had 864 full-time employees and 100 part-time
employees. The employees are not represented by a collective bargaining unit and
we consider our relationship with our employees to be good.
BUSINESS OF HUDSON CITY BANCORP, INC.
Hudson City Bancorp has not engaged in any business to date. Upon
completion of the reorganization, Hudson City Bancorp will own Hudson City
Savings. Hudson City Bancorp will retain up to 50% of the net proceeds from the
offering. We will invest our initial capital as discussed in "How We Intend to
Use the Proceeds from the Offering."
In the future, Hudson City Bancorp may pursue other business activities,
including the acquisition of other financial institutions or other entities,
borrowing funds for investment in Hudson City Savings and diversification of
Hudson City Bancorp's operations. Hudson City Bancorp has no current plans for
such activities. Our cash flow will depend upon earnings from the investment of
the portion of net proceeds we retain and any dividends Hudson City Bancorp
79
<PAGE> 81
receives from Hudson City Savings. Initially, Hudson City Bancorp will neither
own nor lease any property, but will instead use the premises, equipment and
furniture of Hudson City Savings. At the present time, we intend to employ only
persons who are officers of Hudson City Savings to serve as officers of Hudson
City Bancorp. However, we will use the support staff of Hudson City Savings from
time to time. These persons will not be separately compensated by Hudson City
Bancorp. Hudson City Bancorp will hire additional employees, as appropriate, to
the extent it expands its business in the future. See "How We Intend to Use the
Proceeds from the Offering."
REGULATION OF HUDSON CITY SAVINGS BANK AND
HUDSON CITY BANCORP
GENERAL
Hudson City Savings Bank is a New Jersey chartered savings bank, and its
deposit accounts are insured up to applicable limits by the Federal Deposit
Insurance Corporation (FDIC) under the Bank Insurance Fund (BIF). Hudson City
Savings is subject to extensive regulation, examination and supervision by the
Commissioner of the New Jersey Department of Banking and Insurance (the
"Department") as its chartering agency, and by the FDIC as the deposit insurer.
Hudson City Savings must file reports with the Commissioner and the FDIC
concerning its activities and financial condition, and it must obtain regulatory
approval prior to entering into certain transactions, such as mergers with, or
acquisitions of, other depository institutions and opening or acquiring branch
offices. The Commissioner and the FDIC conduct periodic examinations to assess
Hudson City Savings Bank's compliance with various regulatory requirements. This
regulation and supervision establishes a comprehensive framework of activities
in which a savings bank can engage and is intended primarily for the protection
of the deposit insurance fund and depositors. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes.
Hudson City, MHC and Hudson City Bancorp, as bank holding companies
controlling Hudson City Savings, will be subject to the Bank Holding Company Act
of 1956, as amended, (BHCA) and the rules and regulations of the Federal Reserve
Board under the BHCA and to the provisions of the New Jersey Banking Act of 1948
(the "New Jersey Banking Act") and the regulations of the Department under the
New Jersey Banking Act applicable to bank holding companies. Hudson City, MHC
and Hudson City Bancorp will be required to file reports with, and otherwise
comply with the rules and regulations of the Federal Reserve Board and the
Department. Hudson City Bancorp will be required to file certain reports with,
and otherwise comply with, the rules and regulations of the Securities and
Exchange Commission under the federal securities laws.
Any change in such laws and regulations, whether by the Department, the
FDIC, the Federal Reserve Board or through legislation, could have a material
adverse impact on Hudson City, MHC, Hudson City Bancorp and Hudson City Savings
and their operations and stockholders.
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Certain of the laws and regulations applicable to Hudson City, MHC, Hudson
City Bancorp and Hudson City Savings are summarized below or elsewhere in this
prospectus. These summaries do not purport to be complete and are qualified in
their entirety by reference to such laws and regulations.
NEW JERSEY BANKING REGULATION
Activity Powers. The Bank derives its lending, investment and other
activity powers primarily from the applicable provisions of the New Jersey
Banking Act and its related regulations. Under these laws and regulations,
savings banks, including Hudson City Savings Bank, generally may invest in:
(1) real estate mortgages;
(2) consumer and commercial loans;
(3) specific types of debt securities, including certain corporate debt
securities and obligations of federal, state and local governments and
agencies;
(4) certain types of corporate equity securities; and
(5) certain other assets.
A savings bank may also invest pursuant to a "leeway" power that permits
investments not otherwise permitted by the New Jersey Banking Act. "Leeway"
investments must comply with a number of limitations on the individual and
aggregate amounts of "leeway" investments. A savings bank may also exercise
trust powers upon approval of the Department. New Jersey savings banks may also
exercise any power authorized for federally chartered savings banks unless the
Department determines otherwise. The exercise of these lending, investment and
activity powers are limited by federal law and the related regulations. See "--
Federal Banking Regulation -- Activity Restrictions on State-Chartered Banks"
below.
Loans-to-One-Borrower Limitations. With certain specified exceptions, a New
Jersey chartered savings bank may not make loans or extend credit to a single
borrower and to entities related to the borrower in an aggregate amount that
would exceed 15% of the bank's capital funds. A savings bank may lend an
additional 10% of the bank's capital funds if secured by collateral meeting the
requirements of the New Jersey Banking Act. Hudson City Savings currently
complies with applicable loans-to-one-borrower limitations.
Dividends. Under the New Jersey Banking Act, a stock savings bank may
declare and pay a dividend on its capital stock only to the extent that the
payment of the dividend would not impair the capital stock of the savings bank.
In addition, a stock savings bank may not pay a dividend if the surplus of the
savings bank would, after the payment of the dividend, be reduced unless after
such reduction the surplus was 50% or more of the bank's capital stock. Federal
law may also limit the amount of dividends that may be paid by Hudson City
Savings. See "-- Federal Banking Regulation -- Prompt Corrective Action" below.
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Minimum Capital Requirements. Regulations of the Department impose on New
Jersey chartered depository institutions, including Hudson City Savings, minimum
capital requirements similar to those imposed by the FDIC on insured state
banks. See "-- Federal Banking Regulation -- Capital Requirements."
Examination and Enforcement. The Department may examine Hudson City Savings
whenever it deems an examination advisable. The Commissioner examines Hudson
City Savings at least every two years. The Department may order any savings bank
to discontinue any violation of law or unsafe or unsound business practice and
may direct any director, officer, attorney or employee of a savings bank engaged
in an objectionable activity, after the Department has ordered the activity to
be terminated, to show cause at a hearing before the Department why such person
should not be removed.
FEDERAL BANKING REGULATION
Capital Requirements. FDIC regulations require BIF-insured banks, such as
Hudson City Savings, to maintain minimum levels of capital. The FDIC regulations
define two Tiers, or classes, of capital.
Tier 1 capital is comprised of the sum of common stockholders' equity
(excluding the net unrealized appreciation or depreciation, net of tax, from
available-for-sale securities), non-cumulative perpetual preferred stock
(including any related surplus) and minority interests in consolidated
subsidiaries, minus all intangible assets (other than qualifying servicing
rights), and any net unrealized loss on marketable equity securities.
The components of Tier 2 capital currently include cumulative perpetual
preferred stock, certain perpetual preferred stock for which the dividend rate
may be reset periodically, mandatory convertible securities, subordinated debt,
intermediate preferred stock and allowance for possible loan losses. Allowance
for possible loan losses includible in Tier 2 capital is limited to a maximum of
1.25% of risk-weighted assets. Overall, the amount of Tier 2 capital that may be
included in total capital cannot exceed 100% of Tier 1 capital.
The FDIC regulations establish a minimum leverage capital requirement for
banks in the strongest financial and managerial condition, with a rating of 1
(the highest examination rating of the FDIC for banks) under the Uniform
Financial Institutions Rating System, of not less than a ratio of 3.0% of Tier 1
capital to total assets. For all other banks, the minimum leverage capital
requirement is 4.0%, unless a higher leverage capital ratio is warranted by the
particular circumstances or risk profile of the depository institution.
The FDIC regulations also require that savings banks meet a risk-based
capital standard. The risk-based capital standard requires the maintenance of a
ratio of total capital (which is defined as the sum of Tier 1 capital and Tier 2
capital) to risk-weighted assets of at least 8% and a ratio of Tier 1 capital to
risk-weighted assets of at least 4%. In determining the amount of risk-weighted
assets, all assets, plus certain off balance sheet items, are multiplied by a
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risk-weight of 0% to 100%, based on the risks the FDIC believes are inherent in
the type of asset or item.
The federal banking agencies, including the FDIC, have also adopted
regulations to require an assessment of an institution's exposure to declines in
the economic value of a bank's capital due to changes in interest rates when
assessing the bank's capital adequacy. Under such a risk assessment, examiners
will evaluate a bank's capital for interest rate risk on a case-by-case basis,
with consideration of both quantitative and qualitative factors. According to
the agencies, applicable considerations include the quality of the bank's
interest rate risk management process, the overall financial condition of the
bank and the level of other risks at the bank for which capital is needed.
Institutions with significant interest rate risk may be required to hold
additional capital. The agencies also issued a joint policy statement providing
guidance on interest rate risk management, including a discussion of the
critical factors affecting the agencies' evaluation of interest rate risk in
connection with capital adequacy.
The following table shows Hudson City Savings' leverage ratio, its Tier 1
risk-based capital ratio, and its total risk-based capital ratio, at December
31, 1998:
<TABLE>
<CAPTION>
Minimum Capital For Classification as
Bank Actual Adequacy Well-Capitalized
--------------------- -------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------ -------- ----- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Leverage (Tier 1) capital $898,494 11.93% $301,314 4.00% $376,642 5.00%
Risk-based capital:
Tier 1 ................. 898,494 38.48 93,409 4.00 140,114 6.00
Total .................. 916,206 39.23 186,818 8.00 233,523 10.00
</TABLE>
As the table shows, Hudson City Savings exceeded the minimum capital
adequacy requirements at the date indicated.
Activity Restrictions on State-Chartered Banks. Section 24 of the Federal
Deposit Insurance Act, as amended (FDIA), which was added by the Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA), generally limits the
activities and investments of state-chartered FDIC insured banks and their
subsidiaries to those permissible for federally chartered national banks and
their subsidiaries, unless such activities and investments are specifically
exempted by Section 24 or consented to by the FDIC.
Section 24 provides an exception for investments by a bank in common and
preferred stocks listed on a national securities exchange or the shares of
registered investment companies if:
(1) the bank held such types of investments during the 14-month period
from September 30, 1990 through November 26, 1991;
(2) the state in which the bank is chartered permitted such investments as
of September 30, 1991; and
(3) the bank notifies the FDIC and obtains approval from the FDIC to make
or retain such investments. Upon receiving such FDIC approval, an
institution's investment in such equity securities will be subject to
an aggregate limit up to the amount of its Tier 1 capital.
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Hudson City Savings received approval from the FDIC to retain and acquire such
equity investments subject to a maximum permissible investment equal to the
lesser of 100% of Hudson City Savings' Tier 1 capital or the maximum permissible
amount specified by the New Jersey Banking Act. Section 24 also provides an
exception for majority owned subsidiaries of a bank, but Section 24 limits the
activities of such subsidiaries to those permissible for a national bank under
Section 24 of the FDIA and the FDIC regulations issued pursuant thereto, or as
approved by the FDIC.
Before making a new investment or engaging in a new activity not
permissible for a national bank or otherwise permissible under Section 24 of the
FDIC regulations thereunder, an insured bank must seek approval from the FDIC to
make such investment or engage in such activity. The FDIC will not approve the
activity unless the bank meets its minimum capital requirements and the FDIC
determines that the activity does not present a significant risk to the FDIC
insurance funds.
Enforcement. The FDIC has extensive enforcement authority over insured
savings banks, including Hudson City Savings. This enforcement authority
includes, among other things, the ability to assess civil money penalties, to
issue cease and desist orders and to remove directors and officers. In general,
these enforcement actions may be initiated in response to violations of laws and
regulations and to unsafe or unsound practices.
The FDIC is required, with certain exceptions, to appoint a receiver or
conservator for an insured state bank if that bank is "critically
undercapitalized." For this purpose, "critically undercapitalized" means having
a ratio of tangible capital to total assets of less than 2%. The FDIC may also
appoint a conservator or receiver for a state bank on the basis of the
institution's financial condition or upon the occurrence of certain events,
including:
(1) insolvency (whereby the assets of the bank are less than its
liabilities to depositors and others);
(2) substantial dissipation of assets or earnings through violations of
law or unsafe or unsound practices;
(3) existence of an unsafe or unsound condition to transact business;
(4) likelihood that the bank will be unable to meet the demands of its
depositors or to pay its obligations in the normal course of business;
and
(5) insufficient capital, or the incurring or likely incurring of losses
that will deplete substantially all of the institution's capital with
no reasonable prospect of replenishment of capital without federal
assistance.
Deposit Insurance. Pursuant to FDICIA, the FDIC established a system for
setting deposit insurance premiums based upon the risks a particular bank or
savings association posed to its deposit insurance funds. Under the risk-based
deposit insurance assessment system, the FDIC assigns an institution to one of
three capital categories based on the institution's financial information, as of
the reporting period ending six months before the assessment period. The three
capital categories are (1) well capitalized, (2) adequately capitalized and (3)
undercapitalized. The FDIC also assigns an institution to one of three
supervisory subcategories within each capital group. With respect to the capital
ratios, institutions are classified as well capitalized, adequately
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capitalized or undercapitalized using ratios that are substantially similar to
the prompt corrective action capital ratios discussed below. The FDIC also
assigns an institution to a supervisory subgroup based on a supervisory
evaluation provided to the FDIC by the institution's primary federal regulator
and information that the FDIC determines to be relevant to the institution's
financial condition and the risk posed to the deposit insurance funds (which may
include, if applicable, information provided by the institution's state
supervisor).
An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned. Under the final risk-based
assessment system, there are nine assessment risk classifications (i.e.,
combinations of capital groups and supervisory subgroups) to which different
assessment rates are applied. Assessment rates for deposit insurance currently
range from 0 basis points to 27 basis points. The capital and supervisory
subgroup to which an institution is assigned by the FDIC is confidential and may
not be disclosed. A bank's rate of deposit insurance assessments will depend
upon the category and subcategory to which the bank is assigned by the FDIC. Any
increase in insurance assessments could have an adverse effect on the earnings
of insured institutions, including Hudson City Savings.
Under the Deposit Insurance Funds Act of 1996 ("Funds Act"), the assessment
base for the payments on the bonds ("FICO bonds") issued in the late 1980's by
the Financing Corporation to recapitalize the now defunct Federal Savings and
Loan Insurance Corporation was expanded to include, beginning January 1, 1997,
the deposits of BIF-insured institutions, such as Hudson City Savings. Until
December 31, 1999, or such earlier date on which the last savings association
ceases to exist, the rate of assessment for BIF-assessable deposits will be
one-fifth of the rate imposed on deposits insured by the Savings Association
Insurance Fund (SAIF). The annual rate of assessments for the payments on the
FICO bonds for the quarterly period beginning on October 1, 1998 was 0.01164%
for BIF-assessable deposits and 0.0582% for SAIF-assessable deposits and was
0.0122% for BIF-assessable deposits and 0.0610% for SAIF-assessable deposits for
the quarterly period beginning on January 1, 1999.
Under the FDIA, the FDIC may terminate the insurance of an institution's
deposits upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by the
FDIC. The management of Hudson City Savings does not know of any practice,
condition or violation that might lead to termination of deposit insurance.
Transactions with Affiliates of Hudson City Savings. Transactions between
an insured bank, such as Hudson City Savings, and any of its affiliates is
governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a
bank is any company or entity that controls, is controlled by or is under common
control with the bank. Currently, a subsidiary of a bank that is not also a
depository institution is not treated as an affiliate of the bank for purposes
of Sections 23A and 23B, but the Federal Reserve Board has proposed treating any
subsidiary of a bank that is engaged in activities not permissible for bank
holding companies under the Bank Holding Company Act of 1956, as amended (BHCA),
as an affiliate for purposes of Sections 23A and 23B. Sections 23A and 23B (1)
limit the extent to which the bank or its subsidiaries may engage in "covered
transactions" with any one affiliate to an amount equal to 10% of such bank's
capital stock and surplus, and limit all such transactions with all affiliates
to an amount equal to 20% of such capital stock and surplus and (2) require that
all such transactions be on terms that are consistent with safe and sound
banking practices. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of guarantees and other similar types of
transactions. Further,
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most loans by a bank to any of its affiliates must be secured by collateral in
amounts ranging from 100 to 130 percent of the loan amounts. In addition, any
covered transaction by a bank with an affiliate and any purchase of assets or
services by a bank from an affiliate must be on terms that are substantially the
same, or at least as favorable, to the bank as those that would be provided to a
non-affiliate.
Prohibitions Against Tying Arrangements. Banks are subject to the
prohibitions of 12 U.S.C. Section 1972 on certain tying arrangements. A
depository institution is prohibited, subject to certain exceptions, from
extending credit to or offering any other service, or fixing or varying the
consideration for such extension of credit or service, on the condition that the
customer obtain some additional service from the institution or certain of its
affiliates or not obtain services of a competitor of the institution.
Uniform Real Estate Lending Standards. Pursuant to FDICIA, the federal
banking agencies adopted uniform regulations prescribing standards for
extensions of credit that are secured by liens on interests in real estate or
made for the purpose of financing the construction of a building or other
improvements to real estate. Under the joint regulations adopted by the federal
banking agencies, all insured depository institutions must adopt and maintain
written policies that establish appropriate limits and standards for extensions
of credit that are secured by liens or interests in real estate or are made for
the purpose of financing permanent improvements to real estate. These policies
must establish loan portfolio diversification standards, prudent underwriting
standards (including loan-to-value limits) that are clear and measurable, loan
administration procedures, and documentation, approval and reporting
requirements. The real estate lending policies must reflect consideration of the
Interagency Guidelines for Real Estate Lending Policies that have been adopted
by the federal bank regulators.
The Interagency Guidelines, among other things, require a depository
institution to establish internal loan-to-value limits for real estate loans
that are not in excess of the following supervisory limits:
(1) for loans secured by raw land, the supervisory loan-to-value limit is
65% of the value of the collateral;
(2) for land development loans (i.e., loans for the purpose of improving
unimproved property prior to the erection of structures), the
supervisory limit is 75%;
(3) for loans for the construction of commercial, multi-family or other
non-residential property, the supervisory limit is 80%;
(4) for loans for the construction of one- to four-family properties, the
supervisory limit is 85%; and
(5) for loans secured by other improved property (e.g., farmland,
completed commercial property and other income-producing property,
including non-owner occupied, one- to four-family property), the limit
is 85%.
Although no supervisory loan-to-value limit has been established for
owner-occupied, one to four-family and home equity loans, the Interagency
Guidelines state that for any such loan with a loan-to-value ratio that equals
or exceeds 90% at origination, an institution should require
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appropriate credit enhancement in the form of either mortgage insurance or
readily marketable collateral.
Community Reinvestment Act. Under the Community Reinvestment Act (CRA), any
insured depository institution, including Hudson City Savings, has a continuing
and affirmative obligation consistent with its safe and sound operation to help
meet the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community. The CRA requires the FDIC, in
connection with its examination of a savings bank, to assess the depository
institution's record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications by such
institution, including applications for additional branches and acquisitions.
Among other things, current CRA regulations replace the prior process-based
assessment factors with a new evaluation system that would rate an institution
based on its actual performance in meeting community needs. In particular, the
new evaluation system focuses on three tests:
(1) a lending test, to evaluate the institution's record of making loans
in its service areas;
(2) an investment test, to evaluate the institution's record of investing
in community development projects, affordable housing, and programs
benefitting low or moderate income individuals and businesses; and
(3) a service test, to evaluate the institution's delivery of services
through its branches, ATMs and other offices.
The CRA requires the FDIC to provide a written evaluation of an
institution's CRA performance utilizing a four-tiered descriptive rating system
and requires public disclosure of an institution's CRA rating. Hudson City
Savings has received "satisfactory" ratings in its CRA examinations. However,
from September 23, 1996 to June 22, 1998, Hudson City Savings had a "needs to
improve" CRA rating. Hudson City Savings' latest CRA rating, dated June 22,
1998, was "satisfactory."
Safety and Soundness Standards. Pursuant to the requirements of FDICIA, as
amended by the Riegle Community Development and Regulatory Improvement Act of
1994, each federal banking agency, including the FDIC, has adopted guidelines
establishing general standards relating to internal controls, information and
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, asset quality, earnings; and compensation, fees and
benefits. In general, the guidelines require, among other things, appropriate
systems and practices to identify and manage the risks and exposures specified
in the guidelines. The guidelines prohibit excessive compensation as an unsafe
and unsound practice and describe compensation as excessive when the amounts
paid are unreasonable or disproportionate to the services performed by an
executive officer, employee, director, or principal stockholder.
In addition, the FDIC adopted regulations to require a bank that is given
notice by the FDIC that it is not satisfying any of such safety and soundness
standards to submit a compliance plan to the FDIC. If, after being so notified,
a bank fails to submit an acceptable compliance plan
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or fails in any material respect to implement an accepted compliance plan, the
FDIC may issue an order directing corrective and other actions of the types to
which a significantly undercapitalized institution is subject under the "prompt
corrective action" provisions of FDICIA. If a bank fails to comply with such an
order, the FDIC may seek to enforce such an order in judicial proceedings and to
impose civil monetary penalties.
Prompt Corrective Action. FDICIA also established a system of prompt
corrective action to resolve the problems of undercapitalized institutions. The
FDIC, as well as the other federal banking regulators, adopted regulations
governing the supervisory actions that may be taken against undercapitalized
institutions. The regulations establish five categories, consisting of "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." The FDIC's regulations
define the five capital categories as follows: Generally, an institution will
be treated as "well capitalized" if its ratio of total capital to risk-weighted
assets is at least 10%, its ratio of Tier 1 capital to risk-weighted assets is
at least 6%, its ratio of Tier 1 capital to total assets is at least 5%, and it
is not subject to any order or directive by the FDIC to meet a specific capital
level. An institution will be treated as "adequately capitalized" if its ratio
of total capital to risk-weighted assets is at least 8%, its ratio of Tier 1
capital to risk-weighted assets is at least 4%, and its ratio of Tier 1 capital
to total assets is at least 4% (3% if the bank receives the highest rating under
the Uniform Financial Institutions Rating System) and it is not a
well-capitalized institution. An institution that has total risk-based capital
of less than 8%, Tier 1 risk-based-capital of less than 4% or a leverage ratio
that is less than 4% (or less than 3% if the institution is rated a composite
"1" under the Uniform Financial Institutions Rating System) would be considered
to be "undercapitalized." An institution that has total risk-based capital of
less than 6%, Tier 1 capital of less than 3% or a leverage ratio that is less
than 3% would be considered to be "significantly undercapitalized," and an
institution that has a tangible capital to assets ratio equal to or less than 2%
would be deemed to be "critically undercapitalized."
The severity of the action authorized or required to be taken under the
prompt corrective action regulations increases as a bank's capital decreases
within the three undercapitalized categories. All banks are prohibited from
paying dividends or other capital distributions or paying management fees to any
controlling person if, following such distribution, the bank would be
undercapitalized. The FDIC is required to monitor closely the condition of an
undercapitalized bank and to restrict the growth of its assets. An
undercapitalized bank is required to file a capital restoration plan within 45
days of the date the bank receives notice that it is within any of the three
undercapitalized categories, and the plan must be guaranteed by any parent
holding company. The aggregate liability of a parent holding company is limited
to the lesser of:
(1) an amount equal to five percent of the bank's total assets at the
time it became "undercapitalized"; and
(2) the amount that is necessary (or would have been necessary) to bring
the bank into compliance with all capital standards applicable with
respect to such bank as of the time it fails to comply with the plan.
If a bank fails to submit an acceptable plan, it is treated as if it were
"significantly undercapitalized." Banks that are significantly or critically
undercapitalized are subject to a wider range of regulatory requirements and
restrictions.
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The FDIC has a broad range of grounds under which it may appoint a receiver
or conservator for an insured depositary bank. If one or more grounds exist for
appointing a conservator or receiver for a bank, the FDIC may require the bank
to issue additional debt or stock, sell assets, be acquired by a depository bank
holding company or combine with another depository bank. Under FDICIA, the FDIC
is required to appoint a receiver or a conservator for a critically
undercapitalized bank within 90 days after the bank becomes critically
undercapitalized or to take such other action that would better achieve the
purposes of the prompt corrective action provisions. Such alternative action can
be renewed for successive 90-day periods. However, if the bank continues to be
critically undercapitalized on average during the quarter that begins 270 days
after it first became critically undercapitalized, a receiver must be appointed,
unless the FDIC makes certain findings that the bank is viable.
LOANS TO A BANK'S INSIDERS
Federal Regulation. A bank's loans to its executive officers, directors,
any owner of 10% or more of its stock (each, an insider) and any of certain
entities affiliated to any such person (an insider's related interest) are
subject to the conditions and limitations imposed by Section 22(h) of the
Federal Reserve Act and the Federal Reserve Board's Regulation O thereunder.
Under these restrictions, the aggregate amount of the loans to any insider and
the insider's related interests may not exceed the loans-to-one-borrower limit
applicable to national banks, which is comparable to the loans-to-one-borrower
limit applicable to Hudson City Savings' loans. See "-- New Jersey Banking
Regulation -- Loans-to-One Borrower Limitations." All loans by a bank to all
insiders and insiders' related interests in the aggregate may not exceed the
bank's unimpaired capital and unimpaired surplus. With certain exceptions, loans
to an executive officer, other than loans for the education of the officer's
children and certain loans secured by the officer's residence, may not exceed
the lesser of; (1) $100,000 or (2) the greater of $25,000 or 2.5% of the bank's
capital and unimpaired surplus. Regulation O also requires that any proposed
loan to an insider or a related interest of that insider be approved in advance
by a majority of the board of directors of the bank, with any interested
director not participating in the voting, if such loan, when aggregated with any
existing loans to that insider and the insider's related interests, would exceed
either; (1) $500,000 or (2) the greater of $25,000 or 5% of the bank's
unimpaired capital and surplus. Generally, such loans must be made on
substantially the same terms as, and follow credit underwriting procedures that
are not less stringent than, those that are prevailing at the time for
comparable transactions with other persons.
An exception is made for extensions of credit made pursuant to a benefit or
compensation plan of a bank that is widely available to employees of the bank
and that does not give any preference to insiders of the bank over other
employees of the bank.
In addition, provisions of the BHCA prohibit extensions of credit to a
bank's insiders and their related interests by any other institution that has a
correspondent banking relationship with the bank, unless such extension of
credit is on substantially the same terms as those prevailing at the time for
comparable transactions with other persons and does not involve more than the
normal risk of repayment or present other unfavorable features.
New Jersey Regulation. Provisions of the New Jersey Banking Act impose
conditions and limitations on the liabilities to a savings bank of its directors
and executive officers and of corporations and partnerships controlled by such
persons that are comparable in many respects to
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the conditions and limitations imposed on the loans and extensions of credit to
insiders and their related interests under Regulation O, as discussed above. The
New Jersey Banking Act also provides that a savings bank that is in compliance
with Regulation O is deemed to be in compliance with such provisions of the New
Jersey Banking Act.
FEDERAL RESERVE SYSTEM
Under Federal Reserve Board regulations, Hudson City Savings is required to
maintain non-interest-earning reserves against its transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves of 3% must be maintained against
aggregate transaction accounts of $46.5 million or less (subject to adjustment
by the Federal Reserve Board) and an initial reserve of $1.4 million plus 10%
(subject to adjustment by the Federal Reserve Board between 8% and 14%) against
that portion of total transaction accounts in excess of $46.5 million. The first
$4.9 million of otherwise reservable balances (subject to adjustments by the
Federal Reserve Board) are exempted from the reserve requirements. Hudson City
Savings is in compliance with the foregoing requirements. Because required
reserves must be maintained in the form of either vault cash, a
non-interest-bearing account at a Federal Reserve Bank or a pass-through account
as defined by the Federal Reserve Board, the effect of this reserve requirement
is to reduce Hudson City Savings' interest-earning assets.
HOLDING COMPANY REGULATION
Federal Regulation. After the reorganization, Hudson City, MHC and Hudson
City Bancorp will be governed as bank holding companies. Bank holding companies
are subject to examination, regulation and periodic reporting under the BHCA, as
administered by the Federal Reserve Board. The Federal Reserve Board has adopted
capital adequacy guidelines for bank holding companies on a consolidated basis
substantially similar to those of the FDIC for Hudson City Savings. As of
December 31, 1998, Hudson City Bancorp's total capital and Tier 1 capital ratios
for Hudson City, MHC and Hudson City Bancorp would, on a pro forma basis, exceed
these minimum capital requirements. See "Regulatory Capital Compliance."
As bank holding companies, Hudson City, MHC and Hudson City Bancorp will be
required to obtain the prior approval of the Federal Reserve Board to acquire
all, or substantially all, of the assets of any bank or bank holding company.
Prior Federal Reserve Board approval will be required for Hudson City, MHC or
Hudson City Bancorp to acquire direct or indirect ownership or control of any
voting securities of any bank or bank holding company if, after giving effect to
such acquisition, it would, directly or indirectly, own or control more than 5%
of any class of voting shares of such bank or bank holding company.
A bank holding company is required to give the Federal Reserve Board prior
written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, will be equal to 10% or more of the company's
consolidated net worth. The Federal Reserve Board may disapprove such a purchase
or redemption if it determines that the proposal would constitute an unsafe and
unsound practice, or would violate any law, regulation, Federal Reserve Board
order or directive, or any condition imposed by, or written agreement with, the
Federal Reserve Board. Such notice and approval is not required for a bank
holding company that would be treated as "well capitalized" under applicable
regulations of the Federal Reserve Board, that has received a composite "1" or
"2" rating at its
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most recent bank holding company inspection by the Federal Reserve Board, and
that is not the subject of any unresolved supervisory issues.
In addition, a bank holding company is generally prohibited from engaging
in, or acquiring direct or indirect control of any company engaged in,
non-banking activities. One of the principal exceptions to this prohibition is
for activities found by the Federal Reserve Board to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Some of the principal activities that the Federal Reserve Board has determined
by regulation to be so closely related to banking as to be a proper incident
thereto are:
(1) making or servicing loans;
(2) performing certain data processing services;
(3) providing discount brokerage services;
(4) acting as fiduciary, investment or financial advisor;
(5) leasing personal or real property;
(6) making investments in corporations or projects designed primarily to
promote community welfare; and
(7) acquiring a savings and loan association.
Under the Federal Deposit Insurance Act, depository institutions are liable
to the FDIC for losses suffered or anticipated by the FDIC in connection with
the default of a commonly controlled depository institution or any assistance
provided by the FDIC to such an institution in danger of default. This law would
have potential applicability if Hudson City, MHC or Hudson City Bancorp ever
acquired as a separate subsidiary a depository institution in addition to Hudson
City Savings.
New Jersey Regulation. Under the New Jersey Banking Act, a company owning
or controlling a savings bank is regulated as a bank holding company. The New
Jersey Banking Act defines the terms "company" and "bank holding company" as
such terms are defined under the BHCA. Each bank holding company controlling a
New Jersey chartered bank or savings bank must file certain reports with the
Commissioner and is subject to examination by the Commissioner.
ACQUISITION OF HUDSON CITY BANCORP
Under federal law and under the New Jersey Banking Act, no person may
acquire control of Hudson City Bancorp or Hudson City Savings without first
obtaining, as summarized below, approval of such acquisition of control by the
Federal Reserve Board and the Commissioner.
Federal Restrictions. Under the federal Change in Bank Control Act (CBCA),
any person (including a company), or group acting in concert, seeking to acquire
10% or more of the outstanding shares of Hudson City Bancorp's common stock will
be required to submit prior notice to the Federal Reserve Board, unless the
Federal Reserve Board has found that the acquisition of such shares will not
result in a change in control of Hudson City Bancorp. Under the CBCA, the
Federal Reserve Board has 60 days within which to act on such notices, taking
into consideration certain factors, including the financial and
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managerial resources of the acquiror, the convenience and needs of the
communities served by Hudson City Bancorp and Hudson City Savings, and the
antitrust effects of the acquisition. Under the BHCA, any company would be
required to obtain prior approval from the Federal Reserve Board before it may
obtain "control" of Hudson City Bancorp within the meaning of the BHCA. Control
generally is defined under the BHCA to mean the ownership or power to vote 25%
more of any class of voting securities of Hudson City Bancorp or the ability to
control in any manner the election of a majority of Hudson City Bancorp's
directors.
New Jersey Restrictions. The New Jersey Banking Act requires prior approval
of the Commissioner before any person may acquire a New Jersey bank holding
company, such as Hudson City Bancorp. For this purpose, the term "person" is
defined broadly to mean a natural person or a corporation, company, partnership,
or other forms of organized entities. The term "acquire" is defined differently
for an existing bank holding company and for other companies or persons. A bank
holding company will be treated as "acquiring" a New Jersey bank holding company
if the bank holding company acquires more than 5% of any class of the voting
shares of the bank holding company. Any other person will be treated as
"acquiring" a New Jersey bank holding company if it acquires ownership or
control of more than 25% of any class of the voting shares of the bank holding
company.
DIVIDEND WAIVERS BY HUDSON CITY, MHC
It has been the policy of many mutual holding companies to waive the
receipt of dividends declared by its savings institution subsidiary. In
connection with its approval of the reorganization, however, it is expected that
the Federal Reserve Board will impose certain conditions on the waiver by Hudson
City, MHC of dividends paid on the common stock by Hudson City Bancorp. In
particular, the Federal Reserve Board is expected to require that Hudson City,
MHC obtain the prior approval of the Federal Reserve Board before Hudson City,
MHC may waive any dividends from Hudson City Bancorp. As of the date hereof, we
are not aware that the Federal Reserve Board has given its approval to any
waiver of dividends by any mutual holding company that has requested such
approval.
We also expect that the terms of the Federal Reserve Board approval of the
reorganization will require that the amount of any dividends waived by Hudson
City, MHC will not be available for payment to its public stockholders of Hudson
City Bancorp (i.e., stockholders except for Hudson City, MHC) and that such
amount will be excluded from Hudson City Bancorp's capital for purposes of
calculating dividends payable to the public stockholders. Moreover, Hudson City
Savings is required to maintain the cumulative amount of dividends waived by
Hudson City, MHC in a restricted capital account that would be added to the
liquidation account established in the reorganization. This amount would not be
available for distribution to public stockholders. See "The Reorganization and
The Offering -- Effects of the Reorganization -- Depositors' Rights If We
Liquidate; Liquidation Account." The restricted capital account and liquidation
account amounts would not be reflected in Hudson City Savings' financial
statements, but would be considered as a notational or memorandum account of
Hudson City Savings. These accounts would be maintained in accordance with the
laws, rules, regulations and policies of the Commissioner and the plan of
reorganization. The plan of reorganization also provides that if Hudson City,
MHC converts to stock form in the future; (commonly referred to as a second step
conversion), any waived dividends would reduce the percentage of the converted
company's shares of common stock issued to public stockholders in
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connection with any such transaction. For additional information regarding the
possible second step conversion of Hudson City, MHC, see "The Reorganization and
The Offering -- Possible Conversion of Hudson City, MHC to Stock Form."
Hudson City, MHC does not expect to initially waive dividends declared by
Hudson City Bancorp. If Hudson City, MHC decides that it is in its best interest
to waive a particular dividend to be paid by Hudson City Bancorp and the Federal
Reserve Board approves such waiver, then Hudson City Bancorp would pay such
dividend only to its public stockholders. The amount of the dividend waived by
Hudson City, MHC would be treated in the manner described above. Hudson City,
MHC's decision as to whether or not to waive a particular dividend will depend
on a number of factors, including Hudson City, MHC's capital needs, the
investment alternatives available to Hudson City, MHC as compared to those
available to Hudson City Bancorp, and the possibility of regulatory approvals.
We can not guarantee:
- that after the reorganization, Hudson City, MHC will waive dividends
paid by Hudson City Bancorp;
- that if the application is made to waive a dividend, that the Federal
Reserve Board will approve such dividend waiver request; or
- what conditions may be imposed by the Federal Reserve Board on any
dividend waiver.
TAXATION
FEDERAL
General. The following discussion is intended only as a summary and does
not purport to be a comprehensive description of the tax rules applicable to
Hudson City Savings, Hudson City, MHC or Hudson City Bancorp. For federal income
tax purposes, Hudson City Savings reports its income on the basis of a taxable
year ending December 31, using the accrual method of accounting, and is
generally subject to federal income taxation in the same manner as other
corporations. Following the reorganization, Hudson City Savings and Hudson City
Bancorp will constitute an affiliated group of corporations and, therefore, will
be eligible to report their income on a consolidated basis. Because MHC will own
less than 80% of the common stock, it will not be a member of such affiliated
group and will report its income on a separate return. Hudson City Savings is
not currently under audit by the Internal Revenue Service and has not been
audited by the IRS during the past five years.
Bad Debt Reserves. Pursuant to the Small Business Job Protection Act of
1996, Hudson City Savings is no longer permitted to use the reserve method of
accounting for bad debts, and is now recapturing (taking into income) over a
multi-year period a portion of the balance of its tax bad debt reserve as of
December 31, 1995. Since Hudson City Savings has already provided a deferred tax
liability equal to the amount of such recapture, the recapture will not
adversely impact Hudson City Savings' financial condition or results of
operations.
Distributions. To the extent that Hudson City Savings makes "non-dividend
distributions" to stockholders, such distributions will be considered to result
in distributions from Hudson City Savings' unrecaptured tax bad debt reserve
"base year reserve," i.e., its reserve as of
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December 31, 1987, to the extent thereof and then from its supplemental reserve
for losses on loans, and an amount based on the amount distributed will be
included in Hudson City Savings' taxable income. Non-dividend distributions
include distributions in excess of Hudson City Savings' current and accumulated
earnings and profits, distributions in redemption of stock and distributions in
partial or complete liquidation. However, dividends paid out of Hudson City
Savings' current or accumulated earnings and profits, as calculated for federal
income tax purposes, will not constitute non-dividend distributions and,
therefore, will not be included in Hudson City Savings' income.
The amount of additional taxable income created from a non-dividend
distribution is equal to the lesser of Hudson City Savings' base year reserve
and supplemental reserve for losses on loans or an amount that, when reduced by
the tax attributable to the income, is equal to the amount of the distribution.
Thus, in certain situations, approximately one and one-half times the
non-dividend distribution would be includable in gross income for federal income
tax purposes, assuming a 35% federal corporate income tax rate. Hudson City
Savings does not intend to pay dividends that would result in the recapture of
any portion of its bad debt reserves.
Corporate Alternative Minimum Tax. The Internal Revenue Code of 1986, as
amended, imposes a tax ("AMT") on alternative minimum taxable income ("AMTI") at
a rate of 20%. Only 90% of AMTI can be offset by net operating loss carryovers
of which Hudson City Savings currently has none. AMTI is also adjusted by
determining the tax treatment of certain items in a manner that negates the
deferral of income resulting from the regular tax treatment of those items.
Thus, Hudson City Savings' AMTI is increased by an amount equal to 75% of the
amount by which Hudson City Savings' adjusted current earnings exceeds its AMTI
(determined without regard to this adjustment and prior to reduction for net
operating losses). Although the corporate environmental tax of 0.12% of the
excess of AMTI (with certain modifications) over $2.0 million has expired, under
current Administration proposals, such tax will be retroactively reinstated for
taxable years beginning after December 31, 1997 and before January 1, 2009.
Elimination of Dividends; Dividends Received Deduction. Hudson City Bancorp
may exclude from its income 100% of dividends received from Hudson City Savings
as a member of the same affiliated group of corporations. Because, following the
reorganization, Hudson City, MHC will not be a member of such affiliated group,
it will not qualify for such 100% dividends exclusion, but will be entitled to
deduct 80% of the dividends it receives from Hudson City Bancorp so long as it
owns more than 20% of the common stock.
STATE
New Jersey State Taxation. Hudson City Savings files New Jersey Savings
Institution income tax returns. Generally, the income of savings institutions in
New Jersey, which is calculated based on federal taxable income, subject to
certain adjustments, is subject to New Jersey tax. Hudson City Savings is not
currently under audit with respect to its New Jersey income tax returns and
Hudson City Savings' state tax returns have not been audited for the past five
years.
Hudson City Bancorp will be required to file a New Jersey income tax return
and will generally be subject to a state income tax rate that is currently
higher than income tax rates for savings institutions in New Jersey. However, if
Hudson City Bancorp meets certain requirements,
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it may be eligible to elect to be taxed as a New Jersey Investment Company,
which would allow Hudson City Bancorp to be taxed at a rate that is currently
lower than income tax rates for savings institutions in New Jersey.
Delaware State Taxation. As a Delaware holding company not earning income
in Delaware, Hudson City Bancorp is exempted from Delaware corporate income tax
but is required to file annual returns and pay annual fees and a franchise tax
to the State of Delaware.
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MANAGEMENT
SHARED MANAGEMENT STRUCTURE
Hudson City Bancorp's directors and executive officers are the same as
Hudson City Savings'. We expect that Hudson City Bancorp and Hudson City Savings
will continue to have common directors and common executive officers until there
is a business reason to establish separate management structures.
To date, Hudson City Savings has compensated its directors and executive
officers for their services. Hudson City Bancorp does not pay any additional
compensation. We expect to continue this practice after the reorganization until
we have a business reason to establish separate compensation programs. Until
then, we expect Hudson City Bancorp to reimburse Hudson City Savings for a part
of the compensation paid to each director and executive officer that is
proportionate to the amount of time which he or she devotes to performing
services for Hudson City Bancorp.
DIRECTORS
Composition of Our Boards. We have 11 directors. Each belongs to one of
three classes with staggered 3-year terms of office. Four directors are in Class
One and have terms expiring in 2000. Three are in Class Two and have terms
expiring in 2001. Four are in Class Three and have terms expiring in 2002. At
each of Hudson City Bancorp's annual stockholder meetings, the stockholders
elect directors to fill the seats of the directors whose terms are expiring in
that year and any vacant seats. Hudson City Bancorp, as Hudson City Savings'
sole stockholder, elects Hudson City Savings' directors.
Who Our Directors Are. The following table states our directors' names,
their ages as of their birthdays in 1998, their positions, the years when they
began serving as directors (including time spent on the Board of Managers of
Hudson City Savings in mutual form before the reorganization) and the years when
their current terms of office as directors will expire:
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<TABLE>
<CAPTION>
BANK BANCORP
DIRECTOR DIRECTOR TERM
NAME AGE POSITIONS SINCE SINCE EXPIRES
<S> <C> <C> <C> <C> <C>
Verne S. Atwater 78 Director of the Bank and Bancorp 1983 1999 2002
John D. Birchby 52 Director of the Bank and Bancorp 1980 1999 2000
Kenneth L. Birchby 83 Chairman Emeritus and Director of the Bank and 1966 1999 2001
Bancorp
Victoria H. Bruni 56 Director of the Bank and Bancorp 1996 1999 2000
William J. Cosgrove 65 Director of the Bank and Bancorp 1995 1999 2001
Andrew J. Egner, Jr. 74 Director of the Bank and Bancorp 1984 1999 2000
Leonard S. Gudelski 64 Chairman, Chief Executive Officer and Director 1971 1999 2000
of the Bank and Bancorp
Ronald E. Hermance, Jr. 51 President, Chief Operating Officer and Director 1988 1999 2002
of the Bank and Bancorp
John W. Klie 73 Director of the Bank and Bancorp 1970 1999 2002
Donald O. Quest 59 Director of the Bank and Bancorp 1983 1999 2001
Arthur V. Wynne, Jr. 65 Director of the Bank and Bancorp 1984 1999 2002
</TABLE>
Our Directors' Backgrounds. The business experience of each of our
directors is as follows:
LEONARD S. GUDELSKI is Chairman of the Board and Chief Executive Officer.
He joined the Bank as Vice President in 1969 after having been employed for 13
years at a savings bank in Connecticut. In 1971 he was elected Executive Vice
President and a member of the board of managers. Subsequent promotions were to
President and Chief Operating Officer in 1981, President and Chief Executive
Officer in 1989 and Chairman, President and Chief Executive Officer in 1996. He
became Chairman and Chief Executive Officer in 1997. He is a graduate of the
University of Connecticut with a degree in economics and has completed various
industry-related graduate level courses.
RONALD E. HERMANCE, JR. has served as President and Chief Operating Officer
of Hudson City Savings since January 1997. Mr. Hermance previously was Senior
Executive Vice President, Chief Operating Officer and has been a member of the
board of managers of Hudson City Savings since 1988. Prior to joining Hudson
City Savings, Mr. Hermance was Chief Financial Officer of Southold Savings Bank
on Long Island, New York. In addition to his most recent service, Mr. Hermance
served in various lending capacities in both a commercial bank and a thrift
institution.
VERNE S. ATWATER, PH. D. has served as an Instructor of the Executive
M.B.A. Program and a Professor of Finance, Emeritus in Residence at the Lubin
Business School of Pace University since 1982. He has also been a member of the
board of directors of Marcel Dekker, Inc. since 1997.
JOHN D. BIRCHBY, ESQ. has been a partner in the law firm of Dieffenbach,
Witt & Birchby since 1975. He was a member of the Supreme Court District Ethics
Committee for Bergen County of the State of New Jersey from 1990 to 1994. He is
the son of Kenneth L. Birchby.
KENNETH L. BIRCHBY has been the Chairman Emeritus of Hudson City Savings
since 1996. Mr. Birchby joined Hudson City Savings in 1966 as Executive Vice
President, became President and Chief Executive Officer in 1968 and retired from
this position in 1989. He became Chairman
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of Hudson City Savings in 1981 and served in this capacity until 1996. He is the
father of John D. Birchby, Esq.
VICTORIA H. BRUNI has been Vice President for Administration and Finance at
Ramapo College of New Jersey since 1993. From 1964 to 1993 she served in various
positions at New Jersey Bell Telephone Co., including attorney, Treasurer, and
Assistant Secretary.
WILLIAM J. COSGROVE has been employed as an Executive Vice President of
Marketing at Citadel Group Representatives, Inc., a reinsurance intermediary,
since 1993 and has served as Trustee of the John Hancock Funds since 1991.
ANDREW J. EGNER, JR. is retired, having been employed in various capacities
by Hudson City Savings from 1984 to his retirement in 1989.
JOHN W. KLIE is retired, having served as Vice President of Henry Klie,
Inc., an insurance agency, from 1950 to 1989 and as consultant to the Otterstedt
Agency, an insurance agency, from 1989 to 1996. Mr. Klie is a past President of
the New Jersey Association of Independent Insurance Agents.
DONALD O. QUEST, M.D. has been a neurological surgeon since 1976, a
professor at Columbia University since 1989 and an attending physician at Valley
Hospital and Columbia-Presbyterian Medical Center since 1978.
ARTHUR V. WYNNE, JR. has been a partner in Burrelle's Information
Services, a media research service company, since 1960, a partner in 3W
Partners, a real estate firm, since 1980, a Vice President of Video Monitoring
Service of America, a television transcripts company, since 1987 and a Vice
President of New England Newsclip Agency since 1972.
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
Our boards of directors meet on a monthly basis except for August and may
hold additional special meetings. During 1998, Hudson City Savings' Board of
Managers held 11 regular meetings and 1 special meeting.
The Board of Directors of Hudson City Savings and the Board of Directors of
Hudson City Bancorp maintain Executive, Audit, Human Resources and Nominating
Committees with identical compositions. Hudson City Savings' Board of Directors
also maintains an Asset Management Committee. No committee of Hudson City
Bancorp's Board of Directors held any meetings in 1998.
The Executive Committee consists of Messrs. Atwater, K. Birchby, J.
Birchby, Gudelski, Hermance and Klie. Mr. Gudelski serves as Chairman. The
Executive Committee exercises the powers of the Board of Directors in between
its meetings. It met 52 times during 1998.
The Audit Committee consists of Messrs. Atwater, Klie and Wynne, with Mr.
Atwater serving as Chairman. This committee reviews the annual audit prepared by
the independent accountants, recommends the appointment of accountants and
receives reports from the internal audit department of Hudson City Savings. It
met 11 times during 1998.
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The Human Resources Committee consists of Messrs. Gudelski, Hermance,
Cosgrove, Quest and Ms. Bruni with Mr. Quest serving as Chairman. This committee
provides advice and recommendations to the Board of Directors in the areas of
employee salaries and benefit programs. It met five times during 1998.
The Nominating Committee consists of Mr. Atwater who is Chairman and
Messrs. Cosgrove and Quest. This committee nominates individuals for election to
the Board of Directors and senior management. It met one time during 1998.
Hudson City Savings' Asset Management Committee consists of Messrs.
Gudelski, Hermance, K. Birchby, J. Birchby, Cosgrove and Egner, with Mr. Egner
serving as the Chairman. This committee has general oversight of Hudson City
Savings' investments and the management of its interest rate risk. It met four
times during 1998.
DIRECTOR COMPENSATION
Meeting Fees. Hudson City Savings pays a fee to each of its non-management
directors for attendance at each board meeting and each meeting of a committee
of which they are members. The following table sets forth the meeting fees in
effect for 1998 and 1999:
<TABLE>
<CAPTION>
Position 1998 1999
<S> <C> <C> <C>
Board $ 2,700 $ 3,000
Executive Committee Member 490 540
Audit Committee Member 440 490
Chair 500 550
Human Resources Committee Member 725 800
Chair 780 860
Asset Management Committee Member 725 800
Chair 780 860
Nominating Committee Member 725 800
Chair 780 860
</TABLE>
Hudson City Savings paid fees totaling $458,000 to its non-employee directors
for the year ended December 31, 1998.
Outside Directors Consultation Plan. This plan provides continued
compensation following termination of service as a director to eligible outside
directors who agree to serve as consultants to Hudson City Savings. A director
is eligible if he or she retires after attaining age 65 and completing 10 years
of service as an outside director. The monthly consulting fee is equal to 5% of
the fee for attendance at a meeting of the board of directors in effect at the
date of termination of service as a director multiplied by the number of full
years of service as an outside director, to a maximum of 20 years. A director's
consulting arrangement will continue for 120 months or until an earlier date
when the director withdraws from the performance of consulting services. If a
change of control occurs, this plan will terminate and all of its obligations
will be settled by lump sum payment. In computing these lump sums, each
non-employee director will be presumed to have attained age 65 and completed 20
years of service.
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Agreements for the Deferral of Directors Fees. This plan allows the
deferral of fees for service on the board of directors and its committees.
Deferred amounts bear interest, credited quarterly, at the highest interest rate
which Hudson City Savings paid to its customers on savings and time deposits
during the quarter. Hudson City Savings pays the deferred amounts plus accrued
interest following the director's termination of service. These benefits are
general, unsecured obligations of Hudson City Savings and are not separately
funded.
EXECUTIVE OFFICERS
Executive Officers Who are Not Directors. In addition to Messrs. Gudelski
and Hermance, Hudson City Bancorp and Hudson City Savings have the following
executive officers:
JOHN M. TASSILLO has worked for Hudson City Savings since 1969 and has
served as Executive Vice President and Treasurer since 1989. Mr. Tassillo is
responsible for the accounting, data processing, purchasing, checking, ATM
control, and compliance areas of Hudson City Savings. Mr. Tassillo is a
Certified Public Accountant. He is a graduate of St. Peter's College in New
Jersey and the Graduate School of Savings Banking at Brown University.
V. BARRY CORRIDON has been First Vice President of Mortgage Servicing of
Hudson City Savings since 1995 and a Vice President from 1982 to 1995. He is
responsible for the administration of our mortgage portfolio, supervision of new
loan set-up, post-closing, payoffs, mortgage accounting, collections and
foreclosures. Mr Corridon was President of the Mortgage Bankers Association of
New Jersey in 1995. He is the current Chairman of the Loan Servicing Committee
of the New Jersey League of Community and Savings Bankers and a member of the
Mortgage Steering Committee. Mr. Corridon also serves on the board of
WOODLEA/PATH Advisory Council of Children's Aid and Family Services. he earned
his undergraduate degree at Fairleigh Dickinson University and is also a
graduate of the Graduate School of Savings Banking at Brown University. He
joined Hudson City Savings in 1970.
JAMES C. KRANZ has been First Vice President and Investment Officer of
Hudson City Savings since 1989. He is responsible for investments, cash flow
management and management of interest rate risk. Mr. Kranz joined Hudson City
Savings in 1983. He formerly served as the Investment Officer of another New
Jersey savings bank for 12 years. Mr Kranz is a member of the New Jersey Bond
club and serves on the Asset and Liability Management Committee of the New
Jersey League of Community and Savings Bankers. Mr Kranz has an undergraduate
degree and a MBA from Lehigh University. He is a graduate of the Graduate
School of Savings Banking at Brown University.
THOMAS E. LAIRD joined the Bank in 1974 and presently serves as First Vice
President and Mortgage Officer. His primary area of responsibility is mortgage
lending and loan production. Mr. Laird holds an undergraduate degree from St.
Peter's College and is a graduate of the National School of Banking at
Fairfield University. Mr. Laird has been actively involved for the past ten
years on the Wanaque Board of Education, having served for two terms as Board
President. He has also been active in the Mortgage Bankers Association of New
Jersey, the New Jersey League of Community and Savings Bankers and presently is
a board member of the Dover Housing Development Corporation.
MICHAEL B. LEE has served as First Vice President and Secretary of
Hudson City Savings since 1989. He is responsible for branch administration,
training and customer retirement programs. He has an undergraduate degree in
management from St. Peter's College and a Masters Degree from New Jersey
Institute of Technology. He has also completed the National School of Finance
and Management at Fairfield University. Mr. Lee is a Past President of the
Bergen Chapter of the American Institute of Banking and has served on several
committees of the New Jersey League of Community and Savings Bankers. Mr. Lee
joined Hudson City Savings in 1971.
EXECUTIVE OFFICER COMPENSATION
Summary Compensation Table. The following table provides information about
the compensation paid for 1998 to our Chief Executive Officer and to the four
other most highly compensated executive officers whose total annual salary and
bonus for 1998 was at least $100,000.
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<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------------- --------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) (1) COMPENSATION ($) (2) LTIP PAYOUTS ($) (3) COMPENSATION(4)
- --------------------- ---- ---------- -------------- -------------------- -------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Leonard S. Gudelski
Chairman and Chief
Executive Officer 1998 $754,770 $ 286,435 -- $ 1,248,912 $ 68,165
Ronald E. Hermance, Jr.
President and Chief 1998 $305,308 $ 104,555 -- $ 425,796 $ 23,438
Operating Officer
John M. Tassillo
Executive Vice 1998 $203,231 $ 61,462 -- $ 237,048 $ 13,444
President and Treasurer
James Kranz
First Vice President - 1998 $155,293 $ 7,775 -- $ 111,258 $ 8,439
Investment Officer
Michael B. Lee 1998 $109,908 $ 5,420 -- $ 78,078 $ 6,123
First Vice President
and Secretary
</TABLE>
- -----------------------------
(1) Includes the following employer contributions to Hudson City Savings
Bank Profit Incentive Bonus Plan, a tax-qualified profit-sharing plan,
which the executive officer could have elected to receive in cash: Mr.
Gudelski, $8,000; Mr. Hermance, $8,000; Mr. Tassillo, $8,000; Mr.
Kranz, $7,775; and Mr. Lee, $5,420. Also includes the following
bonuses under Hudson City Savings Bank Annual Incentive Plan, a
non-qualified performance-based compensation plan, earned for 1998 and
paid in 1999: Mr. Gudelski, $278,435; Mr. Hermance, $96,555; and Mr.
Tassillo, $53,462.
(2) The Bank provides its executive officers with certain non-cash
benefits and perquisites, such as the use of Bank-owned or leased
automobiles. Management of the Bank believes that the aggregate value
of these benefits for 1998 did not, in the case of any executive
officer, exceed $50,000 or 10% of the aggregate salary and annual
bonus reported for him in the Summary Compensation Table.
(3) Represents amounts payable in 1999 under Hudson City Savings Bank
Long-Term Incentive Plan, a non-qualified performance-based
compensation plan, based on achievement of performance goals
established for the three-year period ended December 31, 1998. This
plan has been administered so that payments have been made once every
three years. Includes amounts which may have been deferred by the
executive officer pursuant to an individual non-qualified deferred
compensation arrangement.
(4) Includes the following components: (1) employer contributions to
Hudson City Savings Bank Profit Incentive Bonus Plan which the
executive officer could not elect to receive in cash - Mr. Gudelski,
$8,000; Mr. Hermance, $8,000; Mr. Tassillo, $8,000; Mr. Kranz, $7,775;
and Mr. Lee, $5,420; (2) amounts accrued under Hudson City Savings
Bank Supplemental Savings Plan, a non-qualified deferred compensation
plan - Mr. Gudelski, $58,400; Mr. Hermance, $14,100; and Mr. Tassillo,
$4,000; and (3) the premium cost for life insurance coverage under
Hudson City Savings Bank Supplemental Death Benefit Plan for Senior
Officers - Mr. Gudelski, $1,765; Mr. Hermance, $1,338; Mr. Tassillo,
$1,444; Mr. Kranz, $664; and Mr. Lee, $703.
EMPLOYMENT AGREEMENTS
Hudson City Bancorp and Hudson City Savings have jointly entered into
employment agreements with Messrs. Gudelski, Hermance and Tassillo to secure
their services as Chairman and Chief Executive Officer, President and Chief
Operating Officer, and Executive Vice President and Treasurer. The employment
agreements will take effect on the effective date of the reorganization. They
have rolling three-year terms which a decision of the executive or joint
decision of Hudson City Bancorp and Hudson City Savings may convert to a fixed
three-year term. These agreements provide for minimum annual salaries of
$784,000, $317,000 and $212,000, respectively, discretionary cash bonuses, and
participation on generally applicable terms and conditions in other compensation
and fringe benefit plans (including cash incentive compensation under the
existing Annual Incentive Plan and Long-Term Incentive Plan, to the extent that
Hudson City Savings continues those plans in the future). They also guarantee
customary corporate indemnification and errors and omissions insurance coverage
throughout the employment term and for six years after termination.
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Hudson City Bancorp and Hudson City Savings may terminate each executive's
employment, and each executive may resign, at any time with or without cause.
However, in the event of termination during the term without cause, they will
owe the executive severance benefits generally equal to the value of the cash
compensation and fringe benefits that the executive would have received if he
had continued working for an additional three years. The same severance benefits
would be payable if the executive resigns during the term following: a loss of
title, office or membership on the board of directors; material reduction in
duties, functions or responsibilities; involuntary relocation of the executive's
principal place of employment to a location over 25 miles in distance from
Hudson City Savings' principal office in Paramus, New Jersey and over 25 miles
from the executive's principal residence; or other material breach of contract
by Hudson City Bancorp or Hudson City Savings which is not cured within 30 days.
For 60 days after a change of control, each executive may resign for any reason
and collect severance benefits as if he had been discharged without cause. The
employment agreements also provide certain uninsured death and disability
benefits.
If Hudson City Bancorp or Hudson City Savings experiences a change in
ownership, a change in effective ownership or control or a change in the
ownership of a substantial portion of their assets as contemplated by section
280G of the Internal Revenue Code, a portion of any severance payments under the
employment agreements might constitute an "excess parachute payment" under
current federal tax laws. Federal tax laws impose a 20% excise tax, payable by
the executive, on excess parachute payments. Under the employment agreements,
Hudson City Savings would reimburse the executive for the amount of this excise
tax and would make an additional gross-up payment so that, after payment of the
excise tax and all income and excise taxes imposed on the reimbursement and
gross-up payments, the executive will retain approximately the same net-after
tax amounts under the employment agreement that he would have retained if there
was no 20% excise tax. The effect of this provision is that Hudson City Bancorp,
rather than the executive, bears the financial cost of the excise tax. Neither
Hudson City Savings nor Hudson City Bancorp could claim a federal income tax
deduction for an excess parachute payment, excise tax reimbursement payment or
gross-up payment.
CHANGE OF CONTROL AGREEMENTS
Hudson City Bancorp and Hudson City Savings have jointly entered into
two-year change of control agreements with Messrs. Corridon, Kranz, Laird and
Lee. The term of these agreements is perpetual until Hudson City Savings gives
notice of non-extension, at which time the term is fixed for two years.
Generally, Hudson City Savings may terminate the employment of any officer
covered by these agreements, with or without cause, at any time prior to a
change of control without obligation for severance benefits. However, if Hudson
City Bancorp or Hudson City Savings signs a merger or other business combination
agreement, or if a third party makes a tender offer or initiates a proxy
contest, it could not terminate an officer's employment without cause without
liability for severance benefits. The severance benefits would generally be
equal to the value of the cash compensation and fringe benefits that the officer
would have received if he or she had continued working for an additional two
years. Hudson City Savings would pay the same severance benefits if the officer
resigns after a change of control following a loss of title, office or
membership on the Board of Directors, material reduction in duties, functions or
responsibilities, involuntary relocation of his or her principal place of
employment to a location over 25 miles from Hudson City Savings' principal
office on the day before the change of control and over 25 miles from the
officer's principal residence or other material breach of contract which is not
cured within 30 days. These agreements also provide certain uninsured death and
disability benefits.
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If Hudson City Savings or Hudson City Bancorp experiences a change in
ownership, a change in effective ownership or control or a change in the
ownership of a substantial portion of their assets as contemplated by section
280G of the Internal Revenue Code, a portion of any severance payments under the
change of control agreements might constitute an "excess parachute payment"
under current federal tax laws. Any excess parachute payment would be subject to
a federal excise tax payable by the officer and would be non-deductible by
Hudson City Savings and Hudson City Bancorp for federal income tax purposes. The
change of control agreements do not provide a tax indemnity.
Similar change of control agreements providing severance benefits equal to
one year's compensation and benefits are in effect for the 31 Vice Presidents of
Hudson City Savings.
BENEFIT PLANS
Severance Pay Plan. This plan provides severance benefits to salaried
employees with one year of service who are not parties to individual employment
or change of control agreements and are discharged without cause due to a
change of control. Severance benefits include two weeks' base salary for each
year of service for officers and one week's base salary for each year of
service for non-officer employees. The minimum severance benefit is two weeks'
base salary and the maximum is 26 weeks' base salary. Employees entitled to
severance also receive continued employer-paid life and health insurance
coverage for up to one year after termination of employment as well as
professional outplacement and job assistance services. These same benefits are
available to an employee who resigns after a change of control following a
material adverse change in title, position or responsibilities, involuntary
relocation to a worksite requiring that the officer move his place of residence
to avoid an unreasonable commute, a reduction in base salary of more than 20%,
or assignment to duties, offices or working space involving unreasonable
personal embarrassment.
Annual Incentive Plan. This plan provides an opportunity for officers with
titles of Senior Vice President and above to earn cash bonuses each year.
Currently only Messrs. Gudelski, Hermance and Tassillo are eligible for this
plan. The bonuses are a percentage of each officer's annual rate of base salary.
The percentage varies based on the officer's position and Hudson City Savings'
net operating income (before taxes and extraordinary items, but after interest
expense) relative to a target which the Board of Directors establishes during
the first quarter of the year. Hudson City Savings typically pays these bonuses
shortly after the end of the year, but payment may be deferred to a later date
at the election of the participant. Deferred amounts bear interest at prescribed
rates. Deferred amounts plus accrued interest are general, unsecured obligations
of Hudson City Savings and are not separately funded.
Long-Term Incentive Plan. This plan permits employees selected by the Human
Resources Committee to earn additional cash bonuses based on achievement of
performance goals set for periods longer than one year. Under this plan, the
Human Resources Committee grants participation units to selected employees. Each
unit represents a dollar amount that will be paid at the end of a three-year
performance period if specified performance targets are met. The Human Resources
Committee may also establish lower unit values for performance that exceeds a
minimum threshold but is below the target and higher unit values for performance
that exceeds the target. In 1999, Hudson City Savings made payments for units
granted for the three-year period beginning January 1, 1996 and ending December
31, 1998. Hudson City Savings'
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performance relative to target levels of asset growth and return on assets for
this period determined the value of these units. This plan has been administered
so that payments have been made only once every three years.
Generally, participants must remain employed through the end of the
relevant performance period to receive payment for units. There are exceptions
for death, disability or retirement during the performance period. In addition,
in the event of a change of control, the terms of the plan abbreviate the
performance period for any outstanding units and provide for pro-rated payments
based on performance to the date of the change of control.
Pension Plans. The Hudson City Savings Bank Employees' Retirement Plan is a
tax-qualified plan that covers substantially all salaried employees who are age
21 and have at least one year of service. The Supplemental Executive Retirement
Plan covers selected executive officers and currently covers Messrs. Gudelski,
Hermance and Tassillo. The following table shows the estimated aggregate
benefits payable under the Employees' Retirement Plan and the Supplemental
Executive Retirement Plan upon retirement at age 65 in 1998 with various years
of service and average final compensation combinations.
<TABLE>
<CAPTION>
Years of Service
Average Final ---------------------------------------------------------------------------------
Compensation (1) 15 20 25 30 35 (2)
- ------------------ --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 30,000 $ 40,000 $ 50,000 $ 60,000 $ 60,000
$ 125,000 $ 37,500 $ 50,000 $ 62,500 $ 75,000 $ 75,000
$ 150,000 $ 45,000 $ 60,000 $ 75,000 $ 90,000 $ 90,000
$ 160,000 $ 48,000 $ 64,000 $ 80,000 $ 96,000 $ 96,000
$ 175,000 $ 52,500 $ 70,000 $ 87,500 $ 105,000 $ 105,000
$ 200,000 $ 60,000 $ 80,000 $ 100,000 $ 120,000 $ 120,000
$ 300,000 $ 90,000 $ 120,000 $ 150,000 $ 180,000 $ 180,000
$ 400,000 $ 120,000 $ 160,000 $ 200,000 $ 240,000 $ 240,000
$ 500,000 $ 150,000 $ 200,000 $ 250,000 $ 300,000 $ 300,000
$ 750,000 $ 225,000 $ 300,000 $ 375,000 $ 450,000 $ 450,000
$ 1,000,000 $ 300,000 $ 400,000 $ 500,000 $ 600,000 $ 600,000
</TABLE>
- -------------------------
(1) Average final compensation is average base salary, as reported in the
"Salary" column of the Summary Compensation Table, for the highest
three consecutive years during the final 10 years of employment. Tax
laws impose a limit ($160,000 for individuals retiring in 1998) on the
average final compensation that may be counted in computing benefits
under the Employees' Retirement Plan. The Employees' Retirement Plan
may also pay benefits accrued as of January 1, 1994 based on tax law
limits then in effect. For Messrs. Gudelski, Hermance and Tassillo,
benefits based on average final compensation in excess of this limit
are payable by the Supplemental Executive Retirement Plan.
(2) The Employees' Retirement Plan and the Supplemental Executive
Retirement Plan do not count service in excess of 30 years in the
benefit formula.
Tax laws impose a limit ($130,000 for individuals retiring in 1998) on the
annual benefit that the Employees' Retirement Plan may pay. The Employees'
Retirement Plan may also pay additional benefits accrued as of January 1, 1983
based on tax laws then in effect. For Messrs. Gudelski, Hermance and Tassillo,
benefits based on average final compensation in excess of this limit are payable
by the Supplemental Executive Retirement Plan.
The benefits shown in the preceding table are annual benefits payable in
the form of a single life annuity and are not subject to any deduction for
Social Security benefits or other offset
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amounts. At December 31, 1998, the average final compensation and estimated
years of service of the executive officers named in the Summary Compensation
Table were: Mr. Gudelski: $708,923, 29 years of service; Mr. Hermance: $282,321,
10 years of service; Mr. Tassillo, $188,417, 29 years of service; Mr. Kranz:
$147,317, 15 years of service; and Mr. Lee: $103,424, 27 years of service.
Savings Plans. The Profit Incentive Bonus Plan of Hudson City Savings Bank
is a tax-qualified defined contribution plan for substantially all salaried
employees who have attained age 21 and have at least one year of service. Each
year, Hudson City Savings makes a contribution to this plan equal to 10% of each
eligible employee's base salary. Participants may choose to receive up to 50% of
this contribution currently in cash. The plan holds the balance on a tax
deferred basis. Because it will begin contributing to an employee stock
ownership plan after the reorganization, Hudson City Savings has reduced its
contributions to this plan to 5% of base salary paid after March 31, 1999. It
will permit a cash election for the full amount of the reduced contribution.
This plan has an individual account for each participant's contributions
and allows each participant to direct the investment of his or her account. One
permitted investment is Hudson City Bancorp common stock. The plan itself is
not an eligible account holder. However, participants who are eligible account
holders may use their subscription rights to purchase stock for their plan
accounts. This plan will purchase common stock for other participants from the
initial offering, to the extent that shares are available to investors who are
not eligible account holders, and in open market transactions. Participants
will direct the voting of shares purchased for their plan accounts.
The Supplementary Savings Plan of Hudson City Savings Bank is a
non-qualified plan that provides additional benefits to certain participants
whose benefits under the Profit Incentive Bonus Plan are limited by tax law
limitations applicable to tax-qualified plans.
Employee Stock Ownership Plan. This plan is a tax-qualified plan that
covers substantially all salaried employees who have at least one year of
service and have attained age 21 and will take effect at the completion of the
reorganization.
Hudson City Bancorp intends to lend this plan enough money to purchase 8%
of the shares issued to investors other than Hudson City, MHC (3.76% of the
total number of shares issued in the reorganization). The plan may purchase all
or part of these shares from Hudson City Bancorp to the extent that shares are
available after filling the subscriptions of eligible account holders.
Alternatively, the plan may purchase all or part of these shares in private
transactions or on the open market after completion of the reorganization to
the extent that shares are available for purchase on reasonable terms. We have
not have determined whether such funds would be available to the plan or that
such purchase would be made directly from Hudson City Bancorp in the offering,
or after completion of the reorganization. We expect to make such determination
immediately prior to the expiration date for submitting orders in the offering.
This determination would be made based on prevailing market conditions. For
this reason, we cannot assure you that the employee stock ownership plan will
purchase shares in the offering after the reorganization, or that such
purchases will occur during any particular time period or at any particular
price.
Although contributions to this plan will be discretionary, Hudson City
Savings intends to contribute enough money each year to make the required
principal and interest payments on the loan from Hudson City Bancorp. It is
expected that this loan will be for a term of 30 years and will call for level
annual payments of principal and interest. The plan will initially pledge the
shares it purchases as collateral for the loan and hold them in a suspense
account.
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The plan will not distribute the pledged shares right away. Instead, it
will release a portion of the pledged shares annually. Assuming we complete the
reorganization before September 30, 1999, if the plan repays its loan as
scheduled over a 30-year term, we expect that 1/60th of the shares will be
released in 1999, 1/30th of the shares will be released annually in 2000 through
2028, and the remaining 1/60th of the shares will be released in 2029. The plan
will allocate the shares released each year among the accounts of participants
in proportion to their base salary for the year. For example, if a participant's
base salary for a year represents 1% of the total base salaries of all
participants for the year, the plan would allocate to that participant 1% of the
shares released for the year. Participants direct the voting of shares allocated
to their accounts. Shares in the suspense account will usually be voted in a way
that mirrors the votes which participants cast for shares in their individual
accounts.
This plan may purchase additional shares in the future, and may do so using
borrowed funds, cash dividends, periodic employer contributions or other cash
flow.
ESOP Restoration Plan. The ESOP Restoration Plan of Hudson City Savings
Bank is a non-qualified plan that provides supplemental benefits to certain
executives who are prevented from receiving the full benefits contemplated by
the Employee Stock Ownership Plan's benefit formula. The supplemental payments
consist of payments representing shares that cannot be allocated to participants
under the Employee Stock Ownership Plan due to the legal limitations imposed on
tax-qualified plans and, in the case of participants who retire before the
repayment in full of the Employee Stock Ownership Plan's loan, payments
representing the shares that would have been allocated if employment had
continued through the full term of the loan.
Post-Retirement Death Benefit for Senior Officers. Hudson City Savings has
entered into approximately 89 post-retirement death benefit agreements with
officers at the assistant vice president level and higher. These agreements
provide a death benefit to each officer's beneficiary if the officer's
employment continues until retirement and he or she dies after retirement. The
amount of the death benefit ranges from $25,000 for assistant vice presidents to
$50,000 for the President or the Chairman. To finance this benefit, Hudson City
Savings has purchased whole life insurance policies on the lives of these
officers. This death benefit is in addition to the benefits provided under the
group life insurance plan generally applicable to all employees.
Effect of the Reorganization on Existing Compensation Plans; Effect of a
Second Step Conversion Transaction on Existing and Future Benefit Plans and
Compensation Agreements. Our employment agreements, change of control
agreements, Employee Stock Ownership Plan, ESOP Restoration Plan, Supplementary
Savings Plan, Supplemental Executive Retirement Plan and Outside Directors
Consultation Plan provide additional and accelerated benefits if we experience a
change of control. The reorganization will not trigger additional benefits or
accelerate benefits under any of the plans or agreements. However, a second step
conversion will accelerate benefits under the Supplemental Executive Retirement
Plan.
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FUTURE STOCK BENEFIT PLANS
Stock Option Plan. We intend to implement a stock option plan for our
directors and officers after the reorganization. Applicable regulations prohibit
us from implementing this plan until 6 months after the reorganization. If we
implement this plan within one year after the reorganization, applicable
regulations require that we first obtain the approval of the holders of a
majority of the outstanding shares of Hudson City Bancorp that are not owned by
Hudson City, MHC. We have not decided whether we will implement this plan before
or after the one-year anniversary of the reorganization.
We expect to adopt a stock option plan that will authorize the Human
Resources Committee to grant options to purchase up to 10% of the shares issued
to investors other than Hudson City, MHC (4.7% of the shares issued in the
reorganization) over a period of 10 years. The Human Resources Committee will
decide which directors and officers will receive options and what the terms of
those options will be. However, no stock option will permit its recipient to
purchase shares at a price that is less than the fair market value of a share on
the date the option is granted, and no option will have a term that is longer
than 10 years. If we implement a stock option plan before the first anniversary
of the reorganization, applicable regulations will require that we observe the
following restrictions:
- We must limit the total number of shares that are optioned to outside
directors to 30% of the shares authorized for the plan.
- We must also limit the number of shares that are optioned to any one
outside director to 5% of the shares authorized for the plan and the
number of shares that are optioned to any executive officer to 25% of
the shares that are authorized for the plan.
- We must not permit the options to become vested at a more rapid rate
than 20% per year beginning on the first anniversary of stockholder
approval of the plan.
- We must not permit accelerated vesting for any reason other than death
or disability.
After the first anniversary of the reorganization, we may amend the plan to
change or remove these restrictions. If we adopt a stock option plan within one
year after the reorganization, we expect to amend the plan, subject to
stockholder approval, later to remove these restrictions and to provide for
accelerated vesting in cases of retirement and change of control.
We may obtain the shares needed for this plan by issuing additional shares
or through stock repurchases. Because we cannot issue new shares that would
reduce Hudson City, MHC's ownership position to less than a majority of Hudson
City Bancorp's outstanding shares, we expect to obtain most or all of the shares
for this plan through stock repurchases.
We expect the stock option plan will permit the Human Resources Committee
to grant either incentive stock options that qualify for special federal income
tax treatment or non-qualified stock options that do not qualify for special
treatment. Incentive stock options may be granted only to employees and will not
create federal income tax consequences when they are
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granted. If they are exercised during employment or within three months after
termination of employment, the exercise will not create federal income tax
consequences either. When the shares acquired on exercise of an incentive stock
option are resold, the seller must pay federal income taxes on the amount by
which the sales price exceeds the purchase price. This amount will be taxed at
capital gains rates if the sale occurs at least two years after the option was
granted and at least one year after the option was exercised. Otherwise, it is
taxed as ordinary income.
Non-qualified stock options may be granted to either employees or
non-employees such as directors, consultants and other service providers.
Incentive stock options that are exercised more than three months after
termination of employment are treated as non-qualified stock options.
Non-qualified stock options will not create federal income tax consequences when
they are granted. When they are exercised, federal income taxes must be paid on
the amount by which the fair market value of the shares acquired by exercising
the option exceeds the exercise price. When the shares acquired on exercise of a
non-qualified stock option are resold, the seller must pay federal income taxes
on the amount by which the sales price exceeds the purchase price plus the
amount included in ordinary income when the option was exercised. This amount
will be taxed at capital gains rates, which will vary depending upon the time
that has elapsed since the exercise of the option.
When a non-qualified stock option is exercised, Hudson City Bancorp and
Hudson City Savings may be allowed a federal income tax deduction for the same
amount that the option holder includes in his or her ordinary income. When an
incentive stock option is exercised, there is no tax deduction unless the shares
acquired are resold sooner than two years after the option was granted or one
year after the option was exercised.
Management Recognition Plan. We intend to implement a management
recognition plan for our directors and officers after the reorganization.
Applicable regulations prohibit us from implementing this plan until 6 months
after the reorganization. If we implement this plan within one year after the
reorganization, the regulations require that we first obtain the approval of the
holders of a majority of the outstanding shares of Hudson City Bancorp that are
not held by Hudson City, MHC. We have not decided whether we will implement this
plan before or after the one-year anniversary of the reorganization.
We expect to adopt a management recognition plan that will authorize the
Human Resources Committee to make restricted stock awards of up to 4% of the
shares issued to investors other than Hudson City, MHC (1.88% of the shares
issued in the reorganization). The Human Resources Committee will decide which
directors and officers will receive restricted stock and what the terms of those
awards will be. If we implement a management recognition plan before the first
anniversary of the reorganization, applicable regulations will require that we
observe the following restrictions:
- We must limit the total number of shares that are awarded to outside
directors to 30% of the shares authorized for the plan.
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- We must also limit the number of shares that are awarded to any one
outside director to 5% of the shares authorized for the plan and the
number of shares that are awarded to any executive officer to 25% of
the shares that are authorized for the plan.
- We must not permit the awards to become vested at a more rapid rate
than 20% per year beginning on the first anniversary of stockholder
approval of the plan.
- We must not permit accelerated vesting for any reason other than death
or disability.
After the first anniversary of the reorganization, we may amend the plan to
change or remove these restrictions. If we adopt a management recognition plan
within one year after the reorganization, we expect to amend the plan later to
remove these restrictions and to provide for accelerated vesting in cases of
retirement and change of control.
We may obtain the shares needed for this plan by issuing additional shares
or through stock repurchases. Because we cannot issue new shares that would
reduce Hudson City, MHC's ownership position to less than a majority of Hudson
City Bancorp's outstanding shares, we expect to obtain most or all of the shares
for this plan through stock repurchases.
Restricted stock awards under this plan may feature employment restrictions
that require continued employment for a period of time for the award to be
vested. They may feature restrictions that require the achievement of specified
corporate or individual performance goals for the award to be vested. Or, they
may feature a combination of employment and performance restrictions. Awards are
not vested unless the specified employment restrictions and performance goals
are met. However, pending vesting, the award recipient may have voting and
dividend rights. When an award becomes vested, the recipient must include the
current fair market value of the vested shares in his income for federal income
tax purposes. Hudson City Bancorp and Hudson City Savings may be allowed a
federal income tax deduction in the same amount. Depending on the nature of the
restrictions attached to the restricted stock award, Hudson City Bancorp and
Hudson City Savings may have to recognize a compensation expense for accounting
purposes ratably over the vesting period or in a single charge when the
performance conditions are satisfied.
LIMITATIONS ON FEDERAL TAX DEDUCTIONS FOR EXECUTIVE OFFICER COMPENSATION
As a private entity, Hudson City Savings has been subject to federal tax
rules which permit it to claim a federal income tax deduction for a reasonable
allowance for salaries or other compensation for personal services actually
rendered. Following the reorganization, federal tax laws may limit this
deduction to $1 million each tax year for each executive officer named in the
summary compensation table in Hudson City Bancorp's proxy statement for that
year. This limit will not apply to non-taxable compensation under various
broad-based retirement and fringe benefit plans, to compensation that is
"qualified performance-based compensation" under applicable law or to
compensation that is paid in satisfaction of commitments that arose before the
reorganization. Hudson City Bancorp and Hudson City Savings expect that the
Human Resources Committee will take this deduction limitation into account with
other relevant factors in establishing the compensation levels of their
executive officers and in setting the terms of
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compensation programs. However, there is no assurance that all compensation paid
to our executive officers will be deductible for federal income tax purposes. To
the extent that compensation paid to any executive officer is not deductible,
the net after-tax cost of providing the compensation will be higher and the net
after-tax earnings of Hudson City Bancorp and Hudson City Savings will be
reduced.
CERTAIN TRANSACTIONS WITH MANAGERS AND EXECUTIVE OFFICERS
We do not make loans to our officers or managers. However, we do make
residential mortgage loans to our other employees. These loans bear interest at
the same rate as loans offered to non-employee borrowers minus one-quarter
percent interest. The mortgage loans otherwise have the same underwriting terms
that apply to non-employee borrowers.
We retain the law firm of Dieffenbach Witt & Birchby. John D. Birchby, a
director of Hudson City Bancorp, Hudson City Savings and Hudson City, MHC, has
been a partner of Dieffenbach, Witt & Birchby since 1975. For 1998, we paid
$326,939 to the law firm under our retainer agreement. The firm also received
$905,000 from borrowers of Hudson City Savings to review loan documentation. We
also rent 2,450 square feet of office space to Dieffenbach Witt & Birchby at an
annual rate of $10.00 per square foot. We believe that the rent we received from
the law firm during 1998 was less than the rent we could have received from an
unrelated third party in the current real estate market. We have entered into a
new lease with the law firm which increases the rent to current market rates.
The new lease agreement provides for a three-year term with lease payments of
$46,600, $47,775 and $49,000 for 1999, 2000 and 2001, respectively.
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PROPOSED PURCHASES OF COMMON STOCK BY MANAGEMENT
The following table presents, for each of our managers and executive
officers, the amount of stock they wish to purchase in the offering. We have
assumed that a sufficient number of shares will be available to satisfy their
subscriptions. The amounts include shares that may be purchased through
individual retirement accounts and by associates of the managers and executive
officers. None of our managers or executive officers expect to purchase more
than 0.2% of our common stock. Collectively our managers and executive officers
expect to purchase a total of 651,000 shares, or 1.0% of shares we sell in the
offering (assuming the sale of 67,562,500 shares of common stock).
<TABLE>
<CAPTION>
NUMBER
NAME AMOUNT OF SHARES
- ------------------------------------------------ ---------- ---------
<S> <C> <C>
Directors:
Verne S. Atwater $ 50,000 5,000
John D. Birchby 1,000,000 100,000
Kenneth L. Birchby 1,000,000 100,000
Victoria H. Bruni 50,000 5,000
William J. Cosgrove 100,000 10,000
Andrew J. Egner, Jr. 400,000 40,000
Leonard S. Gudelski 1,000,000 100,000
Ronald E. Hermance, Jr. 800,000 80,000
John W. Klie 75,000 7,500
Donald O. Quest 200,000 20,000
Arthur V. Wynne, Jr. 510,000 51,000
Executive Officers who are not Directors:
V. Barry Corridon 200,000 20,000
James C. Kranz 250,000 25,000
Thomas E. Laird 275,000 27,500
Michael B. Lee 100,000 10,000
John M. Tassillo 500,000 50,000
---------- --------
$6,510,000 $651,000
========== ========
</TABLE>
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THE REORGANIZATION AND THE OFFERING
The Board of Managers of Hudson City Savings has adopted and the Commissioner of
the Department of Banking and Insurance of New Jersey has approved the plan of
reorganization, subject to approval by Hudson City Savings' depositors entitled
to vote on the plan and the satisfaction of certain other conditions.
Approval by the Commissioner does not constitute a recommendation or endorsement
of the reorganization by the Commissioner.
GENERAL
On February 11, 1999, Hudson City Savings' Board of Managers unanimously
adopted the plan of reorganization pursuant to which Hudson City Savings will
reorganize into a mutual savings bank holding company structure.
This reorganization includes the formation of an intermediate stock holding
company, Hudson City Bancorp, and the offering by Hudson City Bancorp of a
minority of its shares to depositors of Hudson City Savings and certain other
persons. Under the terms of the plan of reorganization, Hudson City Bancorp will
own Hudson City Savings and Hudson City, MHC will own more than half of Hudson
City Bancorp. The reorganization will be effected as described under
"--Effects of the Reorganization--Tax
Aspects" or in any other manner that is permitted by the Commissioner and the
FDIC and is consistent with the intent of the plan of reorganization. See
"Description of Our Structure After the Reorganization" in the Summary section
of this prospectus for a chart which reflects our structure after the
reorganization.
Hudson City Bancorp and Hudson City, MHC have requested approval from the
Federal Reserve Bank of New York to become bank holding companies and to acquire
Hudson City Savings. The plan of reorganization was approved by the
Commissioner, and Hudson City Savings has received a notice of intent not to
object to the plan of reorganization from the FDIC, subject to, among other
things, approval of the plan of reorganization by Hudson City Savings
depositors.
Hudson City Savings has called a special meeting of depositors for this
purpose and that will be held on [ ], 1999. Depositors with deposit accounts
totaling at least $100 at Hudson City Savings on [ ]April 30, 1999 will be
entitled to vote at the special meeting. The plan of reorganization must be
approved by a majority of the amount of votes entitled to be cast at the special
meeting. We will complete the reorganization only upon completion of the sale of
the shares of common stock offered in this prospectus and approval of the plan
of reorganization by the voting depositors.
The aggregate price of the shares of common stock to be issued in the
reorganization will be within the offering range. The offering range has been
established by the Board of Managers to be between $499.4 million and $675.6
million and is based upon an independent appraisal of the estimated pro forma
market value of the common stock of Hudson City Bancorp. The appraisal was
prepared by RP Financial, a consulting firm experienced in the valuation and
appraisal of savings institutions. All shares of common stock to be issued and
sold in the reorganization will be sold at the same price ($10.00) per share.
The independent appraisal will be affirmed or, if necessary, updated at the
completion of the offering. See "-- How We Determined the Offering Range and the
$10.00 Price Per Share" for additional information as to the determination of
the estimated pro forma market value of the common stock.
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The following is a brief summary of pertinent aspects of the reorganization. The
summary is qualified in its entirety by reference to the provisions of the plan
of reorganization. A copy of the plan is available from Hudson City Savings upon
request and is available for inspection at the offices of Hudson City Savings
and at the office of the Commissioner. The plan is also filed as an exhibit to
the Registration Statement of which this prospectus is a part, copies of which
may be obtained from the SEC. See "Where You Can Find Additional Information."
REASONS FOR THE REORGANIZATION
Formation of Hudson City Savings as a capital stock savings bank subsidiary
of Hudson City Bancorp will permit Hudson City Bancorp to sell common stock,
which is a source of capital not available to mutual savings banks.
Hudson City Savings' mutual form of ownership will be preserved in Hudson
City, MHC. Hudson City, MHC, as a mutual savings bank holding company, will own
at least a majority of the common stock of Hudson City Bancorp as long as Hudson
City, MHC remains in existence. The reorganization will allow Hudson City
Savings to achieve certain benefits of a stock company without a loss of control
that is possible in a full savings institution conversion from mutual to stock
form. In a standard conversion, a newly converted savings institution or its
newly formed holding company sells 100% of its common stock in a single stock
offering. The mutual holding company structure also will give Hudson City
Bancorp flexibility to issue its common stock at various times and in varying
amounts as market conditions permit, rather than in a single stock offering.
This makes the deployment of the capital that we raise more manageable.
The proceeds from the sale of common stock of Hudson City Bancorp will
provide Hudson City Savings with new capital, which will support future deposit
growth and expanded operations such as increased loan originations. The ability
of Hudson City Bancorp to sell additional common stock also will enable Hudson
City Bancorp and Hudson City Savings to increase their capital in response to
any future regulatory capital requirement levels. While Hudson City Savings
currently exceeds all regulatory capital requirements, the sale of common stock
in connection with the reorganization, will assist Hudson City Savings with the
orderly preservation and expansion of its capital base and will provide
flexibility to respond to sudden and unanticipated capital needs.
After completion of the reorganization, the unissued common and preferred
stock authorized by Hudson City Bancorp's Certificate of Incorporation will
permit Hudson City Bancorp to raise additional equity capital through further
sales of securities and to issue securities in connection with possible
acquisitions, subject to market conditions and any required regulatory approval
of an offering. Hudson City Bancorp currently has no plans with respect to
additional offerings of securities. Following the reorganization, Hudson City
Bancorp intends to use stock-related incentive programs to attract and retain
executive and other personnel for itself and its subsidiaries. See "Management."
The mutual holding company form of organization will provide additional
flexibility to diversify Hudson City Savings' business activities through
newly-formed subsidiaries, or through acquisitions of, or mergers with, both
mutual and stock savings institutions, as well as other companies. Although
there are no current arrangements, understandings or agreements, written or
oral, regarding any such opportunities, Hudson City Bancorp will be in a
position after the
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reorganization to take advantage of any such favorable opportunities that may
arise. See "How We Intend to Use the Proceeds from the Offering" for a
description of our intended use of proceeds.
While there are benefits associated with the mutual holding company form of
organization, this form of organization involves additional costs associated
with its maintenance and regulation, including additional administrative
expenses, taxes and regulatory filings or examination fees.
After considering the advantages and disadvantages of the reorganization,
as well as applicable fiduciary duties, the Board of Managers of Hudson City
Savings unanimously approved the reorganization as being in the best interests
of Hudson City Savings, its depositors and the communities it serves.
EFFECTS OF THE REORGANIZATION
General. Each depositor in a mutual savings bank has both a deposit account
in the institution and a pro rata ownership interest in the equity of the
savings institution based upon the balance in the depositor's account. This
interest may only be realized in the event of a liquidation of the savings
institution. However, this ownership interest is tied to the depositor's account
and has no tangible market value separate from such deposit account. Any
depositor who opens a deposit account obtains a pro rata ownership interest in
the equity of the institution without any additional payment beyond the amount
of the deposit. A depositor who reduces or closes such depositor's account
receives the balance in the account but receives nothing for such depositor's
ownership interest in the equity of the institution, which is lost to the extent
that the balance in the account is reduced. Consequently, depositors of a mutual
savings bank have no way to realize the value of their ownership interest,
except in the unlikely event that the mutual savings bank is liquidated. In such
event, the depositors of record at that time would share pro rata in any
residual surplus and reserves after other claims, including claims of depositors
to the amounts of their deposits, are paid.
When a mutual savings bank converts to stock form, permanent
non-withdrawable capital stock is created to represent the ownership of the
institution's equity and the former pro rata ownership of depositors is
thereafter represented exclusively by their liquidation rights. SUCH CAPITAL
STOCK IS SEPARATE AND APART FROM DEPOSIT ACCOUNTS AND CANNOT BE AND IS NOT
INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY. Certificates are issued to
evidence ownership of the capital stock sold in connection with the
reorganization. The stock certificates are transferable, and, therefore, the
stock may be sold or traded with no effect on any deposit account the seller may
hold in the institution.
Continuity. While the reorganization is being accomplished, and after
completion of the reorganization, the routine business of Hudson City Savings of
accepting deposits and making loans will continue without interruption. Hudson
City Savings will continue to be subject to regulation by the Commissioner and
the FDIC. After the reorganization, Hudson City Savings will continue to provide
services for depositors and borrowers under current policies by its management
and staff.
The Board of Managers serving Hudson City Savings immediately before the
reorganization will serve as directors of Hudson City Savings after the
reorganization. The directors of Hudson City Bancorp and Hudson City, MHC will
consist of all of the individuals
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currently serving on the Board of Managers of Hudson City Savings. We anticipate
that all officers of Hudson City Savings serving immediately before the
reorganization will retain their positions after the reorganization. See
"Management."
Deposit Accounts and Loans. Under the plan of reorganization, each
depositor in Hudson City Savings at the time of the reorganization will
automatically continue as a depositor after the reorganization. Each deposit
account will remain the same with respect to deposit balance, interest rate and
other terms, except to the extent affected by withdrawals made to purchase
common stock in the offering. See "-- Procedure for Purchasing Shares in
Subscription and Community Offerings." Each deposit account will be insured by
the FDIC to the same extent as before the reorganization (i.e., up to $100,000
per depositor). Depositors will continue to hold their existing certificates of
deposit, passbooks and other evidences of their accounts.
Furthermore, no loan outstanding from Hudson City Savings will be affected
by the reorganization, and the amount, interest rate, maturity and security for
each loan will remain as they were contractually fixed prior to the
reorganization.
Voting Rights of Depositors. Voting rights and control of Hudson City
Savings, as a mutual savings bank, are vested in the Board of Managers. After
the reorganization, direction of Hudson City Savings will be under the control
of the Board of Directors of Hudson City Savings. Hudson City Bancorp, as the
holder of all of the outstanding common stock of Hudson City Savings, will have
exclusive voting rights with respect to any matters concerning Hudson City
Savings requiring stockholder approval, including the election of directors of
Hudson City Savings.
After the reorganization, the holders of the common stock of Hudson City
Bancorp will have exclusive voting rights with respect to any matters concerning
Hudson City Bancorp. These voting rights will be exclusive except to the extent
Hudson City Bancorp in the future issues preferred stock with voting rights.
Each holder of common stock will be entitled to vote on any matters to be
considered by Hudson City Bancorp's stockholders, including the election of
directors of Hudson City Bancorp, subject to the restrictions and limitations
set forth in Hudson City Bancorp's Certificate of Incorporation discussed below.
By virtue of its ownership of a majority of the outstanding shares of
common stock, Hudson City, MHC will be able to elect all members of the Board of
Directors of Hudson City Bancorp and generally will be able to control the
outcome of most matters presented to the stockholders of Hudson City Bancorp for
resolution by vote. However, current regulations and regulatory policies require
that adoption of a stock option plan, restricted stock plan (such as a
management recognition plan) or second step conversion of Hudson City, MHC be
approved by a majority vote of the shares held by the public stockholders (i.e.,
all stockholders except Hudson City, MHC).
Hudson City, MHC will be controlled by its Board of Directors, which will
initially consist of the current managers of Hudson City Savings. Under the
mutual form of ownership, existing directors elect new directors, which can
perpetuate existing management and control of Hudson City, MHC, and thereby
Hudson City Bancorp and Hudson City Savings.
Depositors' Rights if We Liquidate; Liquidation Account. In the unlikely
event of a complete liquidation of Hudson City Savings in its current mutual
form, each depositor would receive a pro rata share of any assets of Hudson City
Savings remaining after payment of claims of all creditors (including the claims
of all depositors to the withdrawable value of their accounts).
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Each depositor's pro rata share of such liquidating distribution would be in the
same proportion as the value of such depositor's deposit account was to the
total value of all deposit accounts in Hudson City Savings at the time of
liquidation.
Upon a complete liquidation of Hudson City Savings after the
reorganization, each depositor would have a claim as a creditor of the same
general priority as the claims of all other general creditors of Hudson City
Savings. However, except as described below, a depositor's claim would be solely
for the amount of the balance in such depositor's deposit account plus accrued
interest. Such depositor would not have an interest in the value or assets of
Hudson City Savings above that amount. Instead, the holder of Hudson City
Savings' common stock (i.e., Hudson City Bancorp) would be entitled to any
assets remaining upon a liquidation of Hudson City Savings.
The plan of reorganization provides for the establishment, upon the
completion of the reorganization, of a special "liquidation account" for the
benefit of eligible account holders and supplemental eligible account holders in
an amount equal to the net worth of Hudson City Savings as of the date of its
latest balance sheet contained in this prospectus. Upon a complete liquidation
of Hudson City Savings after the reorganization, each eligible account holder
and supplemental eligible account holder, who continues to maintain such account
holder's deposit account at Hudson City Savings, would be entitled to an
interest in the liquidation account prior to any payment to the holders of
Hudson City Savings' capital stock. Each eligible account holder and
supplemental eligible account holder will have a pro rata interest in the total
liquidation account for the account holder's deposit accounts based on the
proportion that the aggregate balance of such person's qualifying deposit
accounts on December 31, 1997 (the eligibility record date) and March 31, 1999
(the supplemental eligibility record date), as applicable, bore to the aggregate
balance of all qualifying deposit accounts of all eligible account holders and
supplemental eligible account holders. For this purpose, qualifying deposit
accounts include all savings, time, demand, negotiable orders of withdrawal
(NOW), money market and passbook accounts maintained at Hudson City Savings
(excluding any escrow accounts).
If, however, on any annual closing date (i.e., the end of any period for
which Hudson City Savings has prepared audited financial statements subsequent
to the eligibility record date or supplemental eligibility record date, as
applicable) of Hudson City Savings, commencing on or after the effective date of
the reorganization, the amount in any deposit account is less than the amount in
such deposit account on December 31, 1997 (with respect to an eligible account
holder), or March 31, 1999 (with respect to a supplemental eligible account
holder) or any other annual closing date, then the interest in the liquidation
account relating to the deposit account would be reduced from time to time by
the proportion of any such reduction, and such interest will cease to exist if
such deposit account is closed. For purposes of the liquidation account, time
deposit accounts will be deemed to be closed upon maturity regardless of
renewal. In addition, no interest in the liquidation account would ever be
increased despite any subsequent increase in the related deposit account.
Any assets remaining after the above liquidation rights of eligible account
holders and supplemental eligible account holders are satisfied would be
distributed to Hudson City Bancorp as the sole stockholder of Hudson City
Savings.
Upon a complete liquidation of Hudson City Bancorp, each holder of shares
of the common stock of Hudson City Bancorp, including Hudson City, MHC, would be
entitled to receive a pro rata share of Hudson City Bancorp's assets, following
payment of all debts,
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liabilities and claims of greater priority of or against Hudson City Bancorp
including the rights of depositors in the liquidation account of Hudson City
Savings, if any.
If liquidation of Hudson City, MHC occurs following completion of the
reorganization, all depositors of Hudson City Savings at that time will be
entitled, pro rata to the value of their deposit accounts, to a distribution of
any assets of Hudson City, MHC remaining after payment of all debts and claims
of creditors.
Tax Aspects. The reorganization may be effected in any manner approved by
the Commissioner that is consistent with the purposes of the plan of
reorganization and applicable law, regulations and policies. However, Hudson
City Savings intends to consummate the reorganization using a series of
transactions as described below. This structure enables Hudson City Savings to
retain all of its historical tax attributes and produces significant savings to
Hudson City Savings because it simplifies regulatory approvals and conditions
associated with the completion of the reorganization.
The merger structure will be accomplished as follows:
(1) Hudson City Savings will organize Hudson City, MHC initially as an
interim New Jersey stock savings bank as its wholly owned subsidiary;
(2) Hudson City, MHC will organize a capital stock corporation under
Delaware law (i.e., Hudson City Bancorp) as Hudson City Savings'
wholly owned subsidiary that will subsequently hold 100% of Hudson
City Savings' common stock;
(3) Hudson City, MHC will also organize an interim New Jersey stock
savings bank as its wholly owned subsidiary ("Interim"). The following
transactions will then occur simultaneously;
(4) Hudson City Savings will exchange its charter for a New Jersey stock
savings bank charter (the "conversion");
(5) Hudson City, MHC (while in its stock form) will cancel its outstanding
stock and exchange its charter for a New Jersey mutual savings bank
holding company charter;
(6) Interim will merge with and into Hudson City Savings with Hudson City
Savings being the surviving institution; and
(7) the initially issued stock of Hudson City Savings (which will be
constructively received by former Hudson City Savings depositors when
Hudson City Savings becomes a stock savings bank pursuant to step (4))
will be issued to Hudson City, MHC in exchange for liquidation
interests in Hudson City, MHC which will be held by Hudson City
Savings' depositors.
Hudson City, MHC will then contribute 100% of the stock of Hudson City Savings
to Hudson City Bancorp, which is a wholly owned subsidiary of Hudson City, MHC.
Hudson City Bancorp will concurrently offer for sale 47% of its common stock
pursuant to the plan of reorganization. As a result of these transactions, (a)
Hudson City Savings will be a wholly owned subsidiary of Hudson City Bancorp;
(b) Hudson City Bancorp will be a majority owned subsidiary of Hudson
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City, MHC; and (c) the depositors of Hudson City Savings will hold liquidation
interests in Hudson City, MHC.
Under this structure: (i) the conversion is intended to be a tax-free
reorganization under Code section 368(a)(1)(F); and (ii) the exchange of the
shares of Hudson City Savings' initial common stock deemed constructively
received by depositors for liquidation interests in Hudson City, MHC is intended
to be a tax-free exchange under Code section 351.
Under the plan of reorganization, consummation of the reorganization is
conditioned upon, among other things, the prior receipt by Hudson City Savings
of either a private letter ruling from the IRS and from the New Jersey taxing
authorities or an opinion of Hudson City Savings' counsel as to the federal
income tax consequences and from KPMG LLP as to the New Jersey income tax
consequences of the reorganization to Hudson City Savings' (in both its mutual
and stock form), Hudson City Bancorp and the eligible account holders and
supplemental account holders. In Revenue Procedure 96-3, 1996-1 I.R.B. 82, the
IRS announced that it will not rule on whether a transaction qualifies as a
tax-free reorganization under Code section 368(a)(1)(F) or as a tax-free
exchange of stock for stock in the formation of a holding company under Code
section 351, but that it will rule on significant sub-issues that must be
resolved to determine whether the transaction qualifies under either of these
Code sections.
Based in part upon certain representations of Hudson City Savings or its
officers, Thacher Proffitt & Wood has issued its opinion regarding certain
federal income tax consequences of the reorganization. Hudson City Savings has
requested a private letter ruling from the IRS regarding certain significant
sub-issues associated with the reorganization.
In the following discussion, "Mutual Bank" refers to Hudson City Savings
before the reorganization and "Stock Bank" refers to Hudson City Savings after
the reorganization.
With regard to the reorganization, Thacher Proffitt & Wood has issued its
opinion to the effect that:
(1) the conversion will constitute a "reorganization" under Code section
368(a)(1)(F), and Hudson City Savings (in either its status as Mutual
Bank or Stock Bank) will recognize no gain or loss as a result of the
conversion;
(2) the basis of each asset of Mutual Bank received by Stock Bank in the
conversion will be the same as Mutual Bank's basis for such asset
immediately prior to the conversion;
(3) the holding period of each asset of Mutual Bank received by Stock Bank
in the reorganization will include the period during which such asset
was held by Mutual Bank prior to the conversion;
(4) For purposes of Code section 381(b), Stock Bank will be treated as if
there had been no conversion and, accordingly, the taxable year of the
Mutual Bank will not end on the effective date of the conversion and
the tax attributes of Mutual Bank (subject to application of Code
sections 381, 382, and 384), including Mutual Bank's tax bad debt
reserves and
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earnings and profits, will be taken into account by Stock Bank as if
the conversion had not occurred;
(5) Mutual Bank's depositors will recognize no gain or loss upon their
constructive receipt of shares of Stock Bank common stock solely in
exchange for their interest (i.e., liquidation rights) in Mutual Bank;
(6) no gain or loss will be recognized by the depositors of Hudson City
Savings (formerly Mutual Bank) upon the transfer to Hudson City, MHC
of shares of Stock Bank common stock they constructively received in
the conversion in exchange for interests (i.e., liquidation rights) in
Hudson City, MHC; and
(7) no gain or loss will be recognized by depositors of Mutual Bank upon
the issuance to them of deposits in Stock Bank in the same dollar
amount as their deposits in the Mutual Bank.
Unlike private rulings of the IRS, an opinion of counsel is not binding on
the IRS and the IRS could disagree with conclusions reached in the opinion. If
there is a disagreement, we cannot guarantee that the IRS would not prevail in
a judicial or administrative proceeding.
KPMG LLP intends to opine, subject to the limitations and qualifications in
its opinion, that, for purposes of the New Jersey corporate income tax, the
reorganization will not become a taxable transaction to Hudson City Savings (in
either its status as Mutual Bank or Stock Bank), Hudson City, MHC, Hudson City
Bancorp, the stockholders of Hudson City Bancorp or the depositors of Hudson
City Savings.
Accounting Consequences. The reorganization will be accounted for in a
manner similar to a pooling-of-interests under generally accepted accounting
principles. Accordingly, the carrying value of our assets, liabilities, and
capital will be unaffected by the reorganization and will be reflected in Hudson
City Bancorp's and Hudson City Savings' consolidated financial statements based
on their historical amounts.
HOW WE DETERMINED THE OFFERING RANGE AND THE $10.00 PRICE PER SHARE
The plan of reorganization requires that the purchase price of the common
stock must be based on the appraised pro forma market value of the common stock,
as determined on the basis of an independent valuation. Hudson City Savings and
Hudson City Bancorp have retained RP Financial to make the independent
valuation. RP Financial's fees for its services in making such appraisal are
estimated to be $125,000. Hudson City Savings and Hudson City Bancorp will
indemnify RP Financial and its employees and affiliates against losses
(including any losses in connection with claims under the federal securities
laws) arising out of its services as appraiser, except where RP Financial's
liability results from its negligence or bad faith.
An appraisal has been made by RP Financial in reliance upon the information
contained in this prospectus, including the financial statements. RP Financial
also considered the following factors, among others:
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- the present and projected operating results and financial condition of
Hudson City Bancorp and Hudson City Savings, and the economic and
demographic conditions in Hudson City Savings' existing market area;
- historical, financial and other information relating to Hudson City
Savings;
- a comparative evaluation of the operating and financial statistics of
Hudson City Savings with those of other similarly situated publicly
traded mutual holding companies, savings associations and savings
institutions located in Hudson City Savings' existing market area;
- the aggregate size of the offering of the common stock;
- the impact of the reorganization on Hudson City Savings' equity and
earnings potential;
- the proposed dividend policy of Hudson City Bancorp and Hudson City
Savings; and
- the trading market for securities of comparable institutions and
general conditions in the market for such securities.
Two of the factors that RP Financial considered in determining our market
value were the price-to-book ratio and the price-to-earnings ratio or P/E ratio.
The price-to-book ratio represents the price per share of stock divided by its
book value or equity per share. The P/E ratio represents the price per share of
stock divided by earnings or net income per share. RP Financial also considered
our P/E ratio and our price-to-book ratio on a fully converted basis, which is a
common standard used for evaluating the pricing of mutual holding companies.
On the basis of the foregoing, RP Financial has advised Hudson City Bancorp
and Hudson City Savings that, in its opinion, dated as of April 16, 1999, the
estimated pro forma market value of the common stock on a fully converted basis
ranged from a minimum of $1.06 billion to a maximum of $1.44 billion with a
midpoint of $1.25 billion (the "estimated valuation range").
The board of managers of Hudson City Savings held meetings to review and
discuss the original appraisal report prepared by RP Financial. Representatives
of RP Financial participated in the meeting to explain the contents of the
appraisal report. The board of managers reviewed the methods that RP Financial
used to determine the pro forma market value of the common stock and the
appropriateness of the assumptions that RP Financial used in determining this
value. The board of managers determined that 47% of the shares to be issued by
Hudson City Bancorp will be offered to the public. In addition the
board of managers determined that the common stock will be sold at $10.00 per
share, which is the price most commonly used in stock offerings involving
converting and reorganizing savings institutions.
The board of managers established an offering range of $499.4 million to
$675.6 million, with a midpoint of $587.5 million. Hudson City Bancorp expects
to issue between 49,937,500 and 67,562,500 shares of common stock. The offering
range takes into account that Hudson City
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Savings must be a majority-owned subsidiary of Hudson City Bancorp or Hudson
City, MHC as long as Hudson City, MHC is in existence. The estimated valuation
range and the offering range may be amended with the approval of the
Commissioner and FDIC (if required), due to subsequent developments in the
financial condition of Hudson City Savings or market
conditions generally.
The valuation prepared by RP Financial is not intended, and must not be
construed, as a recommendation of any kind as to the advisability of purchasing
common stock. RP Financial did not independently verify the financial statements
and other information provided by Hudson City Savings, nor did RP Financial
value independently the assets or liabilities of Hudson City Savings. The
valuation considers Hudson City Savings as a going concern and should not be
considered as an indication of the liquidation value of Hudson City Savings.
Moreover, because such valuation is necessarily based upon estimates and
projections of a number of matters, all of which are subject to change from time
to time, no assurance can be given that persons purchasing such shares in the
reorganization will thereafter be able to sell such shares at prices at or above
the purchase price.
The maximum of the estimated valuation range may be increased up to 15% and
the number of shares of common stock to be issued in the reorganization may be
increased to 77,696,875 shares due to regulatory considerations, changes in the
market and general financial and economic conditions without the resolicitation
of subscribers. See "-- Limitations on Common Stock Purchases" as to the method
of distribution and allocation of additional shares that may be issued in the
event of an increase in the estimated valuation range to fill unfilled orders in
the subscription and community offerings.
We may not sell any shares of common stock unless RP Financial confirms to
Hudson City Savings, Hudson City Bancorp, the Commissioner and the FDIC that, to
the best of its knowledge, nothing of a material nature has occurred which,
taking into account all relevant factors, would cause RP Financial to conclude
that the aggregate value of the common stock is incompatible with its estimate
of the pro forma market value of the common stock at the conclusion of the
offering.
If RP Financial confirms at the conclusion of the offering that, the pro
forma market value of the common stock, is not more than the maximum and not
less than the minimum of the estimated valuation range then, with the approval
of the Commissioner and the FDIC, the number of shares of common stock to be
issued in the offering will be not more than 67,562,500 shares and not less than
49,937,500 shares. If RP Financial concludes that the pro forma market value of
the common stock is greater than the maximum of the estimated valuation range
but not more than 15% above the maximum of the estimated valuation range, then
the number of shares of common stock to be issued may be increased to not more
than 77,696,875 shares. In addition, all shares purchased in the offering will
be purchased for the purchase price of $10.00 per share. If the number of shares
issued in the reorganization is increased due to an increase of up to 15% in the
estimated valuation range to reflect changes in market or financial conditions,
persons who subscribed for the maximum number of shares will not be given the
opportunity to subscribe for any additional shares. See "-- Limitations on
Common Stock Purchases."
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If RP Financial concludes that the pro forma market value of the common
stock is either more than 15% above the maximum of the estimated valuation range
or less than the minimum of the estimated valuation range, Hudson City Savings
and Hudson City Bancorp, after consulting with the Commissioner and the FDIC,
may:
(1) terminate the Plan, cancel account withdrawal authorizations and
return all funds promptly with interest at Hudson City Savings'
passbook rate of interest on payments made by check, bank check or
money order;
(2) establish a new estimated valuation range and either;
(a) hold new subscription and community offerings; or
(b) provide subscribers the opportunity to change or cancel their
orders (a "resolicitation"); or
(3) take such other actions as permitted by the Commissioner and the FDIC
in order to complete the reorganization.
If a resolicitation is commenced, unless an affirmative response is received
from a subscriber within a designated period of time, all funds will be promptly
returned to the subscriber as described above.
An increase in the number of shares to be issued in the reorganization as a
result of an increase in the estimated pro forma market value of common stock
would decrease both a subscriber's ownership interest and Hudson City Bancorp's
pro forma net earnings and stockholders' equity on a per share basis while
increasing pro forma net earnings and stockholders' equity on an aggregate
basis. A decrease in the number of shares to be issued in the reorganization
would increase both a subscriber's ownership interest and Hudson City Bancorp's
pro forma net earnings and stockholders' equity on a per share basis while
decreasing pro forma net earnings and stockholders' equity on an aggregate
basis. For a presentation of the effects of such changes see "Pro Forma Data."
If all shares of common stock are not sold through the subscription and
community offerings, then Hudson City Savings and Hudson City Bancorp may
offer the remaining shares in a syndicated community offering, which would
commence during or just after the community offering. See "-- Syndicated
Community Offering."
Copies of the appraisal report of RP Financial, including any amendments
thereto, and the detailed memorandum of the appraiser setting forth the method
and assumptions for such appraisal are available for inspection at the main
office of Hudson City Savings and the other locations specified under "Where You
Can Find Additional Information."
SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS
In accordance with the plan of reorganization, rights to subscribe for
common stock have been granted under the plan of reorganization to the following
persons in the following order of priority:
(1) depositors with deposits in Hudson City Savings with balances
aggregating $100 or more ("qualifying deposits") as of December 31,
1997 ("eligible account
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holders"); for this purpose, deposit accounts include all savings,
time, demand, negotiable orders of withdrawal (NOW), money market and
passbook accounts maintained at Hudson City Savings (excluding any
escrow accounts);
(2) tax-qualified employee benefit plans of Hudson City Bancorp, Hudson
City Savings or Hudson City, MHC, including the employee stock
ownership plan;
(3) depositors with qualifying deposits in Hudson City Savings on March
31, 1999, other than (i) those depositors who would otherwise qualify
as eligible account holders or (ii) managers or executive officers of
Hudson City Savings or their associates ("supplemental eligible
account holders").
All subscriptions received will be subject to the availability of common stock
after satisfaction of all subscriptions of all persons having prior rights in
the subscription offering and to the maximum and minimum purchase limitations
set forth in the plan of reorganization and as described below under "--
Limitations on Common Stock Purchases."
Priority 1: Eligible Account Holders. Each eligible account holder will
receive, as first priority and without payment therefor, non-transferable rights
to subscribe for shares of common stock in the subscription offering.
Subscriptions by eligible account holders are subject to maximum and minimum
purchase limitations. See "-- Limitations on Common Stock Purchases."
If there are not sufficient shares available to satisfy all subscriptions,
shares first will be allocated so as to permit each subscribing eligible account
holder to purchase a number of shares sufficient to make such eligible account
holder's total allocation equal to the lesser of 100 shares or the number of
shares subscribed for. Thereafter, unallocated shares will be allocated among
the remaining subscribing eligible account holders whose subscriptions remain
unfilled in the proportion that the amounts of their respective aggregate
qualifying deposits bear to the total amount of qualifying deposits of all
remaining eligible account holders whose subscriptions remain unfilled. However,
no fractional shares shall be issued.
To ensure a proper allocation of stock, each eligible account holder must
list on his or her stock order form all deposit accounts in which such eligible
account holder had an ownership interest at December 31, 1997. Failure to list
an account could result in fewer shares being allocated than if all accounts had
been disclosed. The subscription rights of eligible account holders who are also
managers or executive officers of Hudson City Savings or their associates will
be subordinated to the subscription rights of other eligible account holders to
the extent attributable to increased deposits in the one-year period preceding
December 31, 1997.
Priority 2: The Tax-Qualified Employee Benefit Plans. To the extent that
there are sufficient shares remaining after satisfaction of the subscriptions by
eligible account holders, the tax-qualified employee benefit plans, including
the employee stock ownership plan, will receive, as a second priority and
without payment therefor, non-transferable subscription rights to purchase up to
10% of the common stock to be issued in the offering. As a tax-qualified
employee benefit plan, the employee stock ownership plan may purchase up to 8%
of the shares to be issued in the offering, or 3,995,000 shares, based on the
issuance of 49,937,500 shares at the minimum of the offering range or 5,405,000
shares based on the issuance of 67,562,500 at the maximum of the offering range.
Subscriptions by the employee stock ownership plan will not be aggregated with
shares of common stock purchased directly by or which are otherwise attributable
to any other
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participants in the subscription and community offerings, including
subscriptions of any of Hudson City Savings' managers, officers, employees or
associates thereof. To the extent the employee stock ownership plan does not
purchase shares in the offering,
this plan intends to purchase shares in private transactions or on the open
market after completion of the offering. See "Management -- Benefit Plans --
Employee Stock Ownership Plan."
Priority 3: Supplemental Eligible Account Holders. Each supplemental
eligible account holder will receive, as a third priority and without payment
therefor, non-transferable rights to subscribe for shares of common stock in the
subscription offering. Subscriptions by supplemental eligible account holders
are subject to maximum and minimum purchase limitations. See "--Limitations on
Common Stock Purchases."
If there are not sufficient shares available to satisfy all subscriptions
of all supplemental eligible account holders, after purchases by eligible
account holders and the tax-qualified employee benefit plans, available shares
first will be allocated among subscribing supplemental eligible account holders
so as to permit each supplemental eligible account holder to purchase a number
of shares sufficient to make such supplemental eligible account holder's total
allocation equal to the lesser of 100 shares or the number of shares subscribed
for. Thereafter, unallocated shares will be allocated among the remaining
subscribing supplemental eligible account holders whose subscriptions remain
unfilled in the proportion that the amounts of their respective aggregate
qualifying deposits bear to the total amount of qualifying deposits of all
remaining supplemental eligible account holders whose subscriptions remain
unfilled. However, no fractional shares shall be issued.
To ensure a proper allocation of stock, each supplemental eligible account
holder must list on his or her stock order form all deposit accounts in which
such supplemental eligible account holder had an ownership interest at March 31,
1999. Failure to list an account could result in fewer shares being allocated
than if all accounts had been disclosed.
Expiration Date for the Subscription Offering. The subscription offering
will expire at 10:00 a.m., Eastern Time, on [ ], 1999, unless we extend this
period for an initial period of up to 45 days. We may further extend this period
for additional 60 day periods with the approval of the Commissioner and, if
necessary, the FDIC. Subscription rights which have not been exercised prior to
the expiration date, as extended, will become void.
If all shares have not been subscribed for or sold by the expiration date,
as extended, all funds delivered to Hudson City Savings will be returned with
interest promptly to the subscribers and all withdrawal authorizations will be
canceled. If an extension beyond the 45-day period following the [ ], 1999 is
granted, Hudson City Savings will notify subscribers of the extension of time
and of any rights of subscribers to change or cancel their orders. Each
extension may not exceed 60 days, and all extensions, in the aggregate, may not
last beyond [ ].
Persons in Non-qualified States or Foreign Countries. Hudson City Bancorp
and Hudson City Savings will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons entitled to
subscribe for stock pursuant to the plan of reorganization reside. However,
Hudson City Savings and Hudson City Bancorp will not offer stock in
the offering to any person who resides in a foreign country. Neither Hudson
City Savings nor Hudson City Bancorp will make any payment instead of granting
subscription rights to any depositors residing in foreign countries.
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COMMUNITY OFFERING
To the extent that shares remain available for purchase after satisfaction
of all subscriptions received in the subscription offering, Hudson City Savings
may offer shares pursuant to the plan of reorganization in the community
offering to the following persons in the following order of priority:
(1) depositors in Hudson City Savings (other than an eligible account
holders or supplemental eligible account holders) with balances
aggregating $100 or more on April 30, 1999 (we refer to this group as
"other depositors");
(2) natural persons who are "residents" of New Jersey, which definition
includes persons who occupy a dwelling within New Jersey and establish
an ongoing physical presence within the State, together with an
indication that such presence is not merely transitory in nature;
(3) other persons, such as corporations, partnership and trusts, that are
residents of New Jersey;
(4) other persons to whom we deliver a prospectus.
The determination of resident status will be made by Hudson City Savings,
in its sole discretion. Orders received in the community offering are subject to
maximum and minimum purchase limitations. See "-- Limitations on Common Stock
Purchases." The community offering shall commence concurrently with or
subsequent to the commencement of the subscription offering and shall terminate
no later than 45 days after the expiration of the subscription offering unless
extended by Hudson City Savings and Hudson City Bancorp, with the approval of
the Commissioner and the FDIC, if necessary.
The opportunity to subscribe for shares of common stock in the community
offering category is subject to the right of Hudson City Savings and Hudson City
Bancorp, in their discretion, to accept or reject any such orders in whole or in
part either at the time of receipt of an order or as soon as practicable
following the expiration date. If Hudson City Bancorp rejects a subscription in
part, the subscriber will not have the right to cancel the remainder of his or
her subscription.
In offering the unsubscribed for shares to the public in the community
offering, Hudson City Bancorp and Hudson City Savings may initially reserve
shares of common stock for sale to institutional investors, who need not be
other depositors or residents of New Jersey, up to the lesser of (1) 25% of the
shares we sell in the offering or (2) the number of shares not subscribed for in
the subscription offering or by "other depositors" in the community offering.
These institutional investors may purchase the reserved shares only after all
orders of other depositors have been filled.
If there is an oversubscription for shares in the community offering,
shares will be allocated on a priority basis in the following order: other
depositors of Hudson City Savings, institutional investors, natural persons who
are residents of New Jersey other persons, such as corporations, partnerships
and trusts that are residents of New Jersey and other members of the general
public. If an oversubscription occurs in the other depositors category, shares
will be allocated first to each subscriber whose order is accepted by Hudson
City Savings in an amount equal to the lesser of 100 shares or the number of
shares subscribed for by each such subscriber, if possible. Thereafter, we will
allocate the unallocated shares among such subscribers whose order remains
unsatisfied on a pro rata basis, based on order size, until the remaining shares
have been allocated. If an
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oversubscription occurs among residents of New Jersey, allocation of shares will
be made in the same manner as for other depositors.
MARKETING AND UNDERWRITING ARRANGEMENTS
Ryan, Beck & Co., Inc. Hudson City Savings, Hudson City Bancorp and Hudson
City, MHC have engaged Ryan, Beck & Co., Inc. as a financial and marketing
advisor in connection with the offering of the common stock. Ryan, Beck has
agreed to use its best efforts to assist Hudson City Bancorp with the
solicitation of subscriptions and orders for shares of common stock in the
offering. Ryan, Beck has also agreed to assist with the solicitation of votes
for the special meeting of depositors.
Ryan, Beck will receive, as compensation, an advisory and management fee of
$150,000. Ryan, Beck will also receive fees for services provided in connection
with the offering equal to 1.20% of the aggregate purchase price of common stock
sold in the subscription offering and community offering. No fees will be paid
to Ryan, Beck with respect to any shares of common stock purchased by any
manager, manager emeritus, director, executive officer or employee of Hudson
City Savings or Hudson City Bancorp or members of their immediate families or
the ESOP. If there is a syndicated community offering, we will pay Ryan, Beck a
management fee equal to 1.20% of the aggregate purchase price of common stock
sold in the syndicated community offering. However, the aggregate fees payable
to Ryan, Beck and any selected dealers in connection with any syndicated
community offering will not exceed 6.00% of the aggregate purchase price of the
common stock sold in the syndicated community offering. Ryan, Beck will also be
reimbursed for its reasonable out-of-pocket expenses, including legal fees of up
to $125,000 and non-legal expenses up to a maximum of $50,000.
If the event the offering is not consummated by December 31, 1999 or Ryan,
Beck ceases, under certain circumstances, to provide assistance to Hudson City
Bancorp, Ryan, Beck will be entitled to the $150,000 advisory and management fee
and reimbursement for its reasonable out-of-pocket expenses as described above.
Hudson City Bancorp and Hudson City Savings have agreed to indemnify Ryan, Beck
for costs and expenses in connection with certain claims or liabilities related
to or arising out of the services to be provided by Ryan, Beck pursuant to its
engagement by Hudson City Savings and Hudson City Bancorp as financial advisor
in connection with the reorganization, including certain liabilities under the
Securities Act. Total fees to Ryan, Beck are estimated to be $5.4 million and
$7.4 million at the minimum and the maximum of the offering range, respectively.
See "Pro Forma Data" for the assumptions used to arrive at these estimates.
Directors and Employees. Directors, managers and executive officers of
Hudson City Bancorp and Hudson City Savings may participate in the solicitation
of offers to purchase common stock. Other employees of Hudson City Savings may
participate in the offering in ministerial capacities or provide clerical work
in effecting a sales transaction. Such other employees have been instructed not
to solicit offers to purchase common stock or provide advice regarding the
purchase of common stock. Hudson City Bancorp will rely on Rule 3a4-1 under the
Exchange Act, and sales of common stock will be conducted within the
requirements of Rule 3a4-1, so as to permit officers, managers, directors and
employees to participate in the sale of common stock. No officer, manager,
director or employee of Hudson City Bancorp or Hudson City Savings will be
compensated in connection with his or her participation by the payment of
commissions or other remuneration based either directly or indirectly on
transactions in common stock.
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PROCEDURE FOR PURCHASING SHARES IN SUBSCRIPTION AND COMMUNITY OFFERINGS
Use of Order Forms. To purchase shares in the subscription offering and the
community offering, an executed order form with the required payment for each
share subscribed for, or with appropriate authorization for withdrawal from a
subscriber's deposit account at Hudson City Savings (which may be given by
completing the appropriate sections in the stock order form), must be received
by Hudson City Savings by 10:00 a.m., Eastern Time, on the [ ], 1999. You
must submit your order form by mail or overnight courier set forth on the stock
order form. You may not drop off your order forms at any of our branch offices.
Stock order forms which are not received by such time or are executed
defectively or are received without full payment (or correct withdrawal
instructions) are not required to be accepted. In addition, we are not obligated
to accept orders submitted on photocopied or facsimiled order forms. We have the
power to waive or permit the correction of incomplete or improperly executed
forms, but do not represent that we will do so. Once received, an executed order
form may not be modified, amended or rescinded without our consent unless: (1)
the reorganization has not been completed within 45-days after the end of the
subscription offering, unless such 45-day period has been extended or (2)
subscribers are resolicited for any other reason. If we reject part of your
order in the community offering then you may not cancel the remainder of your
subscription.
In order to ensure that eligible account holders, supplemental eligible
account holders and other depositors are properly identified as to their stock
purchase eligibility and priority, depositors must list on the stock order form
all deposit accounts as of the applicable eligibility record date giving all
names in each account and the account numbers.
To ensure that each purchaser receives a prospectus at least 48 hours prior
to the expiration date for the offering, in accordance with Rule 15c2-8 of the
Exchange Act, no prospectus will be mailed later than five days prior to such
date or hand delivered any later than two days prior to such date. Execution of
the stock order form will confirm receipt or delivery in accordance with Rule
15c2-8. Order forms will only be distributed when preceded or accompanied by a
prospectus.
Payment for Shares. Payment for subscriptions may be made by check, bank
check or money order or by authorization of withdrawal from your current Hudson
City Savings savings, club, money market (without check-writing privileges),
savings or certificate of deposit accounts, as specified on the order form.
Retirement accounts and checking or other check-writing accounts may not be
designated for withdrawal. Except as noted below, no cash or wire transfers will
be accepted. Interest will be paid on payments made by check, bank check or
money order at Hudson City Savings' passbook rate of interest from the date
payment is received until the completion or termination of the reorganization.
If payment is made by authorization of withdrawal from deposit accounts, the
funds authorized to be withdrawn will continue to accrue interest at the
contractual rates until completion or termination of the reorganization, but a
hold immediately will be placed on such funds, thereby making them unavailable
to the depositor.
If a subscriber validly authorizes Hudson City Savings to withdraw the
amount of the purchase price from a deposit account at Hudson City Savings, the
withdrawal will be made as of the completion of the reorganization. Hudson City
Savings will waive any applicable penalties
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for early withdrawal from time deposit accounts. If the remaining balance
in a certificate account is reduced below the applicable minimum balance
requirement at the time that the funds actually are transferred under the
authorization, the certificate will be canceled at the time of the withdrawal,
without penalty, and the remaining balance will be converted into a statement
savings account and will earn interest at the passbook rate. If the certificate
account matures and is renewed prior to the termination or completion of the
offering, then the hold will remain in place. If the certificate account matures
but is not renewed prior to the completion of the termination or offering, then
the funds placed on hold will be converted into a statement savings account and
will earn interest at the passbook rate.
Hudson City Bancorp shall have the right, in its sole discretion, to permit
institutional investors to submit irrevocable orders together with a legally
binding commitment for payment and to thereafter pay for the shares of common
stock for which they subscribe in the community offering at any time prior to 48
hours before the completion of the reorganization. This payment may be made by
wire transfer.
The employee stock ownership plan will not be required to pay for the
shares subscribed for at the time it subscribes. Rather, the employee stock
ownership plan may pay for such shares of common stock subscribed for at the
purchase price upon completion of the offering; provided, that there is in force
from the time of its subscription until such time, a loan commitment acceptable
to Hudson City Bancorp from an unrelated financial institution or Hudson City
Bancorp to lend to the employee stock ownership plan the aggregate purchase
price of the shares for which it subscribed. Hudson City Bancorp intends to
provide such a loan to the employee stock ownership plan.
Owners of self-directed Individual Retirement Accounts ("IRAs") may use the
assets of such IRAs to purchase shares of common stock in the subscription and
community offerings, provided that such IRAs are not maintained at Hudson City
Savings. Persons with IRAs maintained at Hudson City Savings must have their
accounts transferred to an unaffiliated institution or broker to purchase shares
of common stock in the subscription and community offerings. In addition, the
provisions of ERISA and IRS regulations require that officers, trustees and ten
percent stockholders who use self-directed IRA funds to purchase shares of
common stock in the subscription and community offerings make such purchases for
the exclusive benefit of the IRAs. Assistance on how to transfer IRAs maintained
at Hudson City Savings can be obtained by calling the Stock Information Center.
Depositors interested in using funds in an IRA to purchase common stock should
contact the Stock Information Center as soon as possible.
Certificates representing shares of common stock purchased will be mailed
to purchasers to the addresses specified in properly completed order forms, as
soon as practicable following completion of the sale of all shares of common
stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
STOCK INFORMATION CENTER
If you have any questions regarding the offering or the reorganization,
please call the Stock Information Center at (800) 541-3187, from 9:00 a.m. to
4:00 p.m., Monday through Friday.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES OF COMMON STOCK
Prior to the completion of the reorganization, regulations prohibit any
person with subscription rights from transferring or entering into any agreement
or understanding to transfer the legal or beneficial ownership of the
subscription rights issued under the plan of reorganization or the shares of
common stock to be issued upon their exercise. Such rights may be exercised only
by the person to whom they are granted and only for such person's account. Each
person exercising such subscription rights will be required to certify that such
person is purchasing shares solely for such person's own account and that such
person has no agreement or understanding regarding the sale or transfer of such
shares. The regulations also prohibit any person from offering or making an
announcement of an offer or an intent to make an offer to purchase such
subscription rights or shares of common stock prior to the completion of the
reorganization.
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Hudson City Savings and Hudson City Bancorp will pursue any and all legal and
equitable remedies (including forfeiture) in the event they become aware of the
transfer of subscription rights and will not honor orders known by them to
involve the transfer of such rights.
SYNDICATED COMMUNITY OFFERING
The plan of reorganization provides that all shares of common stock not
purchased in the subscription offering or the community offering may be offered
for sale to the general public in a syndicated community offering on a best
efforts basis through a selling group of broker-dealers to be arranged by Ryan,
Beck acting as agent of Hudson City Bancorp. Ryan, Beck has not selected any
particular broker-dealers to participate in a syndicated community offering. As
an alternative to a syndicated community offering, Hudson City Bancorp and
Hudson City Savings may instead elect to offer for sale such remaining shares to
or through underwriters in a public offering, as described under "-- Public
Offering Alternative." Neither Ryan, Beck nor any registered broker-dealer shall
have any obligation to take or purchase any shares of the common stock in the
syndicated community offering. However, Ryan, Beck has agreed to use its best
efforts in the sale of shares in any syndicated community offering.
The syndicated community offering will terminate no more than 45 days
following the expiration date, unless extended by Hudson City Bancorp with the
approval of the Commissioner and FDIC. Such extensions may not be beyond [ ].
See "-- Expiration Date for the Subscription Offering" above for a discussion of
rights of subscribers, if any, in the event an extension is granted.
The opportunity to subscribe for shares of common stock in the syndicated
community offering category is subject to the right of Hudson City Savings and
Hudson City Bancorp, in their discretion, to accept or reject any such orders
in whole or in part either at the time of receipt of an order or as soon as
practicable following the expiration date. If Hudson City Bancorp rejects a
subscription in part, the subscriber will not have the right to cancel the
remainder of his or her subscription.
PUBLIC OFFERING ALTERNATIVE
As an alternative to a syndicated community offering, we may offer for sale
shares of common stock not sold in the subscription offering or the community
offering to or through underwriters ("public offering"). Certain provisions
restricting the purchase and transfer of common stock shall not be applicable to
sales to underwriters for purposes of such public offering. Any underwriter
shall agree to purchase such shares from Hudson City Bancorp with a view to
reoffering them to the general public, subject to certain terms and conditions
described in the plan of reorganization. If the public offering is utilized,
then Hudson City Bancorp will amend the Registration Statement, of which this
prospectus is a part, to reflect the specific terms of such public offering
alternative, including, without limitation, the terms of any underwriting
agreements, commission structure and plan of distribution.
LIMITATIONS ON COMMON STOCK PURCHASES
The plan of reorganization includes the following limitations on the number
of shares of common stock which may be purchased during the reorganization:
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(1) The aggregate amount of outstanding common stock of Hudson City
Bancorp owned or controlled by persons other than Hudson City, MHC, at
the close of the offering will not exceed 49% of Hudson City
Bancorp's total outstanding common stock;
(2) No subscription for fewer than 25 shares will be accepted;
(3) Except for the tax-qualified employee benefit plans, the maximum
amount of shares of common stock subscribed for or purchased in all
categories of the offering by any person, together with associates of,
and groups of persons acting in concert with, such persons, shall not
exceed $2,500,000, subject to increase as described below;
(4) Each eligible account holder may subscribe for and purchase common
stock in the subscription offering in an amount up to $500,000,
subject to increase as described below;
(5) The tax-qualified employee benefit plans are permitted to purchase up
to 10% of the shares of common stock issued in the offering and, as a
tax-qualified employee benefit plan, the employee stock ownership plan
intends to purchase up to 8% of the shares of common stock issued in
the offering;
(6) Each supplemental eligible account holder may subscribe for and
purchase common stock in the subscription offering in an amount up to
$500,000, subject to increase as described below;
(7) Each Person purchasing shares of common stock in the community
offering, together with associates of and groups of persons acting in
concert with such person, may purchase common stock in the community
offering in an amount up to $500,000, subject to increase as described
below;
(8) Each person purchasing shares of common stock in the syndicated
community offering, together with associates of and groups of persons
acting in concert with such person, or the public offering (exclusive
of underwriters), may purchase common stock in the syndicated
community offering or the public offering in an amount up to $500,000,
subject to increase as described below; and
(9) The managers and executive officers of Hudson City Savings and their
associates in the aggregate, excluding purchases by the tax-qualified
employee benefit plans, may purchase up to 25% of shares we sell in
the offering.
An eligible account holder or supplemental eligible account holder may not
purchase individually in the subscription offering more than $500,000 of common
stock. An eligible account holder or supplemental eligible account holder,
however, may acquire up to the overall maximum purchase limit of $2,500,000 by
also purchasing in the community offering and the syndicated community offering
or the public offering. The $2,500,000 limitation applies to the individual
purchases in the offering, aggregated with purchases by the person's associates
and those persons acting in concert with the purchaser.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the depositors
of Hudson City Savings, both the $500,000 individual amount permitted to be
subscribed for and the $2.5 million overall maximum
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purchase limitation may be increased up to a maximum of 5% of the shares offered
for sale in the offering, exclusive of an increase in the total number of shares
issued due to an increase in the offering range of up to 15% (i.e., up to
3,378,125 shares), at the sole discretion of Hudson City Bancorp and Hudson City
Savings. It is currently anticipated that the individual and overall maximum
purchase limitations may be increased if, during a community offering, Hudson
City Bancorp has not received subscriptions for an aggregate amount equal to at
least the minimum of the offering range. If the maximum purchase limitations are
increased, subscribers for the maximum amount will be, and certain other large
subscribers in the sole discretion of Hudson City Bancorp and Hudson City
Savings may be, given the opportunity to increase their subscriptions up to the
then applicable limit. Requests to purchase additional shares of common stock
under this provision will be determined by the Board of Directors of Hudson City
Bancorp and the Board of Managers of Hudson City Savings and, if approved,
allocated on a pro rata basis, giving priority in accordance with the priorities
set forth in the plan of reorganization and described herein.
If we sell more than 67,562,500 shares, the additional shares will
allocated in accordance with the priorities and procedures described in
"--Subscription Offering and Subscription Rights" and "--Community Offering."
The term "associate" of a person is defined to mean:
(1) any corporation or organization (other than Hudson City Bancorp,
Hudson City, MHC, Hudson City Savings or a majority-owned subsidiary
of Hudson City Savings) of which such person is an officer or a
general or limited partner or is directly or indirectly, either alone
or with one or more members of his or her immediate family, the
beneficial owner of 10% or more of any class of equity securities;
(2) any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as trustee or in
a similar fiduciary capacity, except that the term "associate" does
not include any employee stock benefit plan maintained by Hudson City
Bancorp or Hudson City Savings in which a person has a substantial
beneficial interest or serves as a trustee or in a similar fiduciary
capacity, and except that, for purposes of aggregating total shares
that may be acquired or held by officers and directors and their
associates; and
(3) any relative or spouse of such person, or any relative of such spouse,
who has the same home as such person or who is a director, manager or
officer of Hudson City Bancorp, Hudson City, MHC or Hudson City
Savings.
We have the sole discretion to determine whether prospective purchasers are
"associates" or "acting in concert."
Managers, directors and officers are not treated as associates of each other
solely by virtue of holding such positions.
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CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER THE REORGANIZATION
All shares of common stock purchased in connection with the reorganization
by a manager, director or an executive officer of Hudson City Savings, Hudson
City, MHC or Hudson City Bancorp, or their associates, will be subject to a
restriction that the shares not be sold for a period of one year following the
reorganization, except in the event of the death or judicial declaration of
incompetence of such director or executive officer. Each certificate for
restricted shares will bear a legend giving notice of this restriction on
transfer, and instructions will be issued to the effect that any transfer within
such time period of any certificate or record ownership of such shares other
than as provided above is a violation of the restriction. Any shares of common
stock issued at a later date as a stock dividend, stock split, or otherwise,
with respect to such restricted stock will be subject to the same restrictions.
The managers, directors and executive officers of Hudson City Bancorp and Hudson
City Savings will also be subject to the federal insider trading rules and any
other applicable requirements of the federal securities laws.
Purchases of outstanding shares of common stock of Hudson City Bancorp by
managers, directors, executive officers of Hudson City Bancorp, Hudson City, MHC
or Hudson City Savings (and any person who was an executive officer or manager
of Hudson City Savings or an executive officer or director of Hudson City, MHC
or Hudson City Bancorp at any time after the date on which the Board of Managers
of Hudson City Savings adopted the plan of reorganization), and their associates
during the three-year period following reorganization may be made only through a
broker or dealer registered with the SEC, except with the prior written approval
of the Commissioner. This restriction does not apply, however, to the purchase
of stock pursuant to (1) the stock option plan or the restricted stock plan to
be established after the reorganization and (2) negotiated transactions
involving more than one percent of the outstanding capital stock of Hudson City
Bancorp.
INTERPRETATION, AMENDMENT AND TERMINATION
All interpretations of the plan of reorganization by the Board of Hudson
City Savings will be final, subject to the authority of the Commissioner and
FDIC. The plan of reorganization provides that, if deemed necessary or desirable
by the Board of Managers of Hudson City Savings, the plan of reorganization may
be substantively amended prior to the solicitation of proxies from depositors by
a vote of the Board of Managers. Amendment of the plan of reorganization
thereafter requires the approval of the Commissioner and the FDIC. The plan of
reorganization will terminate if the sale of all shares of stock being offered
pursuant to the plan of reorganization is not completed within 24 months from
the date of the approval of the plan of reorganization at the special meeting of
the Bank's depositors. The plan of reorganization may be terminated by a vote of
the Board of Managers of Hudson City Savings at any time prior to the special
meeting of depositors, and thereafter by such a vote with the approval of the
Commissioner and the FDIC.
POSSIBLE CONVERSION OF HUDSON CITY, MHC TO STOCK FORM
Federal and state regulations and the plan of reorganization permit Hudson
City, MHC to convert from mutual stock form. Such a transaction is commonly
known as a "second-step conversion". There can be no assurance when, if ever, a
second-step conversion will occur, and the board of managers has no current
intention or plan to undertake a second-step conversion. In a second-step
conversion, Hudson City, MHC would merge with and into Hudson City Savings or
Hudson City Bancorp, with Hudson City Savings or Hudson City Bancorp as the
resulting entity.
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Certain depositors of Hudson City Savings would receive the right to subscribe
for additional shares of the resulting entity. The additional shares of common
stock of the holding company issued in the second step conversion would be sold
at their aggregate pro forma market value.
In a second-step conversion, each share of common stock outstanding
immediately prior to the completion of the second-step conversion held by
persons other than Hudson City, MHC would be automatically converted into and
become the right to receive a number of shares of common stock of Hudson City
Bancorp determined pursuant to an exchange ratio. This exchange ratio would
ensure that after the second-step conversion, subject to the adjustments
described below (if required by the applicable banking regulators) and any
adjustment to reflect the receipt of cash in lieu of fractional shares, the
percentage of the to-be-outstanding shares of the resulting entity issued to
stockholders other than Hudson City, MHC in exchange for their common stock
would be equal to the percentage of the outstanding shares of common stock held
by public stockholders immediately prior to the second-step conversion.
As set forth in the plan of reorganization, the percentage of the
to-be-outstanding shares of the resulting entity issued in exchange for public
shares would be adjusted to reflect (i) the aggregate amount of dividends waived
by Hudson City, MHC, if any, and (ii) the market value of the assets of Hudson
City, MHC, other than common stock of Hudson City Bancorp. Pursuant to this
adjustment, the percentage of the to-be-outstanding shares of the resulting
entity issued to public stockholders in exchange for their minority shares equal
to the percentage of the outstanding shares of common stock held by public
stockholders multiplied by the dividend waiver fraction. The dividend waiver
fraction is equal to the product of (a) a fraction, of which the numerator is
equal to Hudson City Bancorp's stockholders' equity at the time of the
second-step conversion less the aggregate amount of dividends waived by Hudson
City, MHC, and the denominator is equal to Hudson City Bancorp's stockholders'
equity at the time of the second-step conversion, and (b) a fraction, of which
the numerator is equal to the appraised pro forma market value of the resulting
entity in the second-step conversion minus the value of Hudson City, MHC's
assets other than common stock and the denominator is equal to the appraised pro
forma market value of the resulting entity in the second-step conversion.
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RESTRICTIONS ON ACQUISITION OF HUDSON CITY BANCORP
AND HUDSON CITY SAVINGS
GENERAL
The plan of reorganization provides for the conversion of Hudson City
Savings from the mutual to the stock form of organization and the concurrent
formation of a holding company and a mutual holding company. See "The
Reorganization and The Offering -- General." Certain provisions in Hudson City
Bancorp's Certificate of Incorporation and Bylaws and in its benefit plans and
agreements entered into in connection with the reorganization, together with
provisions of the Delaware General Corporation Law (DGCL) and certain governing
regulatory restrictions, may have anti-takeover effects.
MUTUAL HOLDING COMPANY STRUCTURE
The mutual holding company structure will restrict the ability of our
stockholders to effect a change of control of management because, as long as
Hudson City, MHC remains in existence as a mutual savings bank holding company,
it will control a majority of our voting stock. Moreover, the directors of
Hudson City, MHC will be the directors of Hudson City Bancorp and the directors
of Hudson City Savings. Hudson City, MHC will be able to elect all of the
members of the Board of Directors of Hudson City Bancorp, and as a general
matter, will be able to control the outcome of all matters presented to the
stockholders of Hudson City Bancorp for a vote. Therefore, a change in control
of Hudson City Bancorp or Hudson City Savings cannot occur unless Hudson City,
MHC, first converts to the stock form of organization or is dissolved. See "The
Reorganization and The Offering -- Possible Conversion of Hudson City, MHC to
Stock Form."
HUDSON CITY BANCORP'S CERTIFICATE OF INCORPORATION AND BYLAWS
Hudson City Bancorp's Certificate of Incorporation and Bylaws contain a
number of provisions, relating to corporate governance and certain rights of
stockholders, that might discourage future takeover attempts. As a result,
stockholders who might desire to participate in such transactions may not have
an opportunity to do so. In addition, such provisions will also render the
removal of the Board of Directors or management of Hudson City Bancorp more
difficult.
The following description is necessarily general and qualified by reference to
the Certificate of Incorporation and Bylaws. See "Where You Can Find Additional
Information" as to how to obtain a copy of these documents.
Limitation on Voting Rights. The Certificate of Incorporation of Hudson
City Bancorp provides that any person, other than Hudson City, MHC, who
beneficially owns more than 10% of the outstanding common stock shall be allowed
only one one-hundredth (1/100) of a vote with respect of each share held in
excess of such 10%. Beneficial ownership of shares includes shares beneficially
owned by such person or any of his affiliates, shares which such person or his
affiliates have the right to acquire upon the exercise of conversion rights or
options and shares as to which such person and his affiliates have or share
investment or voting power, but shall not
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include shares beneficially owned by the employee stock ownership plan or
shares that are subject to a revocable proxy and that are not otherwise
beneficially owned or deemed by Hudson City Bancorp to be beneficially owned by
such person and his affiliates. This restriction on voting may only be amended
by approval of the Board of Directors and the affirmative vote of the holders
of a majority of the outstanding shares of capital stock who are eligible to
vote on such matters. Higher votes may be required to amend this provision as
described under "--Amendment of Certificate of Incorporation and Bylaws."
Three Classes of Directors on the Board; Power of Directors to Fill
Vacancies. The board of directors of Hudson City Bancorp is required by the
Certificate of Incorporation to be divided into three classes which are as
equal in size as is possible. One class is required to be elected annually by
stockholders of Hudson City Bancorp for three-year terms. A classified board
promotes continuity and stability of management of Hudson City Bancorp but
makes it more difficult for stockholders to change a majority of the directors
because it generally takes at least two annual elections of directors for this
to occur. In addition, any vacancy occurring on the Board, including a acancy
created by an increase in the number of directors or resulting from death,
resignation, retirement, disqualification, removal from office or other cause,
shall be filled for the remainder of the unexpired term exclusively by the
directors then in office.
Removal of Directors. The Certificate of Incorporation of Hudson City
Bancorp provides that a director may be removed from the Board of Directors
prior to the expiration of his or her term only for cause, upon the affirmative
vote of a majority of the outstanding shares of voting stock, provided, however,
that in the event that Hudson City, MHC, is dissolved, a vote of at least 80% of
the outstanding voting stock will be required to remove a director. In the
absence of these provisions, the vote of the holders of a majority of the shares
of Hudson City Bancorp could remove the entire Board, with or without cause, and
replace it with persons of such holders' choice.
Votes of Stockholders. Hudson City Bancorp's Certificate of Incorporation
provides that there will not be cumulative voting of stockholders for the
election of Hudson City Bancorp's directors. No cumulative voting means that
Hudson City, MHC, as the holder of a majority of the shares voted at a meeting
of stockholders, may elect all directors of Hudson City Bancorp to be elected at
that meeting. This could prevent public stockholder representation on Hudson
City Bancorp's Board of Directors. In addition, the Certificate of Incorporation
also provides that any action required or permitted to be taken by the
stockholders of Hudson City Bancorp may be taken only at an annual or special
meeting and prohibits stockholder action by written consent in lieu of a
meeting.
Authorized but Unissued Shares of Capital Stock. Following the offering,
Hudson City Bancorp will have authorized but unissued shares of preferred stock
and common stock. See "Description of Capital Stock of Hudson City Bancorp."
Although these shares could be used by the Board of Directors of Hudson City
Bancorp to make it more difficult or to discourage an attempt to obtain control
of Hudson City Bancorp through a merger, tender offer, proxy contest or
otherwise, such uses will be unlikely since Hudson City, MHC owns a majority of
the common stock of Hudson City Bancorp.
Stockholder Vote Required to Approve Business Combinations with Principal
Stockholders. The Certificate of Incorporation requires the approval of the
holders of at least 80% of Hudson City Bancorp's outstanding shares of voting
stock, together with the affirmative vote of at least 50% of the outstanding
shares of voting stock not beneficially owned by an "Interested Stockholder" to
approve certain "Business Combinations" and related transactions.
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Under Delaware law, absent this provision, Business Combinations, including
mergers, consolidations and sales of all or substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of only a majority of the outstanding shares of Common Stock and any
other affected class of stock.
The vote of at least 80% of the stockholders is required in connection with
any transaction involving an Interested Stockholder except (1) in cases where
the proposed transaction has been approved in advance by a majority of those
members of Hudson City Bancorp's Board of Directors who are unaffiliated with
the Interested Stockholder and were directors prior to the time when the
Interested Stockholder became an Interested Stockholder or (2) if the proposed
transaction meets certain conditions set forth therein which are designed to
afford the stockholders a fair price in consideration for their shares, in which
case, if a stockholder vote is required, approval of only a majority of the
outstanding shares of voting stock would be sufficient.
The term "Interested Stockholder" is defined to include any individual,
corporation, partnership or other entity (other than Hudson City, MHC, Hudson
City Bancorp or its subsidiary or any employee benefit plan maintained by Hudson
City Bancorp or its subsidiary) which owns beneficially or controls, directly or
indirectly, 10% or more of the outstanding shares of voting stock of Hudson City
Bancorp.
A "Business Combination" means:
(1) any merger or consolidation of Hudson City Bancorp or any of its
subsidiaries with or into any Interested Stockholder or its affiliate;
(2) any sale, lease, exchange, mortgage, pledge, transfer, or other
disposition to or with any Interested Stockholder or its affiliate of
5% or more of the assets of Hudson City Bancorp or any of its
subsidiaries;
(3) the issuance or transfer to any Interested Stockholder or its
affiliate by Hudson City Bancorp (or any subsidiary) of any securities
of Hudson City Bancorp other than on a pro rata basis to all
stockholders;
(4) the adoption of any plan for the liquidation or dissolution of Hudson
City Bancorp proposed by or on behalf of any Interested Stockholder or
its affiliate;
(5) any reclassification of securities, recapitalization, merger or
consolidation of Hudson City Bancorp which has the effect of
increasing the proportionate share of Common Stock or any class of
equity or convertible securities of Hudson City Bancorp owned directly
or indirectly by an Interested Stockholder or its affiliate; and
(6) the acquisition by Hudson City Bancorp or its subsidiary of any
securities of an Interested Stockholder or its affiliates or
associates.
Evaluation of Offers. The Certificate of Incorporation of Hudson City
Bancorp further provides that the Board of Directors of Hudson City Bancorp,
when evaluating any offer to Hudson City Bancorp from another party to
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- make a tender or exchange offer for any outstanding equity security of
Hudson City Bancorp;
- merge or consolidate Hudson City Bancorp with another corporation or
entity; or
- purchase or otherwise acquire all or substantially all of the
properties and assets of Hudson City Bancorp,
in connection with the exercise of its judgment in determining what is in the
best interest of Hudson City Bancorp and the stockholders of Hudson City
Bancorp, may give due consideration to the extent permitted by law to all
relevant factors, including, without limitation, the financial and managerial
resources and future prospects of the other party, the possible effects on the
business of Hudson City Bancorp and its subsidiaries and on the employees,
customers, suppliers and creditors of Hudson City Bancorp and its subsidiaries,
and the effects on the communities in which Hudson City Bancorp's and its
subsidiaries' facilities are located.
By having these standards in the Certificate of Incorporation of Hudson
City Bancorp, the Board of Directors may be in a stronger position to oppose
such a transaction if the Board concludes that the transaction would not be in
the best interests of Hudson City Bancorp, even if the price offered is
significantly greater than the then market price of any equity security of
Hudson City Bancorp.
Amendment of Certificate of Incorporation and Bylaws. The Certificate of
Incorporation provides that certain provisions of the Certificate of
Incorporation may not be altered, amended, repealed or rescinded without the
affirmative vote of either (1) not less than a majority of the authorized number
of directors and, if one or more Interested Stockholders exist, by not less than
a majority of the Disinterested Directors (as defined in the Certificate of
Incorporation) or (2) the holders of not less than two-thirds of the total votes
eligible to be cast by the holders of all outstanding shares of the capital
stock of Hudson City Bancorp entitled to vote thereon and, if the alteration,
amendment, repeal, or rescission is proposed by or on behalf of an Interested
Stockholder or a director who is an affiliate or associate of an Interested
Stockholder, by the affirmative vote of the holders of not less than a majority
of the total votes eligible to be cast by holders of all outstanding shares
entitled to vote thereon not beneficially owned by an Interested Stockholder or
an affiliate or associate thereof. Amendment of the provision relating to
business combinations must also be approved by either (i) a majority of the
Disinterested Directors, or (ii) the affirmative vote of not less than eighty
percent (80%) of the total number of votes eligible to be cast by the holders of
all outstanding shares of the voting stock, voting together as a single class,
together with the affirmative vote of not less than fifty percent (50%) of the
total number of votes eligible to be cast by the holders of all outstanding
shares of the voting stock not beneficially owned by any Interested Stockholder
or affiliate or associate thereof, voting together as a single class.
Furthermore, Hudson City Bancorp's Certificate of Incorporation provides
that provisions of the Bylaws that contain supermajority voting requirements may
not be altered, amended, repealed or rescinded without a vote of the Board or
holders of capital stock entitled to vote thereon that is not less than the
super majority specified in such provision. Absent these provisions, the DGCL
provides that a corporation's certificate of incorporation and bylaws may be
amended by the holders of a majority of the corporation's outstanding capital
stock. The Certificate of Incorporation also provides that the Board of
Directors is authorized to make, alter,
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amend, rescind or repeal any of Hudson City Bancorp's Bylaws in accordance with
the terms thereof, regardless of whether the Bylaw was initially adopted by the
stockholders. However, this authorization neither divests the stockholders of
their right, nor limits their power to adopt, amend, rescind or repeal any Bylaw
under the DGCL. These provisions could have the effect of discouraging a tender
offer or other takeover attempt where the ability to make fundamental changes
through Bylaw amendments is an important element of the takeover strategy of the
acquiror.
Stockholder Nominations and Proposals. The Bylaws of Hudson City Bancorp
also require a stockholder who intends to nominate a candidate for election to
the Board of Directors, or to raise new business at an annual stockholder
meeting to give approximately 90 days notice in advance of the anniversary of
the prior year's annual stockholders' meeting to the Secretary of Hudson City
Bancorp. The notice provision requires a stockholder who desires to raise new
business to provide certain information to Hudson City Bancorp concerning the
nature of the new business, the stockholder and the stockholder's interest in
the business matter. Similarly, a stockholder who wishes to nominate any person
for election as a director must provide Hudson City Bancorp with certain
information concerning the nominee and the proposing stockholder.
ANTI-TAKEOVER EFFECTS OF HUDSON CITY BANCORP'S
CERTIFICATE OF INCORPORATION, BYLAWS AND
BENEFIT PLANS ADOPTED IN THE REORGANIZATION
The provisions described above are intended to reduce Hudson City Bancorp's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. The
provisions of the employment agreements, the change of control agreements, the
management recognition plan and the stock option plan to be established may also
discourage takeover attempts by increasing the costs to be incurred by Hudson
City Savings and Hudson City Bancorp in the event of a takeover. See "Management
- -- Employment Agreements," and "-- Future Stock Benefit Plans -- Stock Option
Plan."
Hudson City Bancorp's Board of Directors believes that the provisions of
the Certificate of Incorporation, Bylaws and benefit plans to be established are
in the best interests of Hudson City Bancorp and its stockholders. An
unsolicited non-negotiated proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best interests of Hudson City Bancorp and its
stockholders to encourage potential acquirors to negotiate directly with
management and that these provisions will encourage such negotiations and
discourage non-negotiated takeover attempts. It is also the Board of Directors'
view that these provisions should not discourage persons from proposing a merger
or other transaction at a price that reflects the true value of Hudson City
Bancorp and that otherwise is in the best interests of all stockholders.
DELAWARE CORPORATE LAW
The State of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the DECL-., is intended to
discourage certain takeover practices by impeding the ability of a hostile
acquiror to engage in certain transactions with the target company.
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In general, Section 203 provides that a "Person" who owns 15% or more of
the outstanding voting stock of a Delaware corporation may not consummate a
merger or other business combination transaction with such corporation at any
time during the three-year period following the date such "Person" acquired 15%
of the outstanding voting stock. The term "business combination" is defined
broadly to cover a wide range of corporate transactions, including mergers,
sales of assets, issuances of stock, transactions with subsidiaries and the
receipt of disproportionate financial benefits.
The statute exempts the following transactions from the requirements of
Section 203:
(1) any business combination if, prior to the date a person acquired 15%
of the voting stock, the Board of Directors approved either the
business combination or the transaction which resulted in the
stockholder acquiring 15%;
(2) any business combination involving a person who acquired at least 85%
of the outstanding voting stock in the same transaction in which 15%
was acquired (with the number of shares outstanding calculated without
regard to those shares owned by the corporation's directors who are
also officers and by certain employee stock plans);
(3) any business combination that is approved by the board of directors
and by a two-thirds vote of the outstanding voting stock not owned by
the interested party; and
(4) certain business combinations that are proposed after the corporation
had received other acquisition proposals and which are approved or not
opposed by a majority of certain continuing members of the board of
directors.
A corporation may exempt itself from the requirement of the statute by adopting
an amendment to its Certificate of Incorporation or Bylaws electing not to be
governed by Section 203 of the Delaware General Corporation Law. At the present
time, the Board of Directors does not intend to propose any such amendment.
REGULATORY RESTRICTIONS
Federal Change in Bank Control Act. Federal law provides that no person,
acting directly or indirectly or through or in concert with one or more other
persons, may acquire control of a bank unless the FDIC has been given 60 days
prior written notice. For this purpose, the term "control" means the acquisition
of the ownership, control or holding of the power to vote 25% or more of any
class of a bank holding company's voting stock, and the term "company" includes
an individual, corporation, partnership, and various other entities, acting
individually or in concert. In addition, an acquiring person is presumed to
acquire control if the person acquires the ownership, control or holding of the
power to vote of 10% or more of any class of the holding company's voting stock
if (a) Hudson City Bancorp's shares are registered pursuant to Section 12 of the
Exchange Act or (b) no other person will own, control or hold the power to vote
a greater percentage of that class of voting securities. The Federal Reserve
Board is authorized by the change in bank control act and its own regulations to
disapprove a proposed transaction on certain specified grounds. Accordingly, the
prior approval of the Federal Reserve Bank would be required before any person
could acquire 10% or more of the common stock of Hudson City Bancorp.
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Federal Bank Holding Company Act. Federal law provides that no company may
acquire control of a bank holding company without the prior approval of the
Federal Reserve Board. Any company that acquires control becomes a "bank holding
company" subject to registration, examination and regulation by the Federal
Reserve Board. Pursuant to federal regulations, the term "company" is defined to
include banks, corporations, partnerships, associations, and certain trusts and
other entities, and the term "control" is deemed to exist if a company has
voting control of at least 25% of any class of a bank's voting stock, and may be
found to exist if a company controls in any manner the election of a majority of
the directors of the bank or has the power to exercise a controlling influence
over the management or policies of the bank. In addition, a bank holding company
must obtain Federal Reserve Board approval prior to acquiring voting control of
more than 5% of any class of voting stock of a bank or another bank holding
company. The foregoing restrictions do not apply to the acquisition of stock by
one or more tax-qualified employee stock benefit plans, provided that the plan
or plans do not have beneficial ownership in the aggregate of more than 25% of
any class of our common stock.
An acquisition of control of a bank that requires the prior approval of the
Federal Reserve Board under the BHCA is not subject to the notice requirements
of the Change in Bank Control Act. Accordingly, the prior approval of the
Federal Reserve Board under the BHCA would be required (a) before any bank
holding company could acquire 5% or more of the Common Stock of Hudson City
Bancorp and (b) before any other company could acquire 25% or more of the Common
Stock of Hudson City Bancorp.
The Federal Reserve Board may prohibit an acquisition of control if:
(1) it would result in a monopoly or substantially lessen competition;
(2) the financial condition of the acquiring person might jeopardize the
financial stability of the institution; or
(3) the competence, experience or integrity of the acquiring person
indicates that it would not be in the interest of the depositors or of
the public to permit the acquisition of control by such person.
DESCRIPTION OF CAPITAL STOCK HUDSON CITY BANCORP
GENERAL
Hudson City Bancorp is authorized to issue eight hundred million
(800,000,000) shares of common stock having a par value of $.01 per share and
two hundred million (200,000,000) shares of preferred stock having a par value
of $.01 per share. Hudson City Bancorp currently expects to sell 67,562,500
shares of common stock (or 77,696,875 in the event of an increase of 15% in the
Estimated Valuation Range) to purchasers of common stock in the offering. In
addition, Hudson City Bancorp expects to issue 76,187,500 shares of the common
stock to Hudson City, MHC (or 87,615,625 in the event of an increase of 15% in
the Estimated Valuation Range). Hudson City Bancorp will not issue any shares of
preferred stock in the offering. Except as discussed above in "Restrictions on
Acquisition of Hudson City Bancorp and Hudson City Savings," each share of
Hudson City Bancorp's common stock will have the same relative rights as, and
will be identical in all respects with, every other share of common stock. Upon
payment of the purchase price for
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the common stock in accordance with the plan of reorganization, all such stock
will be duly authorized, fully paid and non-assessable.
The shares of common stock:
- are not deposit accounts and are subject to investment risk;
- are not insured or guaranteed by the FDIC, or any other government
agency; and
- are not guaranteed by Hudson City Bancorp, Hudson City, MHC or Hudson
City Savings.
COMMON STOCK
Dividends. Hudson City Bancorp can pay dividends out of statutory surplus
or from net profits if, as and when declared by its Board of Directors. The
payment of dividends by Hudson City Bancorp is subject to limitations which are
imposed by law. See "Our Policy Regarding Dividends" and "Regulation of Hudson
City Savings Bank and Hudson City Bancorp." Hudson City, MHC currently does not
intend to waive any dividends paid by Hudson City Bancorp. The owners of common
stock of Hudson City Bancorp, including Hudson City, MHC, will be entitled to
receive and share equally in such dividends as may be declared by the Board of
Directors out of funds legally available therefor. If Hudson City Bancorp issues
preferred stock, the holders of the preferred stock may have a priority over the
holders of the common stock with respect to dividends.
Voting Rights. Upon the effective date of the reorganization, the holders
of common stock of Hudson City Bancorp will possess exclusive voting rights in
Hudson City Bancorp. They will elect Hudson City Bancorp's Board of Directors
and act on such other matters as are required to be presented to them under
Delaware law or Hudson City Bancorp's Certificate of Incorporation or as are
otherwise presented to them by the Board of Directors. Each holder of common
stock will be entitled to one vote per share and will not have any right to
cumulate votes in the election of directors. Under certain circumstances, shares
in excess of 10% of Hudson City Bancorp's common stock, exclusive of the shares
held by Hudson City, MHC, may be considered "excess shares" and may therefore
not be entitled to vote. See "Restrictions on Acquisition of Hudson City Bancorp
and Hudson City Savings." If Hudson City Bancorp issues preferred stock, holders
of the preferred stock may also possess voting rights. Certain matters,
including the removal of directors, the approval of business combinations and
amending the Certificate of Incorporation or Bylaws, may require an 80% or
two-thirds stockholder vote. See "Restrictions on Acquisition of Hudson City
Bancorp and Hudson City Savings."
Liquidation. In the event of any liquidation, dissolution or winding up of
Hudson City Savings, Hudson City Bancorp, as owner of Hudson City Savings'
capital stock, would be entitled to receive, after payment or provision for
payment of all debts and liabilities of Hudson City Savings (including all
deposit accounts and accrued interest thereon) and after distribution of the
balance in the special liquidation account to eligible account holders and the
supplemental eligible account holders (see "The Reorganization and The Offering
- -- Effects of the Reorganization -- Depositors' Rights; Liquidation Account"),
all assets of Hudson City Savings available for distribution. In the event of
liquidation, dissolution or winding up of Hudson City Bancorp, the holders of
its common stock would be entitled to receive, after payment or provision for
payment of all its debts and liabilities,
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all of the assets of Hudson City Bancorp available for distribution. If
preferred stock is issued, the holders thereof may have a priority over the
holders of the common stock in the event of the liquidation or dissolution.
Preemptive Rights; Redemption. Holders of the common stock of Hudson City
Bancorp will not be entitled to preemptive rights with respect to any shares
which may be issued. The common stock is not subject to redemption.
PREFERRED STOCK
Hudson City Bancorp will not issue any shares of its authorized preferred
stock in the reorganization. We may issue stock with such preferences and
designations as the Board of Directors may from time to time determine. The
board of directors can, without stockholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights, which could dilute the
voting strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
LEGAL AND TAX OPINIONS
The legality of the issuance of the common stock being offered and certain
matters relating to the reorganization and federal taxation will be passed upon
for us by Thacher Proffitt & Wood, New York, New York and Jersey City, New
Jersey. Certain matters relating to state taxation will be passed upon for us by
KPMG LLP. Certain legal matters will be passed upon for Ryan, Beck & Co. by
Pitney, Hardin, Kipp & Szuch, Morristown, New Jersey.
EXPERTS
The statements of condition of Hudson City Savings as of December 31, 1998
and 1997 and statements of income, changes in equity and cash flows for each of
the years in the three years ended December 31, 1998 have been included in this
prospectus in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere in this prospectus, and upon the authority of
said firm as experts in accounting and auditing.
RP Financial has consented to the publication in this document of a summary
of its letter to Hudson City Savings setting forth its opinion as to the
estimated pro forma market value of Hudson City Savings in the converted form
and its opinion setting forth the value of subscription rights and to the use of
its name and statements with respect to it appearing in this document.
REGISTRATION REQUIREMENTS
Our common stock is registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). We will be subject to the
information, proxy solicitation, insider trading restrictions, tender offer
rules, periodic reporting and other requirements of the SEC under the Exchange
Act. We may not deregister the common stock under the Exchange Act for a period
of at least three years following the reorganization.
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WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the informational requirements of the Exchange Act and
must file reports and other information with the SEC.
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act of 1933, as amended, with respect to the common stock offered in
this document. As permitted by the rules and regulations of the SEC, this
document does not contain all the information set forth in the registration
statement. You may examine this information without charge at the public
reference facilities of the SEC located at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain copies of this material from the SEC at prescribed
rates. You may obtain information on the operations of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet address
("web site") that contains reports, proxy and information statements and other
information regarding registrants, including Hudson City Bancorp, that file
electronically with the SEC. The address for this web site is
"http://www.sec.gov."
The statements contained in this document as to the contents of any
contract or other document filed as an exhibit to the Form S-1 are, of
necessity, brief descriptions and are not necessarily complete; each such
statement is qualified by reference to such contract or document.
A copy of Hudson City Bancorp's Certificate of Incorporation and Bylaws, as
well as those of Hudson City Savings and Hudson City, MHC, are available without
charge from Hudson City Savings. Copies of the plan of reorganization are also
available from Hudson City Savings without charge.
Hudson City Savings has filed notice of mutual holding company
reorganization with the Department of Banking and Insurance of New Jersey. In
addition, Hudson City Savings has filed copies of that application with the
FDIC. Hudson City Bancorp and Hudson City, MHC has filed an application with the
Federal Reserve Board of New York to become bank holding companies with respect
to Hudson City Savings. This prospectus omits certain information contained in
those applications.
If you have any questions regarding the offering or the reorganization,
please call the Stock Information Center at (800) 541-3187, from 9:00 a.m. to
4:00 p.m., Monday through Friday.
143
<PAGE> 145
INDEX TO FINANCIAL STATEMENTS
HUDSON CITY SAVINGS BANK
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Statements of Condition at December 31, 1998 and
1997...................................................... F-3
Statements of Income for each of the three years in the
period ended December 31, 1998............................ F-4
Statements of Changes in Equity for each of the three years
in the period ended December 31, 1998..................... F-5
Statements of Cash Flows for each of the three years in the
period ended December 31, 1998............................ F-6
Notes to Financial Statements............................... F-7
</TABLE>
Other schedules are omitted as they are not required or are not applicable or
the required information is shown in the financial statements or related notes.
Financial statements of Hudson City, MHC and Hudson City Bancorp, Inc. have not
been provided because they have conducted no operations. Hudson City, MHC has
not yet been organized and Hudson City Bancorp, Inc. has no assets and no
liabilities.
<PAGE> 146
[LETTERHEAD OF KPMG LLP, SHORT HILLS, NEW JERSEY]
INDEPENDENT AUDITORS' REPORT
The Board of Managers
Hudson City Savings Bank:
We have audited the statements of condition of Hudson City Savings Bank as of
December 31, 1998 and 1997, and the related statements of income, changes in
equity, and cash flows for each of the years in the three-year period ended
December 31, 1998. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hudson City Savings Bank as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
KPMG LLP
February 12, 1999
F-2
<PAGE> 147
HUDSON CITY SAVINGS BANK
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks (note 3)............................ $ 87,075 $ 71,074
Federal funds sold.......................................... 69,800 24,600
---------- ----------
Total cash and cash equivalents........................ 156,875 95,674
Investment securities held to maturity, market value of
$1,420 in 1998 and $1,503 in 1997 (note 4)................ 1,393 1,466
Investment securities available for sale, at market value
(note 4).................................................. 785,031 654,726
Mortgage-backed securities held to maturity, market value of
$3,106,369 in 1998 and $3,091,736 in 1997 (note 5)........ 3,070,931 3,022,225
Loans (note 6).............................................. 3,659,407 3,463,803
Less:
Deferred loan fees..................................... 11,146 12,076
Allowance for loan losses (note 6)..................... 17,712 15,625
---------- ----------
Net loans............................................ 3,630,549 3,436,102
Foreclosed real estate, net (note 7)........................ 1,026 1,410
Accrued interest receivable................................. 49,041 49,751
Banking premises and equipment, net (note 8)................ 29,064 29,197
Other assets (note 11)...................................... 28,350 23,448
---------- ----------
Total Assets........................................... $7,752,260 $7,313,999
========== ==========
LIABILITIES AND EQUITY
Deposits (note 9):
Interest-bearing.......................................... $6,494,278 $6,193,630
Noninterest-bearing....................................... 313,061 272,326
---------- ----------
Total deposits......................................... 6,807,339 6,465,956
Accrued expenses and other liabilities (note 10)............ 44,315 40,330
---------- ----------
Total liabilities...................................... 6,851,654 6,506,286
---------- ----------
Retained earnings (notes 11 and 14)......................... 899,933 806,664
Accumulated other comprehensive income...................... 673 1,049
---------- ----------
Total equity........................................... 900,606 807,713
---------- ----------
Commitments and contingencies (notes 8 and 12)
Total Liabilities and Equity........................... $7,752,260 $7,313,999
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 148
HUDSON CITY SAVINGS BANK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest Income:
Interest and fees on first mortgage loans (note 6)....... $259,320 $245,432 $221,930
Interest and fees on consumer and other loans............ 7,272 7,685 8,135
Interest on mortgage-backed securities................... 201,592 201,323 157,050
Interest on investment securities held to maturity (note
4):
Taxable............................................... 54 -- --
Exempt from federal taxes............................. 48 61 112
Interest and dividends on investment securities available
for sale -- taxable (note 4).......................... 49,666 43,140 37,587
Interest on federal funds sold........................... 2,839 2,801 4,464
-------- -------- --------
Total interest income............................ 520,791 500,442 429,278
Interest expense on deposits (note 9)...................... 311,084 297,484 242,667
-------- -------- --------
Net interest income................................. 209,707 202,958 186,611
Provision for loan losses (note 6)......................... 2,400 2,850 2,275
-------- -------- --------
Net interest income after provision for loan
losses........................................... 207,307 200,108 184,336
-------- -------- --------
Non-interest income:
Service charges and other income......................... 4,930 4,710 3,896
Gains on net securities transactions (note 4)............ 24 1,594 152
-------- -------- --------
Total non-interest income........................ 4,954 6,304 4,048
-------- -------- --------
Non-interest expense:
Salaries and employee benefits (note 10)................. 39,260 38,781 37,034
Net occupancy expense (note 8)........................... 11,753 11,888 11,941
Federal deposit insurance assessment..................... 783 757 43
Amortization of goodwill (note 11)....................... 1,610 1,771 2,030
Computer and related services............................ 1,212 1,104 1,150
Other expense............................................ 8,874 8,618 8,760
-------- -------- --------
Total non-interest expense....................... 63,492 62,919 60,958
-------- -------- --------
Income before income tax expense................. 148,769 143,493 127,426
Income tax expense (note 11)............................... 55,500 53,500 46,595
-------- -------- --------
Net income.......................................... $ 93,269 $ 89,993 $ 80,831
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 149
HUDSON CITY SAVINGS BANK
STATEMENTS OF CHANGES IN EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
RETAINED COMPREHENSIVE TOTAL
EARNINGS INCOME EQUITY
-------- ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at December 31, 1995........................... $635,840 $3,104 $638,944
--------
Comprehensive Income:
Net Income........................................ 80,831 -- 80,831
Other comprehensive income:
Unrealized holding losses arising during period
(net of tax of $(370))....................... -- (604) (604)
Reclassification adjustment for gains in net
income (net of tax of $(58))................. -- (94) (94)
-------- ------ --------
Total Comprehensive Income........................ 80,133
--------
Balance at December 31, 1996........................... 716,671 2,406 719,077
--------
Comprehensive Income:
Net Income........................................ 89,993 -- 89,993
Other comprehensive income:
Unrealized holding losses arising during period
(net of tax of $(225))....................... -- (369) (369)
Reclassification adjustment for gains in net
income (net of tax of $(606))................ -- (988) (988)
-------- ------ --------
Total Comprehensive Income........................ 88,636
--------
Balance at December 31, 1997........................... 806,664 1,049 807,713
--------
Comprehensive Income:
Net Income........................................ 93,269 -- 93,269
Other comprehensive income:
Unrealized holding losses arising during period
(net of tax of $(223))....................... -- (361) (361)
Reclassification adjustment for gains in net
income (net of tax of $(9)).................. -- (15) (15)
-------- ------ --------
Total Comprehensive Income........................ 92,893
--------
Balance at December 31, 1998........................... $899,933 673 900,606
======== ====== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 150
HUDSON CITY SAVINGS BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income......................................... $ 93,269 $ 89,993 $ 80,831
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, accretion and amortization
expense....................................... 6,052 5,505 5,761
Provision for loan losses....................... 2,400 2,850 2,275
Gains on net securities transactions............ (24) (1,594) (152)
Deferred tax (benefit) expense.................. (3,907) (1,695) 1,643
Net proceeds from foreclosed real estate........ 3,565 3,683 5,089
Decrease (increase) in accrued interest
receivable.................................... 710 (5,679) (3,124)
Increase in other assets........................ (2,374) (1,709) (2,717)
Increase in accrued expenses and other
liabilities................................... 3,985 5,949 1,996
----------- --------- -----------
Net Cash Provided by Operating Activities............ 103,676 97,303 91,602
----------- --------- -----------
Cash Flows from Investing Activities:
Net increase in loans.............................. (157,887) (275,675) (372,032)
Purchases of loans................................. (38,639) (16,198) (8,558)
Principal collection of mortgage-backed
securities...................................... 1,168,674 569,189 382,631
Purchases of mortgage-backed securities............ (1,222,352) (883,502) (1,227,291)
Proceeds from maturities and calls of investment
securities held to maturity..................... 489 209 1,302
Purchases of investment securities held to
maturity........................................ (403) (600) --
Proceeds from maturities and calls of investment
securities available for sale................... 659,212 418,269 368,538
Proceeds from sales of investment securities
available for sale.............................. -- 42,735 138
Purchases of investment securities available for
sale............................................ (789,577) (521,529) (404,929)
Purchases of premises and equipment, net........... (3,375) (3,113) (3,990)
----------- --------- -----------
Net Cash Used in Investing Activities................ (383,858) (670,215) (1,264,191)
----------- --------- -----------
Cash Flows from Financing Activities:
Net increase in deposits........................... 341,383 546,985 1,161,158
----------- --------- -----------
Net Cash Provided by Financing Activities............ 341,383 546,985 1,161,158
----------- --------- -----------
Net Increase (decrease) in Cash and Cash
Equivalents........................................ 61,201 (25,927) (11,431)
Cash and Cash Equivalents at Beginning of Year....... 95,674 121,601 133,032
----------- --------- -----------
Cash and Cash Equivalents at End of Year............. $ 156,875 $ 95,674 $ 121,601
=========== ========= ===========
Supplemental Disclosures:
Interest paid...................................... $ 312,004 $ 298,270 $ 243,447
=========== ========= ===========
Income taxes paid.................................. $ 59,101 $ 55,052 $ 45,391
=========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 151
HUDSON CITY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
The following are the significant accounting and reporting policies applied
by Hudson City Savings Bank (the "Bank"), which conform with generally accepted
accounting principles and general practices within the savings bank industry.
In preparing the 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 condition and income for the
period. Actual results could differ from these estimates. A material estimate
that is particularly susceptible to significant change in the near term relates
to the determination of the allowance for loan losses.
b) Comprehensive Income
Effective January 1, 1998, the Bank adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial statements.
Under SFAS No. 130, comprehensive income is divided into net income and other
comprehensive income. Other comprehensive income includes items previously
recorded directly to equity, such as unrealized gains and losses on securities
available for sale.
Comprehensive income is presented in the statements of changes in equity.
SFAS No. 130 requires only additional disclosures and does not affect the Bank's
financial position or results of operations. Prior year financial statements
have been reclassified to conform to the requirements of SFAS No. 130.
c) Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents includes
cash on hand, amounts due from banks and federal funds sold. Generally, federal
funds are sold for one-day periods.
Transfers of loans to foreclosed real estate of $3,353,000, $2,801,000 and
$4,241,000 for the years ended December 31, 1998, 1997 and 1996, respectively,
did not result in cash receipts or cash payments.
d) Investment Securities
Investment securities are classified as either held to maturity or
available for sale. Investment securities classified as held to maturity are
stated at cost, adjusted for amortization of premiums and accretion of
discounts, which are recognized as adjustments to interest income, using a
method that approximates level yield. The Bank has both the ability and the
positive intent to hold these investment securities to maturity. Securities
available for sale are carried at fair value, with unrealized gains and losses,
net of tax, reported as a component of other comprehensive income, which is
included in equity.
Realized gains and losses are recognized when securities are sold or called
using the specific identification method. The estimated fair market value of all
investment securities is determined by use of quoted market prices.
F-7
<PAGE> 152
HUDSON CITY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
e) Mortgage-Backed Securities
Mortgage-backed securities include pass-through certificates, which
represent participating interests in pools of long-term first mortgage loans
originated and serviced by third-party issuers of the securities, and real
estate mortgage conduits ("REMICs"), which are debt securities that are secured
by mortgage loans or other mortgage-backed securities.
These securities are classified as held to maturity and, accordingly, are
stated at cost, adjusted for amortization of premiums and accretion of
discounts. Such amortization and accretion is included in interest income based
on a method which approximates the level yield method. Premiums are amortized
and discounts are accreted over the estimated average life of the contract.
Gains and losses are recognized when securities are sold using the specific
identification method. The estimated fair market value of these securities is
determined by use of quoted market prices. The Bank has the positive intent and
ability to hold mortgage-backed securities to maturity.
Mortgage-backed securities are subject to prepayments. The level of
prepayments is related to the general level of interest rates. The higher the
rate of prepayments, the shorter the effective maturity of the security.
f) Loans
Loans are stated at their principal amounts outstanding. Interest income on
loans is accrued and credited to income as earned. Net loan origination fees are
deferred and amortized to interest income over the life of the loan as an
adjustment to the loan's yield, using the level yield method.
The accrual of income on loans is generally discontinued when interest or
principal payments are 90-days in arrears or when the timely collection of such
income is doubtful. Loans on which the accrual of income has been discontinued
are designated as nonaccrual loans and outstanding interest previously credited
is reversed. It is recognized subsequently in the period collected only when the
ultimate collection of principal is not in doubt. A nonaccrual loan is returned
to accrual status when factors indicating doubtful collection no longer exist.
The Bank defines the population of impaired loans to be all nonaccrual
commercial real estate and multi-family loans. Impaired loans are individually
assessed to determine that the loan's carrying value is not in excess of the
fair value of the collateral or the present value of the loan's expected future
cash flows. Smaller balance homogeneous loans that are collectively evaluated
for impairment, such as residential mortgage loans and consumer loans, are
specifically excluded from the impaired loan portfolio. There were no loans
classified as impaired by the Bank at December 31, 1998 and 1997.
g) Allowance for Loan Losses
The allowance for loan losses is a valuation account established through a
provision for loan losses charged to income. Losses on loans are charged against
the allowance when management believes the collection of the principal is
unlikely. Subsequent recoveries, if any, are generally credited to the
allowance. The allowance is based on such factors as the Bank's loan loss
experience, known and inherent risks in the loan portfolio, the estimated value
of underlying collateral, current economic and market trends, and other factors
which may warrant recognition in maintaining an allowance at a level sufficient
to provide for estimated loan losses.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to
F-8
<PAGE> 153
HUDSON CITY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
recognize additions to the allowance based on their judgments of information
available to them at the time of their examination.
h) Foreclosed Real Estate
Foreclosed real estate is property acquired through foreclosure and deed in
lieu of foreclosure. Foreclosed properties are initially recorded at the lower
of the recorded investment in the loan or fair market value. Thereafter, the
property is carried at fair market value less estimated selling costs. Fair
market value is generally based on recent appraisals.
Subsequent provisions, which may result from the ongoing periodic
valuations of these properties, are charged to income in the period in which
they are identified and credited to a valuation allowance account. Foreclosed
real estate is reported net of the valuation allowance. Carrying costs, such as
maintenance and taxes, are charged to operating expenses as incurred.
i) Banking Premises and Equipment
Land is carried at cost. Buildings, leasehold improvements and furniture,
fixtures and equipment are carried at cost, less accumulated depreciation and
leasehold amortization. Buildings are depreciated over their estimated useful
lives using the straight-line method. Furniture, fixtures and equipment are
depreciated over their estimated useful lives using the double-declining balance
method. Leasehold improvements are amortized over the shorter of their estimated
useful lives or the term of the respective leases. The costs for major
improvements and renovations are capitalized, while maintenance, repairs and
minor improvements are charged to operating expenses as incurred. Gains and
losses on dispositions are reflected currently as other non-interest income or
expense.
j) Income Taxes
The Bank files federal and New Jersey state tax returns on a calendar year
basis. Under the liability method of accounting for income taxes, a deferred tax
liability is recognized for all taxable temporary differences and a deferred tax
asset is recognized for all deductible temporary differences. The Bank takes
into account changes in the tax law and rates when valuing the deferred income
tax amounts.
For federal income tax reporting purposes, under tax law that existed prior
to 1996, the Bank reported its loan loss provisions by using the reserve method
allowed for qualified thrift lender institutions. The Bank's bad debts reserve
for income tax reporting purposes was increased by annual tax loan loss
provisions (tax return deductions) that were determined based on a percentage of
the Bank's reported annual taxable income. Actual net loan losses were charged
directly against the tax basis bad debts reserve. Legislation was enacted in
August 1996, which repealed for tax purposes the percentage of taxable income
bad debt reserve method. As a result, the Bank must instead use the specific
charge-off method to compute its bad debt deduction. The legislation also
requires the Bank to recapture its post-1987 net additions to its tax bad debt
reserves. The Bank has previously provided for this liability in the financial
statements.
k) Employee Benefit Plans
Effective January 1, 1998, the Bank adopted the provisions of SFAS No. 132,
"Employers Disclosures about Pensions and Other Postretirement Benefits." SFAS
No. 132 revises disclosures only and does not affect the Bank's financial
position or results of operations. Prior year financial statement disclosures
have been revised to conform to the requirements of SFAS No. 132.
F-9
<PAGE> 154
HUDSON CITY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
The Bank maintains certain noncontributory benefit plans which cover all
employees who have met the eligibility requirements of the plans. Certain health
care and life insurance benefits are provided for retired employees. The
expected cost of benefits provided for retired employees is actuarially
determined and accrued ratably from the date of hire to the date the employee is
fully eligible to receive the benefits.
l) Goodwill
Goodwill, included in other assets, is being amortized to expense on a
straight-line basis over a 15-year period. Unamortized goodwill amounted to
$1,441,000 and $3,051,000 at December 31, 1998 and 1997, respectively.
2. PLAN OF REORGANIZATION (UNAUDITED)
On February 11, 1999, the board of managers of Hudson City Savings Bank
adopted a Plan of Reorganization and Stock Issuance (the "Plan"), where the Bank
will convert and reorganize from a New Jersey-chartered mutual savings bank into
a two-tiered mutual savings bank holding company structure (the
"Reorganization"). Under the terms of the Plan, Hudson City Savings Bank will be
a wholly-owned subsidiary of Hudson City Bancorp, Inc., a Delaware corporation
(the "Company"), and the Company will be a majority-owned subsidiary of Hudson
City, MHC, a New Jersey-chartered mutual savings bank holding company (the
"MHC").
In connection with the Reorganization, the Company will offer for sale to
its depositors and the public 47% of its common stock. The number of shares of
common stock to be offered and the price for such shares will be determined by
the board of managers based upon an appraisal of the Bank to be made by an
independent appraisal firm. At least the minimum number of shares offered in the
offering must be sold for the offering to be completed.
The Plan provides that when the Reorganization is completed, a "liquidation
account" will be established in an amount equal to the total equity of the Bank
as of the latest practicable date prior to the Reorganization. The liquidation
account is established to provide a limited priority claim to the assets of the
Bank to "eligible account holders" and "supplemental eligible account holders",
as defined in the Plan, who continue to maintain deposits in the Bank after the
Reorganization. In the unlikely event of a complete liquidation of the Bank, and
only in such event, each eligible account holder and supplemental eligible
account holder would receive a liquidation distribution, prior to any payment to
the holder of the Bank's common stock. This distribution would be based upon
each eligible account holder's and supplemental account holder's proportionate
share of the then total remaining qualifying deposits.
Direct costs of the Reorganization will be deferred and will reduce the
proceeds of the offering. If the Reorganization is not completed, all costs
would be charged to expense.
3. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain cash reserves on deposit with the Federal
Reserve Bank based on deposits. The average amount of the reserves on deposit
for the years ended December 31, 1998 and 1997 was approximately $15,068,000 and
$14,011,000, respectively.
F-10
<PAGE> 155
HUDSON CITY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
4. INVESTMENT SECURITIES
The amortized cost and estimated fair market value of investment securities
at December 31 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1998
HELD TO MATURITY
Municipal bonds............................... $ 1,393 $ 29 $ (2) $ 1,420
======== ====== ===== ========
AVAILABLE FOR SALE
United States government and agencies......... $781,330 $1,772 $(666) $782,436
Corporate bonds............................... 2,617 11 (33) 2,595
-------- ------ ----- --------
Total available for sale................. $783,947 $1,783 $(699) $785,031
======== ====== ===== ========
1997
HELD TO MATURITY
Municipal bonds............................... $ 1,466 $ 37 $ -- $ 1,503
======== ====== ===== ========
AVAILABLE FOR SALE
United States government and agencies......... $648,277 $2,606 $(869) $650,014
Corporate bonds............................... 4,758 18 (64) 4,712
-------- ------ ----- --------
Total available for sale................. $653,035 $2,624 $(933) $654,726
======== ====== ===== ========
</TABLE>
The amortized cost and estimated fair market value of investment securities
held to maturity and investment securities available for sale at December 31,
1998, by contractual maturity, are shown below. The expected maturity will
differ from the contractual maturity because issuers may have the right to call
or prepay obligations.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR MARKET
COST VALUE
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
HELD TO MATURITY
Due after one year through five years....................... $ 100 $ 98
Due after five years through ten years...................... 390 411
Due after ten years......................................... 903 911
-------- --------
Total held to maturity................................. $ 1,393 $ 1,420
======== ========
AVAILABLE FOR SALE
Due in one year or less..................................... $ 10,194 $ 10,194
Due after one year through five years....................... 308,432 308,447
Due after five years through ten years...................... 465,321 466,390
-------- --------
Total available for sale............................... $783,947 $785,031
======== ========
</TABLE>
F-11
<PAGE> 156
HUDSON CITY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
Interest and dividend income for the years ended December 31, 1998, 1997
and 1996 consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States government and agencies................ $49,429 $42,134 $31,937
Municipal bonds...................................... 102 61 112
Corporate bonds...................................... 237 1,006 5,625
Common stock......................................... -- -- 25
------- ------- -------
Total interest and dividend income.............. $49,768 $43,201 $37,699
======= ======= =======
</TABLE>
Gross realized gains on calls of investment securities available for sale
during 1998 were $11,000. Gross realized gains on calls of investment securities
held to maturity during 1998 were $13,000.
Gross realized gains on calls of investment securities available for sale
during 1997 were $22,000. Gross realized gains and losses on sales of investment
securities available for sale during 1997 were $1,577,000 and $5,000,
respectively.
Gross realized gains and losses on investment securities held to maturity
called by the issuer in 1996 were $75,000 and $9,000, respectively. Gross
realized gains and losses on investment securities available for sale called by
the issuer in 1996 were $6,000 and $3,000, respectively. During 1996, gross
realized gains on the sale of investment securities available for sale were
$83,000.
The carrying value of securities pledged as required security for deposits
and for other purposes required by law amounted to $5,142,000 and $4,090,000 at
December 31, 1998 and 1997, respectively.
5. MORTGAGE-BACKED SECURITIES
The amortized cost and estimated fair market value of mortgage-backed
securities held to maturity at December 31 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1998
GNMA pass-through certificates.............. $2,093,591 $19,610 $(1,982) $2,111,219
FNMA pass-through certificates.............. 674,061 12,219 (5) 686,275
FHLMC pass-through certificates............. 240,414 5,581 -- 245,995
FHLMC, FNMA and GNMA -- REMICs.............. 62,865 91 (76) 62,880
---------- ------- ------- ----------
Total mortgage-backed securities....... $3,070,931 $37,501 $(2,063) $3,106,369
========== ======= ======= ==========
1997
GNMA pass-through certificates.............. $2,061,928 $52,861 $ -- $2,114,789
FNMA pass-through certificates.............. 568,479 9,451 -- 577,930
FHLMC pass-through certificates............. 293,802 7,830 -- 301,632
FHLMC, FNMA and GNMA -- REMICs.............. 98,016 79 (710) 97,385
---------- ------- ------- ----------
Total mortgage-backed securities....... $3,022,225 $70,221 $ (710) $3,091,736
========== ======= ======= ==========
</TABLE>
F-12
<PAGE> 157
HUDSON CITY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
6. LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
First mortgage loans:
One-to four-family...................................... $3,516,947 $3,327,371
FHA/VA.................................................. 52,958 45,868
Multi-family and commercial............................. 2,911 3,553
---------- ----------
Total first mortgage loans........................... 3,572,816 3,376,792
---------- ----------
Consumer and other loans:
Fixed-rate second mortgages............................. 56,118 50,198
Home equity credit lines................................ 28,045 30,211
Guaranteed student...................................... 216 4,315
Other................................................... 2,212 2,287
---------- ----------
Total consumer and other loans....................... 86,591 87,011
---------- ----------
Total loans..................................... $3,659,407 $3,463,803
========== ==========
</TABLE>
Substantially all of the Bank's loans are secured by first or second liens
on real estate property located in the state of New Jersey. The ultimate ability
to collect the loan portfolio and realize the carrying value of real estate is
subject to changes in the region's real estate market and future economic
conditions.
The following is a comparative summary of (a) loans on which the accrual of
income has been discontinued and (b) loans which are contractually past due
90-days or more but have not been classified nonaccrual at December 31:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Non-accrual loans........................................ $13,216 $15,428
Accruing loans delinquent 90-days or more................ 2,123 706
------- -------
Total............................................... $15,339 $16,134
======= =======
</TABLE>
The total amount of interest income received during the year on nonaccrual
loans outstanding at December 31, 1998, 1997 and 1996 amounted to $178,000,
$186,000 and $198,000, respectively. Additional interest income totaling
$828,000, $996,000 and $1,050,000 on non-accrual loans would have been
recognized in 1998, 1997 and 1996, respectively, if interest on all such loans
had been recorded based upon original contract terms. The Bank is not committed
to lend additional funds to borrowers on non-accrual status.
F-13
<PAGE> 158
HUDSON CITY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
An analysis of the allowance for loan losses at December 31 follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year.......................... $15,625 $13,045 $11,906
------- ------- -------
Charge-offs........................................... (336) (330) (1,160)
Less recoveries....................................... 23 60 24
------- ------- -------
Net charge-offs....................................... (313) (270) (1,136)
------- ------- -------
Provision for loan losses............................. 2,400 2,850 2,275
------- ------- -------
Balance at end of year................................ $17,712 $15,625 $13,045
======= ======= =======
</TABLE>
7. FORECLOSED REAL ESTATE, NET
Foreclosed real estate, net, at December 31 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Foreclosed real estate..................................... $1,058 $1,477
Valuation allowance........................................ (32) (67)
------ ------
Total foreclosed real estate, net..................... $1,026 $1,410
====== ======
</TABLE>
An analysis of the valuation allowance for foreclosed real estate at
December 31 follows:
<TABLE>
<CAPTION>
1998 1997
----- -----
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year................................ $ 67 $ 83
Provision for write-downs................................... 148 87
Write-downs................................................. (183) (103)
----- -----
Balance at end of year...................................... $ 32 $ 67
===== =====
</TABLE>
8. BANKING PREMISES AND EQUIPMENT, NET
A summary of the net carrying value of banking premises and equipment at
December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land................................................... $ 4,291 $ 4,291
Building............................................... 29,507 28,693
Leasehold improvements................................. 9,638 9,301
Furniture, fixtures and equipment...................... 27,758 25,534
-------- --------
71,194 67,819
Accumulated depreciation and amortization.............. (42,130) (38,622)
-------- --------
Total banking premises and equipment.............. $ 29,064 $ 29,197
======== ========
</TABLE>
F-14
<PAGE> 159
HUDSON CITY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
Amounts charged to net occupancy expense for depreciation and amortization
of banking premises and equipment amounted to $3,508,000, $3,587,000 and
$3,809,000 in 1998, 1997 and 1996, respectively.
The Bank has entered into non-cancelable operating lease agreements with
respect to banking premises and equipment. It is expected that many agreements
will be renewed at expiration in the normal course of business. Future minimum
rental commitments required under operating leases that have initial or
remaining non-cancelable lease terms in excess of one year are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -------
<S> <C>
1999............................................... $ 2,465
2000............................................... 2,357
2001............................................... 2,204
2002............................................... 1,911
2003............................................... 1,655
Thereafter......................................... 7,198
-------
Total......................................... $17,790
=======
</TABLE>
Net occupancy expense includes gross rental expense for certain bank
premises of $2,752,000 in 1998, $2,790,000 in 1997, and $2,622,000 in 1996, and
rental income of $608,000, $603,000 and $499,000 for the respective years.
9. DEPOSITS
Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
BALANCE PERCENT BALANCE PERCENT
---------- ------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Savings.......................................... $ 832,759 12.23% $ 835,062 12.91%
Demand........................................... 313,061 4.60 272,326 4.21
Interest-bearing demand.......................... 100,436 1.48 90,869 1.41
Money market..................................... 505,201 7.42 500,029 7.73
Time deposits.................................... 5,055,882 74.27 4,767,670 73.74
---------- ------ ---------- ------
Total deposits.............................. $6,807,339 100.00% $6,465,956 100.00%
========== ====== ========== ======
</TABLE>
Time deposits $100,000 and over amounted to $516,084,000 and $460,982,000
at December 31, 1998 and 1997, respectively. Interest expense on time deposits
$100,000 and over for the years ended December 31, 1998, 1997 and 1996 was
$27,241,000, $24,279,000 and $16,729,000, respectively. Included in demand
accounts are mortgage escrow deposits of $39,098,000 and $38,662,000 at December
31, 1998 and 1997, respectively.
F-15
<PAGE> 160
HUDSON CITY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
Scheduled maturities of time deposits are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- --------------
(IN THOUSANDS)
<S> <C>
1999........................................... $4,765,169
2000........................................... 254,084
2001........................................... 22,331
2002........................................... 4,305
2003........................................... 9,993
----------
Total..................................... $5,055,882
==========
</TABLE>
10. EMPLOYEE BENEFIT PLANS
The Bank maintains certain non-contributory benefit plans which cover all
employees, and retired employees, who have met eligibility requirements of the
plans. Benefits for the qualified and non-qualified defined benefit retirement
plans are based primarily on years of service and compensation. The Bank's
funding of the qualified retirement plan is actuarially determined on an annual
basis. It is the Bank's policy to fund the qualified retirement plan
sufficiently to meet the minimum requirements set forth in the Employee
Retirement Income Security Act of 1974. The non-qualified retirement plan, for
certain executive officers, is unfunded and has a benefit obligation of
$2,500,000 at December 31, 1998 and $2,100,000 at December 31, 1997. The Bank
provides certain health care and life insurance benefits to eligible retired
employees ("other benefits"). Participants generally become eligible for retiree
health care and life insurance benefits after ten years of service.
The following table shows the change in benefit obligation, the change in
plan assets, and the funded status for the retirement plans and other benefits
at December 31:
<TABLE>
<CAPTION>
RETIREMENT PLANS OTHER BENEFITS
------------------- --------------------
1998 1997 1998 1997
-------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Change in Benefit Obligation:
Benefit obligation at beginning of year........ $ 46,906 $41,427 $ 29,770 $ 29,458
Service cost................................... 2,267 2,057 1,452 1,468
Interest cost.................................. 3,178 3,041 1,865 1,979
Actuarial loss (gain).......................... 2,018 1,636 (2,431) (2,572)
Benefits paid.................................. (1,272) (1,255) (566) (563)
-------- ------- -------- --------
Benefit obligation at end of year.............. 53,097 46,906 30,090 29,770
-------- ------- -------- --------
Change in Plan Assets:
Fair value of plan assets at beginning of
year........................................ 58,116 47,583 -- --
Actual return on plan assets................... 10,446 10,037 -- --
Employer contribution.......................... 85 1,752 566 563
Benefits paid.................................. (1,272) (1,256) (566) (563)
-------- ------- -------- --------
Fair value of plan assets at end of year....... 67,375 58,116 -- --
-------- ------- -------- --------
Funded Status............................... 14,278 11,210 (30,090) (29,770)
</TABLE>
F-16
<PAGE> 161
HUDSON CITY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
RETIREMENT PLANS OTHER BENEFITS
------------------- --------------------
1998 1997 1998 1997
-------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Unrecognized transition asset.................. (1,197) (1,596) -- --
Unrecognized prior service cost................ 7 20 -- --
Unrecognized net actuarial (gain) loss......... (10,126) (6,990) 704 3,135
-------- ------- -------- --------
Prepaid (accrued) benefit cost.............. $ 2,962 $ 2,644 $(29,386) $(26,635)
======== ======= ======== ========
</TABLE>
Net periodic benefit (income) cost at December 31 included the following
components:
<TABLE>
<CAPTION>
RETIREMENT PLANS OTHER BENEFITS
----------------------------- --------------------------
1998 1997 1996 1998 1997 1996
------- ------- ------- ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service cost...................... $ 2,267 $ 2,057 $ 2,193 $1,452 $1,468 $1,636
Interest cost..................... 3,178 3,041 2,829 1,865 1,979 2,000
Expected return on assets......... (5,167) (4,228) (3,701) -- -- --
Amortization of:
Net (gain) loss................. (124) 24 15 -- 43 300
Unrecognized prior service
cost......................... 13 13 13 -- -- --
Unrecognized remaining net
assets....................... (399) (399) (345) -- -- --
------- ------- ------- ------ ------ ------
Net periodic benefit (income)
cost....................... $ (232) $ 508 $ 1,004 $3,317 $3,490 $3,936
======= ======= ======= ====== ====== ======
</TABLE>
The following are the weighted average assumptions used in accounting for
the benefit plans at December 31:
<TABLE>
<CAPTION>
RETIREMENT
PLANS OTHER BENEFITS
------------ --------------
1998 1997 1998 1997
---- ---- ----- -----
<S> <C> <C> <C> <C>
Discount rate........................................... 6.50% 7.00% 6.50% 7.00%
Expected return on assets............................... 9.00 9.00 -- --
Rate of compensation increase........................... 5.75 6.25 -- --
</TABLE>
Assumed health care cost trend rates used to measure the expected cost of
other benefits for 1999 were 9.00% for Medicare-eligible retirees and 10.00% for
non-Medicare eligible retirees. The rates were assumed to decrease gradually to
4.50% for 2006 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the
amounts reported for health care plans. A 1% change in the assumed health care
cost trend rate would have the following effects on other benefits:
<TABLE>
<CAPTION>
1% INCREASE 1% DECREASE
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Effect on total service cost and interest cost...... $ 741 $ (556)
Effect on other benefit obligations................. 5,312 (4,120)
</TABLE>
The Bank maintains a tax-deferred profit incentive bonus savings plan based
on the Bank's profitability. All employees are eligible after one year of
employment and the attainment of age 21. The expense amounted to $1,995,000,
$1,913,000 and $1,823,000 in 1998, 1997 and 1996, respectively.
F-17
<PAGE> 162
HUDSON CITY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
The Bank also maintains certain incentive plans to recognize key executives
who are able to make substantial contributions to the long-term success and
financial strength of the Bank. At the end of each performance period, the value
of the award is determined in accordance with established criteria. Participants
can elect cash payment or elect to defer the award until retirement. The current
long-term performance period is January 1, 1996 to December 31, 1998. The
expense related to these plans amounted to $1,723,000 in 1998, $1,694,000 in
1997 and $1,542,000 in 1996.
11. INCOME TAXES
Income tax expense for each of the years in the three-year period ended
December 31, 1998 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
FEDERAL:
- --------
Current............................................... $54,500 $50,706 $41,108
Deferred (benefit) expense............................ (3,600) (1,561) 1,513
------- ------- -------
Total Federal.................................... 50,900 49,145 42,621
------- ------- -------
STATE:
- -----
Current............................................... 4,907 4,489 3,844
Deferred (benefit) expense............................ (307) (134) 130
------- ------- -------
Total state...................................... 4,600 4,355 3,974
------- ------- -------
Total income tax expense......................... $55,500 $53,500 $46,595
======= ======= =======
</TABLE>
Not included in the above table is income tax benefit of $232,000, $831,000
and $428,000 for 1998, 1997 and 1996, respectively, which represents the income
tax benefit on the net unrealized losses of securities available for sale.
The amounts reported as income tax expense vary from the amounts that would
be reported by applying the statutory federal income tax rate to income before
income taxes due to the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income before income tax expense................... $148,769 $143,493 $127,426
Statutory income tax rate.......................... 35% 35% 35%
-------- -------- --------
Computed expected income tax expense............... 52,069 50,223 44,599
State income taxes, net of federal income tax
benefit.......................................... 2,990 2,831 2,583
Amortization of goodwill........................... 564 620 710
Tax-exempt interest................................ (126) (125) (146)
Other, net......................................... 3 (49) (1,151)
-------- -------- --------
Income tax expense............................... $ 55,500 $ 53,500 $ 46,595
======== ======== ========
</TABLE>
F-18
<PAGE> 163
HUDSON CITY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
The net deferred tax asset at December 31 consists of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Discount accretion........................................ $ 2,867 $ 3,641
Deferred loan origination fees............................ 2,135 2,568
Postretirement benefits................................... 11,239 10,231
Book loan loss reserve.................................... 6,730 5,938
Mortgage premium amortization............................. 2,124 1,458
Nonaccrual interest income................................ 477 598
Other..................................................... 5,313 4,372
------- -------
30,885 28,806
------- -------
Deferred tax liabilities:
Tax bad debt reserve...................................... 10,399 12,478
Net unrealized gain on securities available for sale...... 411 643
Retirement Plan........................................... 2,073 1,804
Other..................................................... 1,198 1,216
------- -------
14,081 16,141
------- -------
Net deferred tax asset................................. $16,804 $12,665
======= =======
</TABLE>
The net deferred tax asset represents the anticipated federal and state tax
benefits expected to be realized in future years upon the utilization of the
underlying tax attributes comprising this balance. In management's opinion, in
view of the Bank's previous, current and projected future earnings trends, such
net deferred tax asset will more likely than not be fully realized. Accordingly,
no valuation allowance was deemed to be required at December 31, 1998 and 1997.
At December 31, 1998 and 1997, the Bank's bad debt reserve for federal
income tax reporting purposes was approximately $77,000,000 and $82,000,000,
respectively. Retained earnings at December 31, 1998 and 1997 included
approximately $49,000,000 for which no deferred income taxes have been provided.
This amount represents the base year allocation of income to bad debt deduction
for tax purposes. Under SFAS No. 109, this amount is treated as a permanent
difference and deferred taxes are not recognized unless it appears that it will
be reduced and result in taxable income in the foreseeable future. Events that
would result in taxation of these reserves include failure to qualify as a bank
for tax purposes or distributions in complete or partial liquidation.
12. OFF-BALANCE SHEET RISK AND CONTINGENCIES
The Bank is a party to commitments to extend credit in the normal course of
business to meet the financial needs of its customers. Commitments to extend
credit are agreements to lend money to a customer as long as there is no
violation of any condition established in the contract. Commitments to fund
first mortgage loans generally have fixed expiration dates or other termination
clauses, whereas home equity lines of credit have no expiration date. Since some
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank evaluates each customer's credit-worthiness on a case-by-case basis.
At December 31, 1998, the Bank had fixed and variable rate first mortgage
loan commitments to extend credit of approximately $124,557,000 and $36,925,000,
respectively, and unused home equity
F-19
<PAGE> 164
HUDSON CITY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
and overdraft lines of credit of approximately $53,421,000. Commitments to
purchase mortgage-backed securities amounted to $256,667,000 at December 31,
1998. No commitments are included in the accompanying financial statements.
There is no exposure to credit loss in the event the other party to commitments
to extend credit does not exercise its rights to borrow under the commitment.
In the normal course of business, there are various outstanding legal
proceedings. In the opinion of management, the financial statements of the Bank
will not be materially affected as a result of such legal proceedings.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments represents the estimated amounts at
which the asset or liability could be exchanged in a current transaction between
willing parties, other than in a forced liquidation sale. 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. Further, certain tax implications related to
the realization of the unrealized gains and losses could have a substantial
impact on these fair value estimates and have not been incorporated into any of
the estimates.
Carrying amounts of cash, due from banks and Federal funds sold are
considered to approximate fair value. The fair value of fixed rate one- to
four-family mortgages and fixed rate home equity loans is generally estimated
using the present value of expected future cash flows. The fair value of
adjustable rate one-to four-family mortgages and home equity loans with
adjustable interest rates is estimated using market prices. For time deposits,
the fair value is estimated by discounting estimated future cash flows using
currently offered rates for deposits of a similar maturity. For deposit
liabilities payable on demand, the fair value is estimated by discounting
estimated future cash flows using a regulatory borrowing rate most closely
associated with maturity date ranges that were established using the Bank's
history and regulatory guidelines. The fair value of off-balance sheet
commitments is not material.
Other important elements which are not deemed to be financial assets or
liabilities and therefore, not considered in these estimates include the value
of the Bank's retail branch delivery system, its existing core deposit base,
banking premises and equipment, and goodwill.
The estimated fair value of the Bank's financial instruments at December 31
are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from banks................... $ 87,075 $ 87,075 $ 71,074 $ 71,074
Federal funds sold........................ 69,800 69,800 24,600 24,600
Investment securities held to maturity.... 1,393 1,420 1,466 1,503
Investment securities available for
sale.................................... 785,031 785,031 654,726 654,726
Mortgage-backed securities held to
maturity................................ 3,070,931 3,106,369 3,022,225 3,091,736
Loans..................................... 3,659,407 3,751,860 3,463,803 3,548,733
LIABILITIES:
Deposits.................................. 6,807,339 6,667,637 6,465,956 6,324,806
</TABLE>
F-20
<PAGE> 165
HUDSON CITY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
14. REGULATORY CAPITAL
Deposits at the Bank are insured up to standard limits of coverage provided
by the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation
("FDIC"). The Bank is a New Jersey state chartered savings bank and is subject
to comprehensive regulation, supervision and periodic examinations by the FDIC
and by the New Jersey State Department of Banking.
FDIC regulations require banks to maintain minimum levels of regulatory
capital. Under the regulations in effect at December 31, 1998, the Bank was
required to maintain (a) a minimum leverage ratio of Tier 1 capital to total
adjusted assets of 4.0%, and (b) minimum ratios of Tier 1 and total capital to
risk-weighted assets of 4.0% and 8.0 %, respectively.
Under its prompt corrective action regulations, the FDIC is required to
take certain supervisory actions (and may take additional discretionary actions)
with respect to an undercapitalized institution. Such actions could have a
direct material effect on the institution's financial statements. The
regulations establish a framework for the classification of savings institutions
into five categories: well-capitalized, adequately-capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. Generally, an institution is considered well-capitalized if it
has a leverage (Tier 1) capital ratio of at least 5.0%; a Tier 1 risk-based
capital ratio of at least 6.0%; and a total risk-based capital ratio of at least
10.0%.
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the FDIC about
capital components, risk weightings and other factors.
Management believes that, as of December 31, 1998, the Bank meets all
capital adequacy requirements to which it is subject. Further, the most recent
FDIC notification categorized the Bank as a well-capitalized institution under
the prompt corrective action regulations. There have been no conditions or
events since that notification that management believes have changed the Bank's
capital classification.
The following is a summary of the Bank's actual capital amounts and ratios
as of December 31, 1998 and 1997, compared to the FDIC minimum capital adequacy
requirements and the FDIC requirements for classification as a well-capitalized
institution:
<TABLE>
<CAPTION>
FDIC REQUIREMENTS
------------------------------------------
MINIMUM CAPITAL FOR CLASSIFICATION AS
BANK ACTUAL ADEQUACY WELL-CAPITALIZED
----------------- ----------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ----- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998
Leverage (Tier 1) capital.......... $898,494 11.93% $301,314 4.00% $376,642 5.00%
Risk-based capital:
Tier 1........................... 898,494 38.48 93,409 4.00 140,114 6.00
Total............................ 916,206 39.23 186,818 8.00 233,523 10.00
DECEMBER 31, 1997
Leverage (Tier 1) capital.......... $803,615 11.37% $282,836 4.00% $353,546 5.00%
Risk-based capital:
Tier 1........................... 803,615 36.88 87,160 4.00 130,740 6.00
Total............................ 819,240 37.60 174,320 8.00 217,901 10.00
</TABLE>
F-21
<PAGE> 166
HUDSON CITY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
15. RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. This statement should not be applied retroactively to
financial statements of prior periods. The adoption of the provisions of SFAS
No. 133 is not expected to have a material impact on the financial position or
results of operations of the Bank.
In October 1998, the Financial Accounting Standards Board issued SFAS No.
134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise." This statement is an amendment of SFAS No. 65, "Accounting for
Certain Mortgage Banking Activities," and requires that after the securitization
of mortgage loans held for sale, an entity engaged in mortgage banking
activities classify the resulting mortgage-backed securities or other retained
interests based on its ability and intent to sell or hold those investments.
This statement is effective for the first fiscal quarter beginning after
December 15, 1998. The adoption of the provisions of SFAS No. 134 is not
expected to have a material impact on the financial position or results of
operations of the Bank.
F-22
<PAGE> 167
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO
SELL, OR THE SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL. THE AFFAIRS OF HUDSON CITY SAVINGS BANK OR HUDSON CITY
BANCORP, INC. MAY CHANGE AFTER THE DATE OF THIS PROSPECTUS. DELIVERY OF THIS
DOCUMENT AND THE SALES OF SHARES MADE HEREUNDER DOES NOT MEAN OTHERWISE.
TABLE OF CONTENTS
Page
SUMMARY ................................................................ 3
RISK FACTORS ........................................................... 11
SELECTED FINANCIAL AND OTHER DATA ...................................... 13
RECENT DEVELOPMENTS .................................................... 15
HUDSON CITY SAVINGS BANK ............................................... 20
HUDSON CITY BANCORP, INC. .............................................. 20
HUDSON CITY, MHC ....................................................... 20
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING .................... 21
OUR POLICY REGARDING DIVIDENDS ......................................... 22
MARKET FOR THE COMMON STOCK ............................................ 23
REGULATORY CAPITAL COMPLIANCE .......................................... 24
CAPITALIZATION ......................................................... 25
PRO FORMA DATA ......................................................... 26
HUDSON CITY SAVINGS BANK STATEMENTS OF INCOME .......................... 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ........................ 32
BUSINESS OF HUDSON CITY SAVINGS BANK ................................... 54
BUSINESS OF HUDSON CITY BANCORP, INC. .................................. 79
REGULATION OF HUDSON CITY SAVINGS BANK AND HUDSON CITY BANCORP ......... 80
TAXATION ............................................................... 93
MANAGEMENT ............................................................. 96
THE REORGANIZATION AND THE OFFERING..................................... 112
RESTRICTIONS ON ACQUISITION OF HUDSON CITY BANCORP
AND HUDSON CITY SAVINGS ................................................ 134
DESCRIPTION OF CAPITAL STOCK OF HUDSON CITY BANCORP .................... 140
LEGAL AND TAX OPINIONS ................................................. 142
EXPERTS ................................................................ 142
REGISTRATION REQUIREMENTS .............................................. 142
WHERE YOU CAN FIND ADDITIONAL INFORMATION .............................. 143
INDEX TO FINANCIAL STATEMENTS .......................................... F-1
Until the later of [ ], 1999 or 25 days after commencement of the offering, all
dealers effecting transactions in these securities, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition
to the dealers' obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
UP TO 77,696,875 SHARES OF
COMMON STOCK
HUDSON CITY BANCORP, INC.
PROPOSED HOLDING COMPANY
FOR HUDSON CITY SAVINGS BANK
PROSPECTUS
Ryan, Beck & Co.
[ ], 1999
<PAGE> 168
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
New Jersey State Banking Department application fee......... $ 10,000
SEC registration fee(1)..................................... 241,917
National Association of Securities Dealers filing fee(1).... 30,500
Nasdaq National Market Listing Fee(1)....................... 95,000
Printing, postage and mailing............................... 1,300,000
Legal fees and expenses..................................... 750,000
Marketing fees and selling commissions(1)................... 8,500,000
Financial advisor expenses (excluding legal fees)........... 150,000
Accounting fees and expenses................................ 185,000
Appraiser's fees and expenses (including preparing business
plan)..................................................... 165,000
Transfer agent and registrar fees and expenses.............. 25,000
Conversion agent fees and expenses.......................... 240,000
Certificate printing........................................ 11,000
Telephone, temporary help and other equipment............... 198,000
Blue Sky fees and expenses (including fees of counsel)...... 10,000
Miscellaneous............................................... 200,000
-----------
TOTAL....................................................... $12,111,417
===========
</TABLE>
- ---------------
(1) Actual expenses based upon the registration and sale of 77,696,875 at $10.00
per share. All other expenses are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL"), inter alia,
empowers a Delaware corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (other than an action by or in the right of the corporation)
by reason of the fact that such person is or was a director, officer, employee
or agent of another corporation or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interest of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Similar indemnity is authorized for such person against expenses
(including attorneys' fees) actually and reasonably incurred in connection with
the defense or settlement of any such threatened, pending or completed action or
suit if such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and provided
further that (unless a court of competent jurisdiction otherwise provides) such
person shall not have been adjudged liable to the corporation. Any such
indemnification may be made only as authorized in each specific case upon a
determination by the stockholders or disinterested directors or by independent
legal counsel in a written opinion that indemnification is proper because the
indemnitee has met the applicable standard of conduct.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him, and incurred by him in any such
capacity, or
II-1
<PAGE> 169
arising out of his status as such, whether or not the corporation would
otherwise have the power to indemnify him under Section 145.
Article IX of the Certificate of Incorporation of Hudson City Bancorp, Inc.
(the "Company") provides that a director shall not be personally liable to the
Company or its shareholders for damages for breach of his fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is expressly prohibited by the DGCL. Article X of the Company's
Certificate of Incorporation requires the Company, among other things, to
indemnify to the fullest extent permitted by the DGCL, any person who is or was
or has agreed to become a director or officer of the Company, who was or is made
a party to, or is threatened to be made a party to, or has become a witness in,
any threatened, pending or completed action, suit or proceeding, including
actions or suits by or in the right of the Company, by reason of such agreement
or service or the fact that such person is, was or has agreed to serve as a
director, officer, employee or agent of another corporation or organization at
the request of the Company.
Article X also empowers the Company to purchase and maintain insurance to
protect itself and its directors and officers, and those who were or have agreed
to become directors or officers, against any liability, regardless of whether or
not the Company would have the power to indemnify those persons against such
liability under the law or the provisions set forth in the Certificate of
Incorporation. The Company is also authorized by its Certificate of
Incorporation to enter into individual indemnification contracts with directors
and officers. Hudson City Savings Bank currently maintains and the Company
expects to purchase directors' and officers' liability insurance consistent with
the provisions of the Certificate of Incorporation as soon as practicable.
The Company expects to enter into employment agreements with certain
executive officers, which agreements are expected to require that the Company
will obtain a directors' and officers' liability policy for the benefit of such
officers or that the Company will indemnify such officers to the fullest extent
provided by law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not Applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits filed as a part of this Registration Statement are as follows:
(a). List of Exhibits. (Filed herewith unless otherwise noted.)
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1 Engagement Letter, dated January 27, 1999, between Hudson
City Savings Bank and Ryan Beck & Co.*
1.2 Form of Agency Agreement
2.1 Amended and Restated Plan of Reorganization and Stock
Issuance of Hudson City Savings Bank
3.1 Certificate of Incorporation of Hudson City Bancorp, Inc.*
3.2 Bylaws of Hudson City Bancorp, Inc.*
4.1 Certificate of Incorporation of Hudson City Bancorp, Inc.
(See Exhibit 3.1)
4.2 Bylaws of Hudson City Bancorp, Inc. (See Exhibit 3.2)
4.3 Form of Stock Certificate of Hudson City Bancorp, Inc.*
5.1 Opinion of Thacher Proffitt & Wood regarding legality of
shares*
8.1 Opinion of Thacher Proffitt & Wood regarding federal
taxation
8.2 Letter of KPMG LLP regarding New Jersey State taxation
8.3 Letter of RP Financial, LC. regarding Subscription Rights*
10.1 Employee Stock Ownership Plan of Hudson City Savings Bank*
</TABLE>
II-2
<PAGE> 170
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.2 Profit Incentive Bonus Plan of Hudson City Savings Bank*
10.3 Supplementary Savings Plan of Hudson City Savings Bank*
10.4 Form of ESOP Loan Documents
10.5 Form of Employment Agreement by and among Hudson City
Savings Bank and Hudson City Bancorp, Inc. and certain
officers*
10.6 Form of One-Year Change in Control Agreement by and among
Hudson City Savings Bank and Hudson City Bancorp, Inc. and
certain officers*
10.7 Form of Two-Year Change in Control Agreement by and among
Hudson City Savings Bank and Hudson City Bancorp, Inc. and
certain officers*
10.8 Severance Pay Plan of Hudson City Savings Bank*
10.9 ESOP Restoration Plan of Hudson City Savings Bank*
10.10 Hudson City Savings Bank Outside Directors Consultation
Plan*
10.11 Hudson City Savings Bank Supplemental Executive Retirement
Plan*
10.12 Hudson City Savings Bank Annual Incentive Plan*
10.13 Hudson City Savings Bank Long-Term Incentive Plan*
10.14 Form of Post-Retirement Death Benefit for Senior Officers*
10.15 Engagement Letter, dated February 3, 1999, between Hudson
City Savings Bank and RP Financial, LC. for conversion
appraisal services*
10.16 Engagement Letter, dated February 3, 1999, between Hudson
City Savings Bank and RP Financial, LC. for services related
to the preparation of the business plan*
21.1 Subsidiaries of Hudson City Bancorp, Inc.*
23.1 Consent of KPMG LLP
23.2 Consent of Thacher Proffitt & Wood (Included in Exhibits 5.1
and 8.1)
23.3 Consent of RP Financial, LC.*
24.1 Power of Attorney*
27.1 Financial Data Schedule (Submitted only with filing in
electronic format)*
99.1(a) Appraisal Report of RP Financial, LC(P)(exemption requested)
99.1(b) Updated Appraisal Report of RP Financial, LC.(P)(exemption
requested)
99.2 Form of Marketing Materials to be used in connection with
the Offerings
</TABLE>
- ---------------
* Previously filed on March 15, 1999.
(P) Filed in paper format only.
(b). Financial Statement Schedules.
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation
II-3
<PAGE> 171
from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
The undersigned Registrant hereby undertakes to provide to the agent at the
closing specified in the Agency Agreement, certificates in such denominations
and registered in such names as required by the agent to permit prompt delivery
to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE> 172
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to Registration Statement No. 333-74383 to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Paramus, New Jersey, on April 27, 1999.
Hudson City Bancorp, Inc.
By: /s/ LEONARD S. GUDELSKI
------------------------------------
Leonard S. Gudelski
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement No. 333-74383, has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ LEONARD S. GUDELSKI Director, Chairman of the Board and April 27, 1999
- ------------------------------------------ Chief Executive Officer (Principal
Leonard S. Gudelski executive officer)
/s/ RONALD E. HERMANCE, JR. Director, President and Chief Operating April 27, 1999
- ------------------------------------------ Officer (Principal financial officer)
Ronald E. Hermance, Jr.
* Director April 27, 1999
- ------------------------------------------
Verne S. Atwater
* Director April 27, 1999
- ------------------------------------------
John D. Birchby
* Director April 27, 1999
- ------------------------------------------
Kenneth L. Birchby
* Director April 27, 1999
- ------------------------------------------
Victoria H. Bruni
* Director April 27, 1999
- ------------------------------------------
William J. Cosgrove
* Director April 27, 1999
- ------------------------------------------
Andrew J. Egner, Jr.
* Director April 27, 1999
- ------------------------------------------
John W. Klie
* Director April 27, 1999
- ------------------------------------------
Donald O. Quest
* Director April 27, 1999
- ------------------------------------------
Arthur V. Wynne, Jr.
By: /s/ RONALD E. HERMANCE, JR.
-------------------------------------
Ronald E. Hermance, Jr.
as Attorney-in-fact pursuant to a Power of
Attorney filed on March 15, 1999.
</TABLE>
II-5
<PAGE> 173
EXHIBIT LIST
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1 Engagement Letter, dated January 27, 1999, between Hudson
City Savings Bank and Ryan Beck & Co.*
1.2 Form of Agency Agreement
2.1 Amended and Restated Plan of Reorganization and Stock
Issuance of Hudson City Savings Bank
3.1 Certificate of Incorporation of Hudson City Bancorp, Inc.*
3.2 Bylaws of Hudson City Bancorp, Inc.*
4.1 Certificate of Incorporation of Hudson City Bancorp, Inc.
(See Exhibit 3.1)
4.2 Bylaws of Hudson City Bancorp, Inc. (See Exhibit 3.2)
4.3 Form of Stock Certificate of Hudson City Bancorp, Inc.*
5.1 Opinion of Thacher Proffitt & Wood regarding legality of
shares*
8.1 Opinion of Thacher Proffitt & Wood regarding federal
taxation
8.2 Letter of KPMG LLP regarding New Jersey State taxation
8.3 Letter of RP Financial, LC. regarding Subscription Rights*
10.1 Employee Stock Ownership Plan of Hudson City Savings Bank*
10.2 Profit Incentive Bonus Plan of Hudson City Savings Bank*
10.3 Supplementary Savings Plan of Hudson City Savings Bank*
10.4 Form of ESOP Loan Documents
10.5 Form of Employment Agreement by and among Hudson City
Savings Bank and Hudson City Bancorp, Inc. and certain
officers*
10.6 Form of One-Year Change in Control Agreement by and among
Hudson City Savings Bank and Hudson City Bancorp, Inc. and
certain officers*
10.7 Form of Two-Year Change in Control Agreement by and among
Hudson City Savings Bank and Hudson City Bancorp, Inc. and
certain officers*
10.8 Severance Pay Plan of Hudson City Savings Bank*
10.9 ESOP Restoration Plan of Hudson City Savings Bank*
10.10 Hudson City Savings Bank Outside Directors Consultation
Plan*
10.11 Hudson City Savings Bank Supplemental Executive Retirement
Plan*
10.12 Hudson City Savings Bank Annual Incentive Plan*
10.13 Hudson City Savings Bank Long-Term Incentive Plan*
10.14 Form of Post-Retirement Death Benefit for Senior Officers*
10.15 Engagement Letter, dated February 3, 1999, between Hudson
City Savings Bank and RP Financial, LC. for conversion
appraisal services*
10.16 Engagement Letter, dated February 3, 1999, between Hudson
City Savings Bank and RP Financial, LC. for services related
to the preparation of the business plan*
21.1 Subsidiaries of Hudson City Bancorp, Inc.*
23.1 Consent of KPMG LLP
23.2 Consent of Thacher Proffitt & Wood (Included in Exhibits 5.1
and 8.1)
23.3 Consent of RP Financial, LC.*
24.1 Power of Attorney*
27.1 Financial Data Schedule (Submitted only with filing in
electronic format)*
99.1(a) Appraisal Report of RP Financial, LC(P)(exemption requested)
99.1(b) Updated Appraisal Report of RP Financial, LC.(P)(exemption
requested)
99.2 Form of Marketing Materials to be used in connection with
the Offerings
</TABLE>
- ---------------
* Previously filed on March 15, 1999.
(P) Filed in paper format only.
<PAGE> 1
Exhibit 1.2
HUDSON CITY BANCORP, INC.
(a Delaware-chartered Stock Corporation)
Up to 67,562,500 Shares
(Subject to Increase Up to 77,696,875 Shares)
COMMON STOCK ($.01 Par Value)
Subscription Price $10.00 Per Share
AGENCY AGREEMENT
May ___, 1999
Ryan, Beck & Co., Inc.
220 South Orange Avenue
Livingston, New Jersey 07039-5817
Ladies and Gentlemen:
Hudson City Bancorp, Inc., a Delaware-chartered stock corporation (the
"Holding Company"), Hudson City, MHC, a New Jersey-chartered mutual savings bank
holding company (the "MHC"), in formation, and Hudson City Savings Bank, a New
Jersey-chartered mutual savings bank (the "Bank") (collectively, the "Primary
Parties") hereby confirm, jointly and severally, their agreement with Ryan, Beck
& Co., Inc. (the "Agent"), as follows:
Section 1. The Offering. The Bank, in accordance with the Plan of
Reorganization and Stock Issuance of Hudson City Savings Bank (the "Plan"),
intends to convert from a New Jersey-chartered mutual savings bank to a New
Jersey-chartered stock savings bank, which will become a wholly-owned subsidiary
of the Holding Company, which in turn will become a majority-owned subsidiary of
the MHC. Pursuant to the Plan, the Holding Company is offering up to 67,562,500
shares of common stock, par value $.01 per share (the "Common Stock") (subject
to an increase up to 77,696,875 shares), in a subscription offering (the
"Subscription Offering"), and, if necessary, (i) a community offering (the
"Community Offering") and/or (ii) syndicated community offering ("Syndicated
Community Offering") or a public offering (the "Public Offering"). If there is a
Public Offering, such Public Offering will be governed by an underwriting
agreement, the terms of which shall be mutually agreed upon by the Primary
Parties and Agent.
Pursuant to the Plan, the Holding Company will offer and sell shares of
its Common Stock (the "Conversion Shares" or "Shares") in the Subscription
Offering, Community Offering, and Syndicated Community Offering (collectively,
the "Conversion Offerings" or "Offerings") so that, upon completion of the
Conversion Offerings, the purchasers of Conversion Shares in the Conversion
Offerings will own 47% of the outstanding Common Stock of Holding Company and
the MHC will own 53% of the outstanding Common Stock of Holding Company. The
Holding Company will issue the Shares at a purchase price of $10.00 per share
(the "Purchase Price"). If the number of Conversion Shares is increased or
decreased in accordance with the Plan, the terms "Conversion Shares" and
"Shares" shall mean such greater or lesser number, where applicable. References
to the Bank herein includes the Bank in its current mutual form
<PAGE> 2
and/or post-Reorganization stock form as a wholly-owned subsidiary of the
Holding Company, as indicated by the context.
Pursuant to the Plan, in the Subscription Offering, the Company will offer
the Conversion Shares in descending order of priority to: (1) the Bank's
depositors with aggregate account balances of $100.00 or more on December 31,
1997 ("Eligible Account Holders"); (2) the Tax-Qualified Employee Stock Benefit
Plans (as such term is defined in the Plan); and (3) the Bank's depositors with
aggregate account balances of $100.00 on March 31, 1999 ("Supplemental Eligible
Account Holders"), subject to the allocation procedures and purchase limitations
set forth in the Plan. The Holding Company may offer shares of Common Stock
offered but not subscribed for in the Subscription Offering, in the Community
Offering to the following persons in the following order of priority: (i) the
Bank's depositors with aggregate account balances of $100.00 or more on the
voting record date of April 30, 1999 to be established in connection with the
Special Meeting ("Other Depositors"); (ii) natural persons that are Residents of
New Jersey (as defined in the Plan), (iii) other Residents of New Jersey and
(iv) certain other persons that the Bank determines to be members of its
community, subject to priorities and purchase limitations set forth in the Plan.
In the event a Community Offering is held, it may be held at any time during or
immediately after the Subscription Offering. Depending on market conditions,
Shares not subscribed for in the Subscription Offering or purchased in the
Community Offering may be offered in the Syndicated Community Offering to
eligible members of the general public on a best efforts basis, as described in
subsection 4(c) below.
The Holding Company has filed with the U.S. Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-1 (File No.
333-74383) in order to register the Shares under the Securities Act of 1933, as
amended (the "1933 Act"), and has filed such amendments thereto as have been
required to the date hereof (the "Registration Statement"). The prospectus, as
amended, included in the Registration Statement at the time it initially became
effective is hereinafter called the "Prospectus", except that if any prospectus
is filed by the Holding Company pursuant to Rule 424(b) or (c) of the
regulations of the Commission under the 1933 Act differing from the prospectus
included in the Registration Statement at the time it initially becomes
effective, the term "Prospectus" shall refer to the prospectus filed pursuant to
Rule 424(b) or (c) from and after the time said prospectus is filed with the
Commission and shall include any supplements and amendments thereto from and
after their dates of effectiveness or use, respectively.
In connection with the Reorganization, the Bank filed with the Federal
Deposit Insurance Corporation (the "FDIC"), pursuant to Part 303 of Title 12, of
the Code of Federal Regulations (the "Federal Regulations"), a Notice of Mutual
Holding Company Reorganization and an Interagency Merger Application for
approval of the merger of an interim savings bank with and into the Bank, and
has filed amendments thereto as required by the FDIC (as so amended, the "MHC
Notice and Application"). The Holding Company and the MHC have filed with the
Board of Governors of the Federal Reserve System (the "FRB") its application on
Form FRY-3 (the "Holding Company Application") to become bank holding companies
under the Bank Holding Company Act of 1956, as amended, and the regulations
promulgated thereunder ("BHCA"). In addition, the Bank has filed an Application
for the formation of a Mutual Savings Bank Holding Company (the "NJ
Application") with the New Jersey Department of Banking and Insurance (the
"DOBI") for approval of the proposed transaction pursuant to the New Jersey
Banking Act of
<PAGE> 3
1948 and the regulations promulgated thereunder (the "State Regulations", and
together with Federal Regulations, the "Conversion Regulations"), which includes
a request for approval of the DOBI for the formation of the interim stock
savings banks and the merger of one of the interim stock savings banks with and
into the Bank. The MHC Notice and Application, the Holding Company Application
and the NJ Application may, from time-to-time, collectively be referred to
herein as the Applications.
Section 2. Appointment of Agent. Subject to the terms and conditions of
this Agreement, the Primary Parties hereby appoint the Agent to consult with,
advise and assist the Primary Parties with the solicitation of subscriptions and
purchase orders for the Conversion Shares in connection with the sale of the
Conversion Shares in the Conversion Offerings.
On the basis of the representations and warranties of the Primary Parties
contained in, and subject to the terms and conditions of, this Agreement, the
Agent accepts such appointment and agrees to consult with and advise the Primary
Parties as to the matters set forth in Section 3 of the letter agreement (the
"Letter Agreement"), dated January 27, 1999, between the Bank and Agent (a copy
of which is attached hereto as Exhibit A). It is acknowledged by the Primary
Parties that the Agent shall not be obligated to purchase any Shares and shall
not be obligated to take any action which is inconsistent with any applicable
law, regulation, decision or order. Except as provided in paragraph 9 of the
Letter Agreement, the appointment of the Agent to provide services hereunder
shall terminate upon consummation of the Offerings.
If requested by the Bank, Agent may also assemble and manage a selling
group of broker-dealers that are members of the National Association of
Securities Dealers, Inc. ("NASD") to participate in the solicitation of purchase
orders for the Shares under a selected dealers' agreement ("Selected Dealers'
Agreement"), the form of which is set forth as Exhibit B to this Agreement. The
Agent will distribute the Common Stock among dealers in a fashion which best
meets the distribution objectives of the Bank and the Plan. On the basis of the
representations and warranties of the Primary Parties contained in, and subject
to the terms and conditions of, this Agreement, Agent accepts such appointment
and agrees to manage the selling group of broker-dealers in the Syndicated
Community Offering. The Agent will not commence the Syndicated Community
Offering without the prior approval of the Primary Parties.
Section 3. Refund of Purchase Price. In the event that the Reorganization
is not consummated for any reason, including but not limited to the inability to
sell 49,937,500 Conversion Shares during the Offerings (including any permitted
extension thereof), this Agreement shall terminate and any persons who have
subscribed for any of the Conversion Shares shall have refunded to them the full
amount which has been received from such person, together with interest as
provided in the Prospectus. Upon termination of this Agreement, neither the
Agent nor the Primary Parties shall have any obligation to the other except that
(i) the Primary Parties shall remain liable for any amounts due pursuant to
Sections 4(a), 9, 11, 12, and 14 hereof , unless the transaction is not
consummated solely due to the breach by the Agent of a warranty, representation
or covenant; and (ii) the Agent shall remain liable for any amount due pursuant
to Sections 11 and 12 hereof, unless the transaction is not consummated due to
the breach by the Primary Parties of a warranty, representation or covenant.
<PAGE> 4
Section 4. Fees. In addition to the expenses specified in Section 9
hereof, as compensation for the Agent's services under this Agreement, the Agent
has received or will receive the following fees from the Primary Parties:
(a) An advisory fee of $150,000, with the first $50,000 having been
paid upon execution of the Letter Agreement, and the remaining $100,000 due upon
the commencement of the Offering or, if this Agreement is terminated pursuant to
Section 14 hereof prior to the commencement of the Offering, immediately upon
such termination.
(b) A fee of one and one-fifth percent (1.2%) of the dollar amount
of the Common Stock sold in the Subscription Offering and Community Offering,
excluding shares purchased by the Bank's officers, directors, or employees (or
members of the immediate families of such persons. For these purposes, immediate
family of a person means: (a) the person's spouse, or (b) the person's parents,
siblings or children, who live in the same household as the person).
(c) If any of the Conversion Shares remain available after the
Subscription Offering and Community Offering, at the request of the Bank, the
Agent will seek to form a group of approved broker-dealer firms in accordance
with Section 2 for purposes of the Syndicated Community Offering. Pursuant to
this subsection 4(c), the Agent will be paid a fee not to exceed 6.0% and not
less than 5.0% of the aggregate dollar amount of the Conversion Shares sold
pursuant to this subsection 4(c) in the Syndicated Community Offering. The exact
percentage shall be agreed to by the Bank and Agent in writing prior to the
commencement of the Syndicated Community Offering. Of such fee, the Agent will
retain 1.2% of the aggregate dollar amount of the shares sold pursuant to this
subsection 4(c) as a management fee, and will pass on to the Assisting Brokers,
which may include the Agent, the remainder of such fee relating to the
Conversion Shares sold by such Assisting Brokers pursuant to this subsection
4(c).
(d) The Primary Parties have agreed to reimburse the Agent for its
out-of-pocket expenses and its legal fees in accordance with Section 9 hereof
and to indemnify the Agent against certain claims or liabilities, including
certain liabilities under the 1933 Act in accordance with Section 11 hereof, and
will, in addition to the fees set forth under this Section 4, be required to
contribute to payments Agent may be required to make in connection with any such
claims or liabilities in accordance with Section 12 hereof.
In the event that the Holding Company and/or the Bank are required to resolicit
subscribers for Conversion Shares in the Subscription Offering and Community
Offering and the Agent is required to provide significant additional services in
connection with such a resolicitation, the Primary Parties and the Agent shall
mutually agree to the dollar amount of additional compensation due to the Agent
and the Primary Parties shall pay such amount, if any. Until any agreement
called for by this paragraph is reached, the Agent shall not incur expenses
relating to any resolicitation in an amount that would cause the total expenses
incurred by the Agent, that are reimbursable by the Bank pursuant to Section 9
hereof, to be greater than those permitted without the prior written consent of
the Holding Company or the Bank, which consent shall not be unreasonably
withheld.
<PAGE> 5
Section 5. Closing. If the minimum number of Conversion Shares permitted
to be sold in the Reorganization on the basis of the most recently updated
Appraisal (as defined in Section 6(h)) are subscribed for at or before the
termination of the Offerings, and the other conditions to the completion of the
Reorganization are satisfied, the Holding Company agrees to issue the Shares on
the Closing Date (as hereinafter defined) against payment therefor by the means
authorized by the Plan and to deliver certificates evidencing ownership of the
Conversion Shares in such authorized denominations and registered in such names
as may be indicated on the subscription order forms directly to the purchasers
thereof as promptly as practicable after the Closing Date. The closing (the
"Closing") shall be held at the offices of Thacher Proffitt & Wood ("Thacher
Proffitt"), New York, NY, or at such other place as shall be agreed upon among
the Primary Parties and the Agent, at 10:00 a.m., Eastern Standard Time, on the
business day selected by the Holding Company, which business day shall be no
less than two business days following the giving of prior notice by the Holding
Company to the Agent or at such other time as shall be agreed upon by the
Primary Parties and the Agent. At the Closing, the Primary Parties shall deliver
to the Agent by wire transfer in same-day funds the commissions, fees and
expenses owing to the Agent as set forth in Sections 4 and 9 hereof and the
opinions required hereby and other documents deemed reasonably necessary for the
Agent shall be executed and delivered to effect the sale of the Shares as
contemplated hereby and pursuant to the terms of the Prospectus; provided,
however, that all fees and expenses to which the Agent is entitled under this
Section 4 and 9 hereof shall be due and payable upon receipt by the Company or
the Bank of a written accounting therefor setting forth in reasonable detail the
expenses incurred by the Agent. The Holding Company shall notify the Agent when
funds shall have been received for the minimum number of shares of the Common
Stock. The hour and date upon which the Holding Company shall release the
Conversion Shares for delivery in accordance with the terms hereof is referred
to herein as the "Closing Date."
The Holding Company and the Bank (or their respective agents) shall advise
the Agent whenever an allocation of the Shares does not strictly correspond to
all subscriptions for Shares, as to the allocation of the Shares. The Agent
shall have no liability to any party for the records or other information
provided by the Holding Company and the Bank (or their respective agents) to the
Agent for use in allocating the Shares. The Holding Company and the Bank shall
indemnify and hold harmless the Agent for any liability arising out of the
allocation of the Shares in accordance with the Plan generally and the records
or other information provided to the Agent by the Holding Company and the Bank
(or their respective agents).
Section 6. Representations and Warranties of the Primary Parties. The
Primary Parties jointly and severally represent and warrant to the Agent that:
(a) The Bank has, and as of the Closing Date, the MHC and the
Holding Company will have, all such power, authority, authorizations, approvals
and orders as may be required to enter into this Agreement, to carry out the
provisions and conditions hereof and to issue and sell the Shares as provided
herein and as described in the Prospectus. The consummation of the
Reorganization, the execution, delivery and performance of this Agreement and
the Letter Agreement and the consummation of the transactions contemplated
herein have been duly and validly authorized by all necessary corporate action
on the part of the Bank (except for the approval of the Bank's depositors
necessary for the consumption of the Reorganization) and, as of the Closing
Date, will have been duly and validly authorized by all
<PAGE> 6
necessary corporate action on the part of the MHC and the Holding Company. This
Agreement has been validly executed and delivered by the Primary Parties, and is
a valid, legal and binding obligation of the Primary Parties, in each case
enforceable in accordance with its terms, except as the legality, validity,
binding nature and enforceability thereof may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization, conservatorship, receivership or other
similar laws relating to or affecting the enforcement of creditors' rights
generally, (ii) general equity principles regardless of whether such
enforceability is considered in a proceeding in equity or at law, and (iii) the
extent, if any, that the provisions of Sections 11 or 12 hereof may be
unenforceable as against public policy.
(b) The Registration Statement was declared effective by the
Commission on ________________, 1999; and no stop order has been issued with
respect thereto and to the best knowledge of the Primary Parties no proceedings
therefor have been initiated or threatened by the Commission. At the time the
Registration Statement, including the Prospectus contained therein (including
any amendment or supplement thereto), became effective, the Registration
Statement complied as to form in all material respects with the 1933 Act and the
regulations promulgated thereunder and the Registration Statement, including the
Prospectus contained therein (including any amendment or supplement thereto),
did not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and at the time any Rule 424(b) or (c) Prospectus was filed with the
Commission and at the Closing Date referred to in Section 5, the Registration
Statement, including the Prospectus contained therein (including any amendment
or supplement thereto) and any Blue Sky Application or Sales Information
authorized for use by any of the Primary Parties in connection with the
Offerings, will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the representations and warranties in
this Section 6(c) shall not apply to statements or omissions made in reliance
upon and in conformity with written information furnished to the Primary Parties
by the Agent expressly regarding the Agent for use under the captions "Market
for the Common Stock", "The Reorganization and the Offering - Marketing and
Underwriting Arrangements" and "The Reorganization and the Offering --
Syndicated Community Offering" or with written statements or omissions from any
Sales Information or information filed pursuant to state securities or blue sky
laws or regulations regarding the Agent.
(c) The MHC Notice and Application was filed with the FDIC and the
FDIC has issued to the Bank a notice of its intent not to object to the
Reorganization; the NJ Application has been approved by the DOBI; and the
Holding Company Application has been approved by the FRB. The MHC Notice and
Application, the NJ Application, did and will as of the Closing Date comply as
to form in all material respects with the Conversion Regulations and any other
applicable rules and regulations of the FDIC, the DOBI, and the FRB,
respectively (except as modified or waived in writing by the FDIC, the DOBI or
the FRB.
(d) No order has been issued by the FDIC, the DOBI, or any state
regulatory authority, preventing or suspending the use of the Prospectus and no
action by or before any such government entity to revoke any approval,
authorization or order of effectiveness related to the Reorganization is pending
or, to the best knowledge of the Primary Parties, threatened.
<PAGE> 7
(e) The Plan has been duly adopted by the Board of Managers of the
Bank. To the best knowledge of the Primary Parties, no person has, or at the
Closing Date will have, sought to obtain review of the final action of the FDIC
or the DOBI in approving the Plan, the Reorganization, or the Applications,
pursuant to the BHCA or any other statute or regulation.
(f) The MHC and the Holding Company have filed with the FRB the
Holding Company Application and as of the Closing Date the FRB will have
approved of the MHC's and the Holding Company's becoming bank holding companies
with respect to the Bank.
(g) RP Financial, LC., which prepared the appraisal of the aggregate
pro forma market value of the Common Stock on which the Offerings were based
(the "Appraisal"), has advised the Primary Parties in writing that it is
independent with respect to each of the Primary Parties.
(h) KPMG LLP ("KPMG"), which certified the financial statements
filed as part of the Registration Statement and the MHC Notice and Application,
has advised the Primary Parties that it is and independent certified public
accountant within the meaning of the Code of Ethics of the AICPA, and KPMG is,
with respect to the Company, the Bank and each subsidiary of the Bank,
independent certified public accountants as required by the 1933 Act and the
1933 Act Regulations.
(i) The financial statements and the notes thereto which are
included in the Registration Statement and which are a part of the Prospectus
present fairly the financial condition and retained earnings of the Bank as of
the dates indicated and the results of operations and cash flows for the periods
specified. The financial statements comply in all material respects with the
applicable accounting requirements of Title 12 of the Code of Federal
Regulations, Regulation S-X of the Commission and generally accepted accounting
principles ("GAAP") applied on a consistent basis during the periods presented,
except as otherwise noted therein, and present fairly in all material respects
the information required to be stated therein. The other financial, statistical
and pro forma information and related notes included in the Prospectus present
fairly the information shown therein on a basis consistent with the audited and
unaudited financial statements included in the Prospectus, and as to the pro
forma adjustments, the adjustments made therein have been consistently applied
on the basis described therein.
(j) Since the respective dates as of which information is given in
the Registration Statement, including the Prospectus; (i) there has not been any
material adverse change in the financial condition or in the earnings, capital,
properties or business affairs of the Primary Parties considered as one
enterprise, whether or not arising in the ordinary course of business; (ii)
there have not been any material transactions entered into by any of the Primary
Parties, other than those in the ordinary course of business; and (iii) the
capitalization, liabilities, assets, properties and business of the Primary
Parties conform in all material respects to the descriptions thereof contained
in the Prospectus and, none of the Primary Parties has any material liabilities
of any kind, contingent or otherwise, except as disclosed in the Registration
Statement or the Prospectus.
(k) As of the Closing Date, the Holding Company will be a stock
corporation duly organized and in good standing under the laws of the State of
Delaware, with corporate
<PAGE> 8
power and authority to own its properties and to conduct its business as
described in the Prospectus, and will be qualified to transact business and in
good standing in New Jersey and in each jurisdiction in which the conduct of
business requires such qualification, unless the failure to qualify in one or
more of such jurisdictions would not have a material adverse effect on the
financial condition, earnings, capital, properties or business affairs of the
Primary Parties taken as a whole. As of the Closing Date, the Holding Company
will have obtained all licenses, permits and other governmental authorizations
required for the conduct of its business, except those that individually or in
the aggregate would not materially adversely affect the financial condition,
earnings, capital, assets or properties of the Primary Parties taken as a whole;
and as of the Closing Date, all such licenses, permits and governmental
authorizations will be in full force and effect, and the Holding Company will be
in compliance therewith in all material respects.
(l) As of the Closing Date, the MHC will be duly organized and will
be validly existing as a mutual savings bank holding company under the laws of
the State of New Jersey, duly authorized to conduct its business and own its
property as described in the Registration Statement and the Prospectus; as of
the Closing Date, the MHC will have obtained all licenses, permits and other
governmental authorizations required for the conduct of its business, except
those that individually or in the aggregate would not materially adversely
affect the financial condition, earnings, capital, assets or properties of the
Primary Parties taken as a whole; as of the Closing Date, all such licenses,
permits and governmental authorizations will be in full force and effect and the
MHC will be in compliance therewith in all material respects; as of the Closing
Date, the MHC will be duly qualified as a foreign corporation to transact
business in New Jersey and in each other jurisdiction in which the failure to be
so qualified would have a Material Adverse Effect on the financial condition,
earnings, or business of the Primary Parties taken as a whole (a "Material
Adverse Effect").
(m) The Holding Company does not, and as of the Closing Date, will
not own any equity securities or any equity interest in any business enterprise
except as described in the Prospectus.
(n) As of the Closing Date, the MHC will not be authorized to issue
any shares of capital stock.
(o) The Bank is a duly organized and validly existing New
Jersey-chartered savings bank in mutual form, duly authorized to conduct its
business as described in the Prospectus; the activities of the Bank are
permitted by the rules, regulations and practices of the FDIC, and the DOBI and
under New Jersey law; the Bank has obtained all licenses, permits and other
governmental authorizations currently required for the conduct of its business,
except those that individually or in the aggregate would not materially
adversely affect the financial condition of the Primary Parties taken as a
whole; all such licenses, permits and other governmental authorizations are in
full force and effect and the Bank is in good standing under the laws of the
State of New Jersey and is duly qualified as a foreign corporation to transact
business in each jurisdiction in which failure to so qualify would have a
Material Adverse Effect; all of the issued and outstanding capital stock of the
Bank after the Reorganization will be duly and validly issued and fully paid and
nonassessable; and the Holding Company will directly own all of such capital
stock free and clear of any mortgage, pledge, lien, encumbrance, claim or
restriction. The Bank
<PAGE> 9
does not own equity securities or any equity interest in any other business
enterprise except as otherwise described in the Prospectus or as are immaterial
in amount and are not required to be described in the Prospectus.
(p) The deposit accounts of the Bank are insured by the FDIC up to
applicable limits. Upon consummation of the Reorganization, the Bank will
establish a liquidation account for the benefit of the Bank's depositors, in
accordance with the Plan and the requirements of the Conversion Regulations.
(q) As of the Closing Date, the Bank will not be authorized to issue
any shares of capital stock except to the Holding Company.
(r) Upon consummation of the Reorganization, the authorized, issued
and outstanding equity capital of the Holding Company will be within the range
set forth in the Prospectus under the caption "Capitalization" and, except for
the shares of Common Stock held by the Bank and MHC, in connection with the
Reorganization, no shares of Common Stock have been or will be issued and
outstanding prior to the Closing Date; and the shares of Common Stock to be
subscribed for in the Offering have been duly and validly authorized for
issuance and, when issued and delivered by the Holding Company pursuant to the
Plan against payment of the consideration calculated as set forth in the Plan
and the Prospectus, will be duly and validly issued and fully paid and
nonassessable; the issuance of the Shares is not subject to preemptive rights,
except for the Subscription Rights granted pursuant to the Plan; and the terms
and provisions of the shares of Common Stock will conform in all material
respects to the description thereof contained in the Prospectus. Upon issuance
of the Shares, good title to the Shares will be transferred from the Holding
Company to the purchasers of Shares against payment therefor in the Offering as
set forth in the Plan and the Prospectus.
(s) The Primary Parties are not in violation of their respective
articles of incorporation or charter or their respective bylaws, or in material
default in the performance or observance of any obligation, agreement, covenant,
or condition contained in any contract, lease, loan agreement, indenture or
other instrument to which they are a party or by which they, or any of their
respective property, may be bound which would result in a Material Adverse
Effect. The consummation of the transactions herein contemplated will not (i)
conflict with or constitute a breach of, or default under, the Certificate of
Incorporation, charter or bylaws of any of the Primary Parties, or materially
conflict with or constitute a material breach of, or default under, any material
contract, lease or other instrument to which any of the Primary Parties has a
beneficial interest, or any applicable law, rule, regulation or order that is
material to the financial condition of the Bank; (ii) violate any authorization,
approval, judgment, decree, order, statute, rule or regulation applicable to the
Primary Parties except for such violations which would not have a material
adverse effect on the financial condition and results of operations of the Bank;
or (iii) result in the creation of any lien, charge or encumbrance upon any
property of the Primary Parties, except for such liens, changes or encumbrances
that would not individually or in the aggregate have a Material Adverse Effect.
(t) No material default exists, and no event has occurred which with
notice or lapse of time, or both, would constitute a material default on the
part of any of the Primary Parties, in the due performance and observance of any
term, covenant or condition of any
<PAGE> 10
indenture, mortgage, deed of trust, note, bank loan or credit agreement or any
other material instrument or agreement to which any of the Primary Parties is a
party or by which any of their property is bound or affected in any respect
which, in any such case, is material to the Primary Parties taken as a whole,
and such agreements are in full force and effect; and no other party to any such
agreements has instituted or, to the best knowledge of any of the Primary
Parties, threatened any action or proceeding wherein any of the Primary Parties
is alleged to be in default thereunder under circumstances where such action or
proceeding, if determined adversely to any of the Primary Parties, would have a
Material Adverse Effect.
(u) The Primary Parties have good and marketable title to all assets
which are material to the businesses of the Primary Parties, free and clear of
all liens, charges, encumbrances, restrictions or other claims, except such as
are described in the Prospectus or which do not have a Material Adverse Effect;
and all of the leases and subleases which are material to the businesses of the
Primary Parties, as described in the Registration Statement or Prospectus, are
in full force and effect.
(v) The Primary Parties are not in material violation of any
directive from the FDIC, the DOBI, the FRB, the Commission or any other agency
to make any material change in the method of conducting their respective
businesses; the Primary Parties have conducted and are conducting their
respective businesses so as to comply in all respects with all applicable
statutes and regulations (including, without limitation, regulations, decisions,
directives and orders of the DOBI, the FRB, the Commission and the FDIC), except
where the failure to so comply would not reasonably be expected to result in a
Material Adverse Effect, and there is no charge, investigation, action, suit or
proceeding before or by any court, regulatory authority or governmental agency
or body pending or, to the best knowledge of any of the Primary Parties,
threatened, which would reasonably be expected to materially and adversely
affect the Reorganization, the performance of this Agreement, or the
consummation of the transactions contemplated in the Plan as described in the
Registration Statement, or which would reasonably be expected to result in a
Material Adverse Effect.
(w) Prior to the Closing Date, the Primary Parties will have
received an opinion of their special counsel, Thacher Proffitt, with respect to
the federal income tax consequences of the Reorganization, as described in the
Registration Statement and the Prospectus, and an opinion from KPMG with respect
to the tax consequences of the Reorganization under the laws of the State of New
Jersey; and the facts and representations upon which such opinions will be
based, will be truthful, accurate and complete, and none of the Primary Parties
will take any action inconsistent therewith.
(x) The Bank has filed all required federal and state tax returns,
has paid all taxes that have become due and payable in respect of such returns,
except where permitted to be extended, and no deficiency has been asserted with
respect thereto by any taxing authority.
(y) No approval, authorization, consent or other order of any
regulatory or supervisory or other public authority is required for the
execution and delivery by the Primary Parties of this Agreement, or the issuance
of the Shares, except for the non-objection of the FDIC, and the approval of the
DOBI, the FRB and the Commission and any necessary
<PAGE> 11
qualification, notification, or registration or exemption under the securities
or blue sky laws of the various states in which the Shares are to be offered.
(z) None of the Primary Parties has: (i) issued any securities
within the last 18 months (except for (a) notes to evidence bank loans or other
liabilities in the ordinary course of business or as described in the
Prospectus, and (b) shares of Common Stock issued with respect to the initial
capitalization of the Holding Company); (ii) had any dealings with respect to
sales of securities within the 12 months prior to the date hereof with any
member of the NASD, or any person related to or associated with such member,
other than discussions and meetings relating to the Offering and purchases and
sales of U.S. government and agency and other securities in the ordinary course
of business; or (iii) engaged any intermediary between the Agent and the Primary
Parties in connection with the Offering or the offering of shares of the common
stock of the Bank, and no person is being compensated in any manner for such
services.
(aa) The Primary Parties have not made any payment of funds of the
Primary Parties as a loan to any person for the purchase of Conversion Shares,
except for the Holding Company's loan to the ESOP the proceeds of which will be
used to purchase Conversion Shares, or has made any other payment of funds
prohibited by law, and no funds have been set aside to be used for any payment
prohibited by law.
(ab) The Bank complies in all material respects with the applicable
financial record keeping and reporting requirements of the Currency and Foreign
Transactions Reporting Act of 1970, as amended, and the regulations and rules
thereunder.
(ac) The Primary Parties have not relied upon Agent or its counsel
for any legal, tax or accounting advice in connection with the Reorganization.
(ad) The records of Eligible Account Holders, Supplemental Eligible
Account Holders and Other Depositors are accurate and complete in all material
respects.
(ae) The Primary Parties comply with all laws, rules and regulations
relating to environmental protection, and none of them has been notified or is
otherwise aware that any of them is potentially liable, or is considered
potentially liable, under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, or any other Federal, state or local
environmental laws and regulations (including, but not limited to, the New
Jersey Industrial Site Recovery Act) except to the extent that any
non-compliance would not have a Material Adverse Effect; no action, suit,
regulatory investigation or other proceeding is pending or to the knowledge of
the Primary Parties threatened against the Primary Parties relating to
environmental protection, nor do the Primary Parties have any reason to believe
any such proceedings may be brought against any of them; and no disposal,
release or discharge of hazardous or toxic substances, pollutants or
contaminants, including petroleum and gas products, as any of such terms may be
defined under federal, state or local law, has occurred on, in, at or about any
facilities or properties owned or leased by any of the Primary Parties or, to
the best knowledge of the Bank, in which the Bank has a security interest.
(af) All of the loans represented as assets on the most recent
financial statements or selected financial information of the Bank included in
the Prospectus meet or are
<PAGE> 12
exempt from all requirements of federal, state and local law pertaining to
lending, including, without limitation, truth in lending (including the
requirements of Regulations Z and 12 C.F.R. Part 226), real estate settlement
procedures, consumer credit protection, equal credit opportunity and all
disclosure laws applicable to such loans, except for violations which, if
asserted, would not result in a material adverse effect on the financial
condition, results of operations or business of the Primary Parties taken as a
whole.
(ag) None of the Primary Parties are required to be registered as an
investment company under the Investment Company Act of 1940.
Any certificates signed by an officer of any of the Primary Parties and
delivered to the Agent or its counsel that refer to this Agreement shall be
deemed to be a representation and warranty by the Primary Parties to the Agent
as to the matters covered thereby with the same effect as if such representation
and warranty were set forth herein.
Section 7. Representations and Warranties of the Agent. Agent represents
and warrants to the Primary Parties that:
(a) Agent is a corporation and is validly existing and in good
standing under the laws of the State of New Jersey with full power and authority
to provide the services to be furnished to the Primary Parties hereunder.
(b) The execution, delivery and performance of this Agreement and
the Letter Agreement and the consummation of the transactions contemplated
herein have been duly and validly authorized by all necessary corporate action
on the part of Agent, and this Agreement is the legal, valid and binding
agreement of Agent. This Agreement has been validly executed and delivered by
Agent and is a valid, legal and binding obligation of Agent, enforceable in
accordance with its terms, except as the legality, validity, binding nature and
enforceability thereof may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization, conservatorship, receivership or other similar laws relating to
or affecting the enforcement of creditors' rights generally, (ii) general equity
principles regardless of whether such enforceability is considered in a
proceeding in equity or at law, and (iii) the extent, if any, that the
provisions of Sections 11 or 12 hereof may be unenforceable as against public
policy.
(c) Each of Agent and its employees, agents and representatives who
shall perform any of the services hereunder shall have, and until the
Reorganization is completed or terminated shall maintain, all licenses,
approvals and permits necessary to perform such services and shall comply in all
material respects with all applicable laws and regulations in connection with
the performance of such services.
(d) No action, suit, charge or proceeding before the Commission, the
NASD, any state securities commission or any court is pending, or to the
knowledge of Agent threatened, against Agent which, if determined adversely to
Agent, would have a material adverse effect upon the ability of Agent to perform
its obligations under this Agreement.
(e) Agent is registered as a broker/dealer pursuant to Section 15(b)
of the Securities Exchange Act of 1934, as amended (the "1934 Act") and is a
member of the National Association of Securities Dealers, Inc.
<PAGE> 13
(f) Any funds received in the Offering by the Agent will be handled
by the Agent in accordance with Rule 15c2-4 under the 1934 Act to the extent
applicable.
Section 8. Covenants of the Primary Parties. The Primary Parties hereby
jointly and severally covenant with the Agent as follows:
(a) The Holding Company will not, at any time after the date the
Registration Statement is declared effective, file any amendment or supplement
to the Registration Statement without providing the Agent and its counsel an
opportunity to review such amendment or file any amendment or supplement to
which amendment the Agent or its counsel shall reasonably object. The Holding
Company will furnish promptly to the Agent and its counsel copies of all
correspondence from the Commission with respect to the Registration Statement
and the Holding Company's responses thereto.
(b) The Primary Parties will not, at any time after the date any
Application is approved, file any amendment or supplement to such Application
without providing the Agent and its counsel an opportunity to review such
amendment or supplement or file any amendment or supplement to which amendment
or supplement the Agent or its counsel shall reasonably object. The Primary
Parties will furnish promptly to the Agent and its counsel copies of all
correspondence from the FRB, the FDIC and the DOBI with respect to the
Applications and the Primary Parties' responses thereto.
(c) The Primary Parties will use their best efforts to cause the FRB
to approve the MHC and the Holding Company's acquisition of the Bank, and will
use their best efforts to cause any post-effective amendment to the Registration
Statement to be declared effective by the Commission and any post-effective
amendment to the Applications to be approved by the FDIC and the DOBI, and will
promptly upon receipt of any information concerning the events listed below
notify the Agent (i) when the Registration Statement, as amended, has become
effective; (ii) when the MHC Notice and Application, the NJ Application, as
amended, have received the non-objection of the FDIC and the approval of the
DOBI; (iii) when the Holding Company Application, as amended, has been approved
by the FRB; (iv) of the receipt of any comments from the Commission, the FDIC
and the DOBI, or any other governmental entity with respect to the
Reorganization or the transactions contemplated by this Agreement; (v) of any
request by the Commission, the FRB, the FDIC, the DOBI, or any other
governmental entity for any amendment or supplement to the Registration
Statement or the Applications or for additional information; (vi) of the
issuance by the Commission, the FDIC or the DOBI, or any other governmental
agency of any order or other action suspending the Offerings or the use of the
Registration Statement or the Prospectus or any other filing of the Primary
Parties under the Conversion Regulations or other applicable law, or the threat
of any such action; (vii) of the issuance by the Commission, the FDIC or the
DOBI, or any state authority of any stop order suspending the effectiveness of
the Registration Statement or of the initiation or threat of initiation or
threat of any proceedings for that purpose; or (viii) of the occurrence of any
event mentioned in subsection (f) below. The Primary Parties will make every
reasonable effort to prevent the issuance by the Commission, the FDIC, the DOBI,
or any state authority of any order referred to in (vi) and (vii) above and, if
any such order shall at any time be issued, to obtain the lifting thereof at the
earliest possible time.
<PAGE> 14
(d) The Primary Parties will deliver to the Agent and to its counsel
conformed copies of each of the following documents, with all exhibits: each of
the Applications as originally filed and of each amendment or supplement
thereto, and the Registration Statement, as originally filed and each amendment
thereto. Further, the Primary Parties will deliver such additional copies of the
foregoing documents to counsel to the Agent as may be required for any NASD
filings. In addition, the Primary Parties will also deliver to the Agent such
number of copies of the Prospectus, as amended or supplemented, as the Agent may
reasonably request.
(e) The Primary Parties will comply in all material respects with
any and all terms, conditions, requirements and provisions with respect to the
Reorganization and the transactions contemplated thereby imposed by the
Commission, by applicable state law and regulations, and by the 1933 Act, the
1934 Act, and the rules and regulations of the Commission promulgated under such
Acts, to be complied with prior to or subsequent to the Closing Date; and when
the Prospectus is required to be delivered, the Primary Parties will comply in
all material respects, at their own expense, with all material requirements
imposed upon them by the FDIC, the DOBI, the Conversion Regulations (except as
modified or waived in writing by the FDIC or the DOBI), the Commission, by
applicable state law and regulations and by the 1933 Act, the 1934 Act and the
rules and regulations of the Commission promulgated under such statutes, in each
case as from time to time in force, so far as necessary to permit the
continuance of sales or dealing in shares of Common Stock during such period in
accordance with the provisions hereof and the Prospectus.
(f) During any period when the Prospectus is required to be
delivered, each of the Primary Parties will inform the Agent of any event or
circumstance of which it is or becomes aware as a result of which the
Registration Statement and/or Prospectus, as then supplemented or amended, would
include an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading. If it is
necessary, in the reasonable opinion of counsel for the Primary Parties, to
amend or supplement the Registration Statement or the Prospectus in order to
correct such untrue statement of a material fact or to make the statements
therein not misleading in light of the circumstances existing at the time of
their use, the Primary Parties will, at their expense, prepare, file with the
Commission, the FDIC, and the DOBI, and furnish to the Agent, a reasonable
number of copies of an amendment or amendments of, or a supplement or
supplements to, the Registration Statement and the Prospectus (in form and
substance reasonably satisfactory to counsel for the Agent after a reasonable
time for review) which will amend or supplement the Registration Statement
and/or the Prospectus so that as amended or supplemented it will not contain an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances existing
at the time, not misleading. For the purpose of this subsection, each of the
Primary Parties will furnish such information with respect to itself as the
Agent may from time to time reasonably request.
(g) Pursuant to the terms of the Plan, the Holding Company will
endeavor in good faith, in cooperation with the Agent, to register or to qualify
the Shares for offering and sale or to exempt such Shares from registration and
to exempt the Holding Company and its officers, directors and employees from
registration as broker-dealers, under the applicable securities laws of the
jurisdictions in which the Offering will be conducted; provided, however, that
the Holding Company shall not be obligated to file any general consent to
service of process
<PAGE> 15
or to qualify as a foreign corporation to do business in any jurisdiction in
which it is not so qualified. In each jurisdiction where any of the Shares shall
have been registered or qualified as above provided, the Holding Company will
make and file such statements and reports for a period of not less than one year
from the effective date of the Registration Statement.
(h) The Holding Company will not sell or issue, contract to sell or
otherwise dispose of, for a period of 90 days after the date hereof, any shares
of Common Stock, without the Agent's prior written consent, which consent shall
not be unreasonably withheld, other than in connection with any plan or
arrangement described in the Prospectus.
(i) For the period of three years from the date of this Agreement,
the Holding Company will furnish to the Agent, as soon as practical after such
information is available (i) a copy of each report of the Holding Company
furnished to or filed with the Commission under the 1934 Act or any national
securities exchange or system on which any class of securities of the Holding
Company is listed or quoted, (ii) a copy of each report of the Holding Company
mailed to holders of Common Stock or non-confidential report filed with the
Commission or the FRB or any other supervisory or regulatory authority or any
national securities exchange or system on which any class of the securities of
the Holding Company is listed or quoted, (iii) each press release and material
news item and article released by the Holding Company and/or Bank, and (iv) from
time-to-time, such other publicly available information concerning the Primary
Parties as the Agent may reasonably request.
(j) The Primary Parties will use the net proceeds from the sale of
the Common Stock in the manner set forth in the Prospectus under the caption
"How We Intend to Use the Proceeds from the Offering."
(k) The Holding Company and the Bank will distribute the Prospectus
or other offering materials in connection with the offering and sale of the
Common Stock only in accordance with the Conversion Regulations, the 1933 Act
and the 1934 Act and the rules and regulations promulgated under such statutes,
and the laws of any state in which the shares are qualified for sale.
(l) Prior to the Closing Date, the Holding Company shall register
its Common Stock under Section 12(b) or 12(g) of the 1934 Act, and will request
that such registration statement be effective upon completion of the
Reorganization. The Holding Company shall maintain the effectiveness of such
registration for not less than three years.
(m) For so long as the Conversion Shares are registered under the
1934 Act, the Holding Company will furnish to its stockholders as soon as
practicable after the end of each fiscal year such reports and other information
as are required to be furnished to its stockholders under the 1934 Act.
(n) The Holding Company will report the use of proceeds of the
Offering in accordance with Rule 463 under the 1933 Act.
(o) The Primary Parties will maintain appropriate arrangements for
depositing all funds received from persons mailing subscriptions for or orders
to purchase Conversion Shares on an interest bearing basis at the rate described
in the Prospectus until the Closing Date
<PAGE> 16
and satisfaction of all conditions precedent to the release of the Holding
Company's obligation to refund payments received from persons subscribing for or
ordering Conversion Shares in the Conversion Offerings, in accordance with the
Plan as described in the Prospectus, or until refunds of such funds have been
made to the persons entitled thereto or withdrawal authorizations canceled in
accordance with the Plan and as described in the Prospectus. The Primary Parties
will maintain such records of all funds received to permit the funds of each
subscriber to be separately insured by the FDIC (to the maximum extent
allowable) and to enable the Primary Parties to make the appropriate refunds of
such funds in the event that such refunds are required to be made in accordance
with the Plan and as described in the Prospectus.
(p) The MHC and the Holding Company will each register as bank
holding companies under the Bank Holding Company Act ("BHCA").
(q) The Primary Parties will take such actions and furnish such
information as are reasonably requested by the Agent in order for the Agent to
ensure compliance with the "Interpretation of the Board of Governors of the NASD
on Free Riding and Withholding."
(r) The Primary Parties will conduct their businesses in compliance
in all material respects with all applicable federal and state laws, rules,
regulations, decisions, directives and orders, including all decisions,
directives and orders of the Commission, the FDIC, the DOBI, and the FRB.
(s) The Primary Parties shall comply with any and all terms,
conditions, requirements and provisions with respect to the Reorganization and
the transactions contemplated thereby imposed by the FDIC, the DOBI, the BHCA,
the Commission, the 1933 Act, the Regulations, the 1934 Act and the regulations
promulgated by the Commission pursuant to the 1934 Act to be complied with
subsequent to the Closing Date. The Holding Company will comply with all
provisions of all undertakings contained in the Registration Statement.
(t) The Primary Parties will not amend the Plan without notifying
the Agent prior thereto.
(u) The Holding Company shall provide the Agent with any information
necessary to carry out the allocation of the Conversion Shares in the event of
an oversubscription, and such information shall be accurate and reliable in all
material respects.
(v) The Holding Company will not deliver the Shares until the
Primary Parties have satisfied or caused to be satisfied each condition set
forth in Section 10 hereof, unless such condition is waived in writing by the
Agent.
(w) Immediately upon completion of the sale by the Holding Company
of the Shares contemplated by the Plan and the Prospectus, (i) the MHC shall
have been formed pursuant to the Plan and shall own at all times more than 50%
of the issued and outstanding shares of Common Stock, (ii) all of the issued and
outstanding shares of capital stock of the Bank shall be owned by the Holding
Company, (iii) the Holding Company shall have no direct subsidiaries other than
the Bank, and (iv) the Reorganization shall have been effected in accordance
with all applicable statutes, regulations, decisions and orders; and all terms,
conditions, requirements and provisions with respect to the Reorganization
(except those that are
<PAGE> 17
conditions subsequent) imposed by the Commission, the FDIC, the DOBI, the FRB,
or any other governmental agency, if any, shall have been complied with by the
Primary Parties in all material respects or appropriate waivers shall have been
obtained and all notice and waiting periods shall have been satisfied, waived or
elapsed.
(x) Prior to the Closing Date, the Plan shall have been approved by
the voting depositors of the Bank in accordance with the Plan, the Conversion
Regulations and the provisions of the Bank's charter and bylaws.
(y) On or before the Closing Date, the Primary Parties will have
completed all conditions precedent to the Reorganization specified in the Plan
and the offer and sale of the Shares will have been conducted in all material
respects in accordance with the Plan, the Conversion Regulations (except as
modified or waived in writing by the FDIC and/or the DOBI) and with all other
applicable laws, regulations, decisions and orders, including all terms,
conditions, requirements and provisions precedent to the Reorganization imposed
upon any of the Primary Parties by the FDIC and/or the DOBI, the Commission, the
FRB, or any other regulatory authority and in the manner described in the
Prospectus.
Section 9. Payment of Expenses. Whether or not the Reorganization is
completed or the sale and exchange of the Shares by the Holding Company is
consummated, the Primary Parties will pay for all expenses incident to the
performance of this Agreement, including without limitation: (a) the preparation
and filing of the Applications; (b) the preparation, printing, filing, delivery
and shipment of the Registration Statement, including the Prospectus, and all
amendments and supplements thereto; (c) all filing fees and expenses in
connection with the qualification or registration of the Shares for offer and
sale by the Holding Company or the Bank under the securities or "blue sky" laws,
including without limitation filing fees, reasonable legal fees and
disbursements of counsel in connection therewith, and in connection with the
preparation of a blue sky law survey; (d) the filing fees of the NASD related to
the Agent's fairness filing under NASD Rule 2710 and the application of the
Holding Company to list its shares; (e) fees and expenses related to the
preparation of the independent appraisal; (f) the reasonable expenses of the
Agent, including but not limited to the reasonable fees and expenses of its
counsel and the Agent's reasonable out-of-pocket expenses (not to exceed $2,000
in any one instance without the prior approval of the Bank); (g) fees and
expenses related to auditing and accounting services; and (h) expenses relating
to advertising, temporary personnel, and the preparation of stock certificates.
Notwithstanding the foregoing, regardless of whether the Reorganization is
successfully completed, the Primary Parties shall, without the prior approval of
the Bank, be required to reimburse Agent for $125,000 in legal fees (plus such
fees as shall be related to "blue sky" matters and the out-of-pocket expenses of
counsel and other fees as may be approved by the Bank) and $50,000 in other
out-of-pocket expenses, including legal fees and in the event of any material
delay in the Offering that would require an update of the financial information
in tabular form contained in the Registration Statement, as amended or
supplemented, to reflect a period later than that set forth in the Registration
Statement as first filed with the Commission. Not later than two days prior to
the Closing Date, the Agent will provide the Bank with a detailed accounting of
all reimbursable expenses to be paid at the Closing.
<PAGE> 18
Section 10. Conditions to the Agent's Obligations. The obligations of the
Agent hereunder and the occurrence of the Closing and the Reorganization are
subject to the condition that all representations and warranties of the Primary
Parties herein contained are, at and as of the commencement of the Offering and
at and as of the Closing Date, true and correct, the condition that the Primary
Parties shall have performed all of their obligations hereunder to be performed
on or before such dates and to the following further conditions:
(a) The Registration Statement shall have been declared effective by
the Commission and the MHC Notice and Application and the NJ Application shall
have been approved by the FDIC and the DOBI, as applicable, the Holding Company
Application shall have been approved by the FRB, and no stop order or other
action suspending the effectiveness of the Registration Statement shall have
been issued under the 1933 Act to any of the Primary Parties' best knowledge or
proceedings therefor initiated or threatened by the Commission or any state
authority and no order or other action suspending the authorization for use of
the Prospectus or the consummation of the Reorganization shall have been issued
to any of the Primary Parties' best knowledge, or proceedings therefor initiated
or threatened by the FDIC, the DOBI, the FRB, the Commission, or any other
governmental body.
(b) At the Closing Date, the Agent shall have received:
(1) The opinion, dated as of the Closing Date, of Thacher
Proffitt, and/or local counsel acceptable to the Agent, in form and substance
satisfactory to the Agent and counsel for the Agent to the effect that:
(i) The Holding Company is a corporation duly organized
and validly existing and in good standing under the laws of the State of
Delaware, with corporate power and authority to own its properties and to
conduct its business as described in the Prospectus, and is duly qualified to
transact business and is in good standing in New Jersey and in each other
jurisdiction in which the conduct of its business requires such qualification
and except where the failure to qualify would have a Material Adverse Effect.
(ii) On the date hereof, the Bank is a validly existing
New Jersey-chartered mutual savings bank, and upon consummation of the
Reorganization, the Bank will be a duly-organized and validly existing New
Jersey-chartered stock savings bank, with full power and authority to own its
properties and to conduct its business as described in the Prospectus and to
enter into this Agreement and perform its obligations hereunder; the activities
of the Bank as described in the Prospectus are permitted by federal and New
Jersey law and the rules, regulations and practices of the FDIC and the DOBI;
the issuance and sale of the capital stock of the Bank to the Holding Company in
the Reorganization has been duly and validly authorized by all necessary
corporate action on the part of the Holding Company and the Bank and, upon
payment therefor in accordance with the terms of the Plan, will be validly
issued, fully paid and nonassessable and will be owned of record and
beneficially by the Holding Company, free and clear of any mortgage, pledge,
lien, encumbrance, claim or restriction.
(iii) The activities of the MHC, the Holding Company and
the Bank, as described in the Prospectus, are permitted for bank holding
companies and for subsidiaries of a bank holding company and a
Delaware-chartered stock holding company under
<PAGE> 19
applicable federal and state law. To the best of such counsel's knowledge, each
of the MHC, the Holding Company and the Bank has obtained all licenses, permits,
and other governmental authorizations that are material for the conduct of its
business, and all such licenses, permits and other governmental authorization
are in full force and effect, and to the best of such counsel's knowledge the
Holding Company and the Bank are complying therewith in all material respects.
(iv) The Bank is an insured depository institution under
the provisions of the Federal Deposit Insurance Act, as amended, and to such
counsel's knowledge, no proceedings for the termination or revocation of the
federal deposit insurance of the Bank are pending or threatened.
(v) Upon consummation of the Reorganization, the MHC
will have been duly organized and will be validly existing as a mutual savings
bank holding company chartered under New Jersey law, duly authorized to conduct
its business and own its properties as described in the Registration Statement
and Prospectus.
(vi) Upon consummation of the Reorganization, (a) the
authorized, issued and outstanding capital stock of the Holding Company will be
within the range set forth in the Prospectus under the caption "Capitalization",
and no shares of Common Stock have been or will be issued and outstanding prior
to the Closing Date (except for the shares issued upon incorporation of the
Holding Company to facilitate the Reorganization); (b) the shares of Common
Stock of the Holding Company issued to the MHC will have been duly and validly
authorized for issuance and will be fully paid and nonassessable; (c) the shares
of Common Stock of the Holding Company to be subscribed for in the Offering will
have been duly and validly authorized for issuance, and when issued and
delivered by the Holding Company pursuant to the Plan against payment of the
consideration calculated as set forth in the Plan, will be fully paid and
nonassessable; and (d) the issuance of the Conversion Shares is not subject to
preemptive rights under the charter, articles of incorporation or bylaws of the
Holding Company, or arising or outstanding by operation of law or, to the best
knowledge of such counsel, under any contract, indenture, agreement, instrument
or other document, except for the subscription rights under the Plan.
(vii) The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Primary Parties;
and this Agreement constitutes a valid, legal and binding obligation of each of
the Primary Parties, enforceable in accordance with its terms, except as rights
to indemnity and contribution thereunder may be limited under applicable law,
subject to the qualification that (i) enforcement thereof may be limited by
bankruptcy, insolvency, moratorium, reorganization or other laws (including the
laws of fraudulent conveyance) or judicial decisions affecting the
enforceability of creditors' rights generally, the rights of creditors of
federally chartered savings associations, the accounts of which are insured by
the FDIC, or the reorganization of financial institutions and (ii) enforcement
thereof is subject to general equity principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and to the
effect of certain laws and judicial decisions upon the availability of
injunctive relief and enforceability of equity remedies, including the remedies
of specific performance and self-help.
<PAGE> 20
(viii) The Plan has been duly adopted by the board of
directors of the Bank and by the voting depositors of the Bank, in the manner
required by the Conversion Regulations and the Bank's charter and bylaws.
(ix) The NJ Application has been approved by the DOBI,
the FRB has approved the Holding Company Application, and the Bank has received
the non-objection of the FDIC to the Reorganization, and subject to the
satisfaction of any conditions set forth in such approvals, no further approval,
registration, authorization, consent or other order of any federal or state
regulatory agency, public board or body is required in connection with the
execution and delivery of this Agreement, the offer, sale and issuance of the
Shares and the consummation of the Reorganization, except as may be required
under the securities or "blue sky" laws of various jurisdictions as to which no
opinion need be rendered.
(x) The Registration Statement has become effective
under the 1933 Act and to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued, or proceedings for
that purpose have been instituted or threatened by the Commission.
(xi) The material tax consequences of the Reorganization
are set forth in the Prospectus under the caption "The Reorganization and the
Offering - Tax Effects of the Reorganization". The information in the Prospectus
under the caption "The Reorganization and the Offering - Tax Effects of the
Reorganization" has been reviewed by such counsel and fairly describes such
opinions rendered by such counsel to the Primary Parties with respect to such
matters.
(xii) The terms and provisions of the shares of Common
Stock conform to the description thereof contained in the Registration Statement
and the Prospectus, and the forms of certificates proposed to be used to
evidence the shares of Common Stock are in due and proper form.
(xiii) At the time the MHC Notice and Application and
the NJ Application was approved, the MHC Notice and Application (as amended or
supplemented), complied as to form in all material respects with the
requirements of the Conversion Regulations and all applicable laws, rules and
regulations and decisions and orders of the FDIC and the DOBI, except as
modified or waived in writing by the FDIC and/or the DOBI (other than the
financial statements, notes to financial statements, financial tables and other
financial and statistical data included therein and the appraisal valuation and
the business plan as to which counsel need express no opinion). To such
counsel's knowledge, no person has sought to obtain regulatory or judicial
review of the final action of the FDIC, the DOBI, or the FRB approving the
Applications.
(xiv) At the time that the Registration Statement became
effective the Registration Statement, including the Prospectus contained therein
(as amended or supplemented) (other than the financial statements, notes to
financial statements, financial tables or other financial and statistical data
included therein and the appraisal valuation and the business plan as to which
counsel need express no opinion), complied as to form in all material
<PAGE> 21
respects with the requirements of the 1933 Act and the rules and regulations
promulgated thereunder.
(xv) To such counsel's knowledge, there are no legal or
governmental proceedings pending, or threatened (i) asserting the invalidity of
this Agreement or (ii) seeking to prevent the Reorganization or the offer, sale
or issuance of the Shares.
(xvi) The information in the Prospectus under the
captions "Regulation of Hudson City Savings Bank and Hudson City Bancorp,"
"Taxation," "Restrictions on the Acquisition Hudson City Bancorp and Hudson City
Savings", "Description of Capital Stock of Hudson City Bancorp," and "The
Reorganization and the Offering," to the extent that it constitutes matters of
law, summaries of legal matters, documents or proceedings, or legal conclusions,
has been reviewed by such counsel and is accurate in all material respects
(other than the financial statements, notes to financial statements, financial
tables and other financial and statistical data included therein and the
appraisal valuation and the business plan as to which counsel need express no
opinion).
(xvii) None of the Primary Parties are required to be
registered as an investment company under the Investment Company Act of 1940.
(xviii) The Bank has duly adopted a New Jersey stock
charter and bylaws effective upon consummation of the Reorganization, and none
of the Primary Parties is in violation of its articles of incorporation or its
charter, as the case may be, or its bylaws or, to the best of such counsel's
knowledge, any material obligation, agreement, covenant or condition contained
in any material contract, indenture, mortgage, loan agreement, note, lease or
other instrument filed as an exhibit to, or incorporated by reference in, the
Registration Statement, which violation would have a Material Adverse Effect. In
addition, the execution and delivery of and performance under this Agreement by
the Primary Parties, the incurrence of the obligations set forth herein and the
consummation of the transactions contemplated herein will not result in any
violation of the provisions of the articles of incorporation or charter, as the
case may be, or the bylaws of any of the Primary Parties or any violation of any
applicable law, act, regulation, or to such counsel's knowledge, order or court
order, writ, injunction or decree.
(xix) The Agent's counsel may rely on this opinion for
purposes of its own opinion (Thacher Proffitt and/or local counsel shall
expressly authorize such reliance).
The opinion may be limited to matters governed by the laws of the United
States, the laws of the State of New Jersey and the corporate laws of the State
of Delaware and, in the case of local counsel, the State of New Jersey or
Delaware corporate law. In rendering such opinion, such counsel may rely (A) as
to matters involving the application of laws of any jurisdiction other than the
United States, to the extent such counsel deems proper and specified in such
opinion, upon the opinion of counsel reasonably acceptable to the Agent, as long
as such other opinion indicates that the Agent may rely on the opinion, and (B)
as to matters of fact, to the extent such counsel deems proper, on certificates
of responsible officers of the Primary Parties and public officials; provided
copies of any such opinion(s) or certificates of public officials are delivered
to Agent together with the opinion to be rendered hereunder by special counsel
to the
<PAGE> 22
Primary Parties. The opinion of such counsel for the Primary Parties shall state
that it has no reason to believe that the Agent is not reasonably justified in
relying thereon.
(2) The letter of Thacher Proffitt to the effect that during
the preparation of the Registration Statement and the Prospectus, Thacher
Proffitt participated in conferences with certain officers of and other
representatives of the Primary Parties, counsel to the Agent, representatives of
the independent public accountants for the Primary Parties and representatives
of the Agent at which the contents of the Registration Statement and the
Prospectus and related matters were discussed and has considered the matters
required to be stated therein and the statements contained therein and, although
(without limiting the opinions provided pursuant to Section 10(b)(1)), Thacher
Proffitt has not independently verified the accuracy, completeness or fairness
of the statements contained in the Registration Statement and Prospectus, on the
basis of the foregoing, nothing has come to the attention of Thacher Proffitt
that caused Thacher Proffitt to believe that the Registration Statement at the
time it was declared effective by the SEC and as of the date of such letter,
contained or contains any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading (it being understood that counsel need express no comment or
opinion with respect to the financial statements, schedules and other financial
and statistical data included, or statistical or appraisal methodology employed,
in the Registration Statement or Prospectus).
(3) The favorable opinion, dated as of the Closing Date, of
Pitney, Hardin, Kipp & Szuch, counsel for the Agent, with respect to such
matters as the Agent may reasonably require; such opinion may rely, as to
matters of fact, upon certificates of officers and directors of the Primary
Parties delivered pursuant hereto or as such counsel may reasonably request.
(4) A Blue Sky Memorandum from Thacher Proffitt and/or local
counsel relating to the offering, including Agent's participation therein, and
shall furnish Agent with a copy thereof addressed to Agent or upon which Thacher
Proffitt and/or local counsel shall state Agent may rely. The Blue Sky
Memorandum will relate to the necessity of obtaining or confirming exemptions,
qualifications or the registration of the common stock under applicable state
securities law and NASD policies.
(c) Concurrently with the execution of this Agreement, the Agent
shall receive a letter from KPMG, dated the date hereof and addressed to the
Agent, such letter confirming that KPMG is a firm of independent public
accountants within the meaning of the Code of Professional Ethics of the
American Institute of Certified Public Accountants, the 1933 Act and the
regulations promulgated thereunder and the Conversion Regulations, and no
information concerning its relationship with or interests in the Primary Parties
is required by the Applications or Item 13 of the Registration Statement, and
stating in effect that in KPMG's opinion the financial statements of the Bank
included in the Prospectus comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act, the 1934 act and the related
rules and regulations of the Commission thereunder and the Conversion
Regulations and generally accepted accounting principles consistently applied;
(ii) stating in effect that, on the basis of certain agreed upon procedures (but
not an audit examination in accordance with generally accepted auditing
standards) consisting of a reading of the latest available unaudited
<PAGE> 23
interim financial statements of the Bank prepared by the Bank, a reading of the
minutes of the meetings of the Board of Directors of the Bank and the members of
the Bank, a review of interim financial information in accordance with Statement
on Auditing Standards No. 71, and consultations with officers of the Bank
responsible for financial and accounting matters, nothing came to their
attention which caused them to believe that: (A) such unaudited financial
statements, including recent developments, if any, are not in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in the
Prospectus; or (B) during the period from the date of the latest unaudited
consolidated financial statements included in the Prospectus to a specified date
not more than three business days prior to the date of the Prospectus, there was
any increase in borrowings (defined as securities sold under agreements to
repurchase and any other form of debt other than deposits) of the Bank or in
nonperforming loans of the Bank; or (C) there was any decrease in retained
earnings of the Bank at the date of such letter as compared with amounts shown
in the latest unaudited statement of condition included in the Prospectus or
there was any decrease in net income or net interest income of the Bank for the
number of full months commencing immediately after the period covered by the
latest audited income statement included in the Prospectus and ended on the
latest month end prior to the date of the Prospectus or in such letter as
compared to the corresponding period in the preceding year; and (iii) stating
that, in addition to the audit examination referred to in its opinion included
in the Prospectus and the performance of the procedures referred to in clause
(ii) of this subsection (c), they have compared with the general accounting
records of the Bank, which are subject to the internal controls of the
accounting system of the Bank and other data prepared by the Primary Parties
directly from such accounting records, to the extent specified in such letter,
such amounts and/or percentages set forth in the Prospectus as the Agent may
reasonably request, and they have found such amounts and percentages to be in
agreement therewith (subject to rounding).
(d) At the Closing Date, the Agent shall receive a letter from KPMG
dated the Closing Date, addressed to the Agent, confirming the statements made
by its letter delivered by it pursuant to subsection (c) of this Section 10, the
"specified date" referred to in clause (ii)(B) thereof to be a date specified in
such letter, which shall not be more than three business days prior to the
Closing Date.
(e) At the Closing Date, counsel to the Agent shall have been
furnished with such documents and opinions as counsel for the Agent may require
for the purpose of enabling them to advise the Agent with respect to the
issuance and sale of the Common Stock as herein contemplated and related
proceedings, or in order to evidence the accuracy of any of the representations
and warranties, or the fulfillment of any of the conditions herein contained.
(f) At the Closing Date, the Agent shall receive a certificate of
the Chief Executive Officer and Chief Financial Officer of each of the Primary
Parties, dated the Closing Date, to the effect that: (i) they have examined the
Prospectus and at the time the Prospectus became authorized for final use, the
Prospectus did not contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; (ii)
there has not been, since the respective dates as of which information is given
in the Prospectus, any Material Adverse Effect otherwise than as set forth or
contemplated in the Registration Statement and the Prospectus; (iii) the
representations and warranties contained in Sections 6 and 7 of this
<PAGE> 24
Agreement are true and correct with the same force and effect as though made at
and as of the Closing Date; (iv) the Primary Parties have complied in all
material respects with all material agreements and satisfied all conditions on
its part to be performed or satisfied at or prior to the Closing Date including
the conditions contained in this Section 10; (v) no stop order has been issued
or, to the best of their knowledge, is threatened, by the Commission or any
other governmental body; (vi) no order suspending the Offering, the
Reorganization, the acquisition of all of the shares of the Bank by the Holding
Company, the acquisition by the MHC of shares of the Common Stock or the
effectiveness of the Prospectus has been issued and to the best of their
knowledge, no proceedings for any such purpose have been initiated or threatened
by the FDIC, the DOBI, the FRB, the Commission, or any other federal or state
authority; (vii) to the best of their knowledge, no person has sought to obtain
regulatory or judicial review of the action of the FRB, the FDIC or the DOBI in
approving the Plan or to enjoin the Reorganization.
(g) At the Closing Date, the Agent shall receive a letter from RP
Financial, LC., dated as of the Closing Date, (i) confirming that said firm is
independent of the Primary Parties and is experienced and expert in the area of
corporate appraisals, (ii) stating in effect that the Appraisal complies in all
material respects with the applicable requirements of the Conversion
Regulations, and (iii) further stating that its opinion of the aggregate pro
forma market value of the Primary Parties, as converted, expressed in the
Appraisal as most recently updated, remains in effect.
(h) None of the Primary Parties shall have sustained, since the date
of the latest financial statements included in the Registration Statement and
Prospectus, any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, otherwise
than as set forth in the Registration Statement and the Prospectus, and since
the respective dates as of which information is given in the Registration
Statement and the Prospectus, there shall not have been any Material Adverse
Effect or affecting the general affairs of, management, financial position,
retained earnings, long-term debt, stockholders' equity or results of operations
of the Primary Parties, otherwise than as set forth or contemplated in the
Registration Statement and the Prospectus, the effect of which, in any such case
described above, is in the Agent's reasonable judgment sufficiently material and
adverse as to make it impracticable or inadvisable to proceed with the Offering
or the delivery of the Shares on the terms and in the manner contemplated in the
Prospectus.
(i) Prior to and at the Closing Date: in the reasonable opinion of
(i) the Agent there shall have been no material adverse change in the financial
condition or in the earnings, capital, properties or business affairs of any of
the Primary Parties independently, or the Primary Parties considered as one
enterprise, from and as of the latest dates as of which such condition is set
forth in the Prospectus, except as referred to therein; (ii) there shall have
been no material transaction entered into by the Primary Parties, independently
or considered as one enterprise, from the latest date as of which the financial
condition of the Primary Parties is set forth in the Prospectus, other than
transactions referred to or contemplated therein; (iii) none of the Primary
Parties shall have received from the FDIC, the DOBI, or the FRB any direction
(oral or written) to make any material change in the method of conducting their
business with which it has not complied in all material respects (which
direction, if any, shall have been disclosed to the Agent) and which would
reasonably be expected to have a material and adverse effect on the condition
<PAGE> 25
(financial or otherwise) or on the earnings, capital, properties or business
affairs of the Primary Parties considered as one enterprise; (iv) none of the
Primary Parties shall have been in default (nor shall an event have occurred
which, with notice or lapse of time or both, would constitute a default) under
any provision of any agreement or instrument relating to any material
outstanding indebtedness; (v) no action, suit or proceeding, at law or in equity
or before or by any federal or state commission, board or other administrative
agency, shall be pending or, to the knowledge of the Primary Parties, threatened
against any of the Primary Parties or affecting any of their properties wherein
an unfavorable decision, ruling or finding would reasonably be expected to have
a material and adverse effect on the financial condition or on the earnings,
capital, properties or business affairs of the Primary Parties, considered as
one enterprise; and (vi) the Shares shall have been exempted, qualified or
registered for offering and sale under the securities or "blue sky" laws of the
jurisdictions requested by the Agent.
(j) At or prior to the Closing Date, the Agent shall receive (i) a
copy of the letters from the FDIC non-objecting to Reorganization and approving
the MHC Notice and Application and the NJ Application, (ii) a copy of the order
from the Commission declaring the Registration Statement effective, (iii) a
certified copy of the certificate of incorporation of the Holding Company, (iv)
a copy of the letter from the FRB approving the MHC and the Holding Company
Application, (v) a certificate from the FDIC evidencing the Bank's insurance of
accounts, (vi) a certificate or other writing from the DOBI, in form and
substance reasonably satisfactory to Agent, evidencing the valid existence of
the MHC as of the Closing Date, (vii) a copy of the letter from the DOBI
approving the NJ Application and (viii) any other documents that Agent shall
reasonably request.
(k) Subsequent to the date hereof, there shall not have occurred any
of the following: (i) a suspension or limitation in trading in securities
generally on the New York Stock Exchange or American Stock Exchange or in the
over-the-counter market, or quotations halted generally on the NASDAQ Stock
Market, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices for securities have been required by either of such exchanges
or the NASD or by order of the Commission or any other governmental authority
other than temporary trading halts (A) imposed as a result of intraday changes
in the Dow Jones Industrial Average, (B) lasting no longer than until the
regularly scheduled commencement of trading on the next succeeding business-day,
and (C) which, when combined with all other such halts occurring during the
previous five business days, total less than three; (ii) a general moratorium on
the operations federally-insured financial institutions or general moratorium on
the withdrawal of deposits from commercial banks or other federally-insured
financial institutions declared by either federal or state authorities; (iii)
there shall not have occurred any material adverse change in the financial
markets in the United States or elsewhere or any outbreak of hostilities or
escalation thereof or other calamity or crisis the effect of which, in the
judgment of the Agent, is so material and adverse as to make it impracticable to
market the Conversion Shares or to enforce contracts, including subscriptions or
orders, for the sale of the Conversion Shares; or (iv) a material decline in the
price of equity or debt securities; any of which, in the Agent's reasonable
judgment, makes it impracticable or inadvisable to proceed with the offering or
the delivery of the Shares on the terms and in the manner contemplated in the
Registration Statement and the Prospectus.
<PAGE> 26
(l) All such options, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to the Agent and to counsel for the Agent. Any certificate
signed by an officer of the Holding Company or the Bank and delivered to the
Agent or to counsel for the Agent shall be deemed a representation and warranty
by the Holding Company or the Bank, as the case may be, to the Agent as to the
statements made therein. If any condition to the Agent's obligations hereunder
to be fulfilled prior to or at the Closing Date is not fulfilled, the Agent may
terminate this Agreement (provided that if this Agreement is so terminated but
the sale of Shares is nevertheless consummated, the Agent shall be entitled to
the compensation provided for in Section 4 hereof) or, if the Agent so elects,
may waive any such conditions which have not been fulfilled or may extend the
time of their fulfillment.
Section 11. Indemnification.
(a) The Primary Parties jointly and severally agree to indemnify and
hold harmless the Agent, its officers, directors, agents, attorneys, servants
and employees and each person, if any, who controls the Agent within the meaning
of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act, against any and
all loss, liability, claim, damage or expense whatsoever (including but not
limited to settlement expenses, subject to the limitation set forth in the last
sentence of subsection (c) below), joint or several, that the Agent or any of
such officers, directors, agents, attorneys, servants, employees and controlling
Persons (collectively, the "Related Persons") may suffer or to which the Agent
or the Related Persons may become subject under all applicable federal and state
laws or otherwise, and to promptly reimburse the Agent and any Related Persons
upon written demand for any reasonable expenses (including reasonable fees and
disbursements of counsel) incurred by the Agent or any Related Persons in
connection with investigating, preparing or defending any actions, proceedings
or claims (whether commenced or threatened) to the extent such losses, claims,
damages, liabilities or actions: (i) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment or supplement thereto), the Prospectus
(or any amendment or supplement thereto), the Applications, or any blue sky
application or other instrument or document of the Primary Parties or based upon
written information supplied by any of the Primary Parties filed in any state or
jurisdiction to register or qualify any or all of the Shares under the
securities laws thereof (collectively, the "Blue Sky Applications"), or any
application or other document, advertisement, or communication ("Sales
Information") prepared, made or executed by or on behalf of any of the Primary
Parties with its consent or based upon written information furnished by or on
behalf of any of the Primary Parties, in order to qualify or register the Shares
under the securities laws thereof, (ii) arise out of or are based upon the
omission or alleged omission to state in any of the foregoing documents or
information, a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; (iii) arise from any theory of liability whatsoever
relating to or arising from or based upon the Registration Statement (or any
amendment or supplement thereto), the Prospectus (or any amendment or supplement
thereto), the Applications, any Blue Sky Applications or Sales Information or
other documentation distributed in connection with the Reorganization; or (iv)
result from any claims made with respect to the accuracy, reliability and
completeness of the records of Eligible Account Holders, Supplemental Eligible
Account Holders and Other Depositors or for any denial or reduction of a
subscription or order to purchase Common Stock, whether as a result of a
<PAGE> 27
properly calculated allocation pursuant to the Plan or otherwise, based upon
such records; provided, however, that no indemnification is required under this
subsection (a) to the extent such losses, claims, damages, liabilities or
actions arise out of or are based upon any untrue material statements or alleged
untrue material statements in, or material omission or alleged material omission
from, the Registration Statement (or any amendment or supplement thereto) or the
Prospectus (or any amendment or supplement thereto), the Applications, the Blue
Sky Applications or Sales Information or other documentation distributed in
connection with the Reorganization made in reliance upon and in conformity with
written information furnished to the Primary Parties by the Agent or its
representatives (including counsel) with respect to the Agent expressly for use
in the Registration Statement (or any amendment or supplement thereto) or
Prospectus (or any amendment or supplement thereto) under the captions "Market
for the Common Stock", "The Reorganization and the Offering - Marketing and
Underwriting Arrangements" and "The Reorganization and the Offering - Syndicated
Community Offering" or statistical information regarding the Holding Company
prepared by the Agent for use in the Sales Information, except for information
derived from the Prospectus. Provided further, that the Primary Parties will not
be responsible for any loss, liability, claim, damage or expense to the extent a
court of competent jurisdiction finds they result primarily from material oral
misstatements by the Agent to a purchaser of Shares which are not based upon
information in the Registration Statement or Prospectus, or from actions taken
or omitted to be taken by the Agent in bad faith or from the Agent's gross
negligence or willful misconduct, and the Agent agrees to repay to the Primary
Parties any amounts advanced to it by the Primary Parties in connection with
matters as to which it is found by a court of competent jurisdiction not to be
entitled to indemnification hereunder.
(b) The Agent agrees to indemnify and hold harmless the Primary
Parties, their directors and officers, agents, servants and employees and each
person, if any, who controls any of the Primary Parties within the meaning of
Section 15 of the 1933 Act or Section 20(a) of the 1934 Act against any and all
loss, liability, claim, damage or expense whatsoever (including but not limited
to settlement expenses, subject to the limitation set forth in the last sentence
of subsection (c) below), joint or several which they, or any of them, may
suffer or to which they, or any of them, may become subject under all applicable
federal and state laws or otherwise, and to promptly reimburse the Primary
Parties and any such persons upon written demand for any reasonable expenses
(including fees and disbursements of counsel) incurred by them in connection
with investigating, preparing or defending any actions, proceedings or claims
(whether commenced or threatened) to the extent such losses, claims, damages,
liabilities or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment of supplement thereto), the Applications or any Blue
Sky Applications or Sales Information or are based upon the omission or alleged
omission to state in any of the foregoing documents a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that the Agent's obligations under this Section 11(b) shall exist only if and
only to the extent that such untrue statement or alleged untrue statement was
made in, or such material fact or alleged material fact was omitted from, the
Applications, Registration Statement (or any amendment or supplement thereto) or
the Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Primary Parties by the
Agent or its representatives (including counsel) expressly for use under the
captions "Market for the Common Stock", "The
<PAGE> 28
Reorganization and the Offering Marketing and Underwriting Arrangements" and
"The Reorganization and the Offering - Syndicated Community Offering" or
statistical information regarding the Holding Company prepared by the Agent for
use in the Sales information (except for statistical information derived from
the Prospectus).
(c) Each indemnified party shall give prompt written notice to each
indemnifying party of any action, proceeding, claim (whether commenced or
threatened), or suit instituted against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve it from any liability which it may have on account of this Section 11,
Section 12 or otherwise. An indemnifying party may participate at its own
expense in the defense of such action. In addition, if it so elects within a
reasonable time after receipt of such notice, an indemnifying party, jointly
with any other indemnifying parties receiving such notice, may assume the
defense of such action with counsel chosen by it reasonably acceptable to the
indemnified parties that are defendants in such action, unless such indemnified
parties reasonably object to such assumption on the ground that there may be
legal defenses available to them that are different from or in addition to those
available to such indemnifying party. If an indemnifying party assumes the
defense of such action, the indemnifying parties shall not be liable for any
fees and expenses of counsel for the indemnified parties incurred thereafter in
connection with such action, proceeding or claim, other than reasonable costs of
investigation. In no event shall the indemnifying parties be liable for the fees
and expenses of more than one separate firm of attorneys (unless an indemnified
party or parties shall have reasonably concluded that there may be defenses
available to it or them which are different from or in addition to those of
other indemnified parties) for all indemnified parties in connection with any
one action, proceeding or claim or separate but similar or related actions,
proceedings or claims in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party, shall be liable for any
settlement of any action, proceeding or suit, which settlement is effected
without its prior written consent.
(d) The agreements contained in this Section 11 and in Section 12
hereof and the representations and warranties of the Primary Parties set forth
in this Agreement shall remain operative and in full force and effect regardless
of (i) any investigation made by or on behalf of the Agent or its officers,
directors, controlling persons, agents or employees or by or on behalf of any of
the Primary Parties or any officers, directors, controlling persons, agents or
employees of any of the Primary Parties; (ii) delivery of and payment hereunder
for the Shares; or (iii) any termination of this Agreement. Notwithstanding the
prior sentence, Sections 11 and 12 hereof are subject to and limited by Section
23A of the Federal Reserve Act, as applicable.
Section 12. Contribution.
(a) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Section 11 is due in
accordance with its terms but is for any reason held by a court to be
unavailable from the Primary Parties or the Agent, the Primary Parties and the
Agent shall contribute to the aggregate losses, claims, damages and liabilities
of the nature contemplated by such indemnification (including any investigation,
legal and other expenses incurred in connection therewith and any amount paid in
settlement of any action, suit, or proceeding of any claims asserted, but after
deducting any contribution received by the Primary Parties or the Agent from
persons other than the other party thereto, who may
<PAGE> 29
also be liable for contribution) in such proportion so that (i) the Agent is
responsible for that portion represented by the percentage that the fees paid to
the Agent pursuant to Section 4 of this Agreement (not including expenses)
("Agent's Fees"), less any portion of Agent's Fees paid by Agent to Assisting
Brokers, bear to the total proceeds received by the Primary Parties from the
sale of the Conversion Shares in the Offering, net of all expenses of the
Offering except Agent's Fees, and (ii) the Primary Parties shall be responsible
for the balance. If, however, the allocation provided above is not permitted by
applicable law or if the indemnified party failed to give the notice required
under Section 11 above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative fault of the Primary Parties on
the one hand and the Agent on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions, proceedings or claims in respect thereof), but also the relative
benefits received by the Primary Parties on the one hand and the Agent on the
other from the Offering, as well as any other relevant equitable considerations.
The relative benefits received by the Primary Parties on the one hand and the
Agent on the other hand shall be deemed to be in the same proportion as the
total proceeds from the Offering, net of all expenses of the Offering except
Agent's Fees, received by the Primary Parties bear, with respect to the Agent,
to the total fees (not including expenses) received by the Agent less the
portion of such fees paid by the Agent to Assisting Brokers. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Primary Parties
on the one hand or the Agent on the other and the parties relative intent, good
faith, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Primary Parties and the Agent agree that it
would not be just and equitable if contribution pursuant to this Section 12 were
determined by pro-rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above in this
Section 12. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities (or action, proceedings or claims in
respect thereof) referred to above in this Section 12 shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action, proceeding or claim.
It is expressly agreed that the Agent shall not be liable for any loss,
liability, claim, damage or expense or be required to contribute any amount
which in the aggregate exceeds the amount paid (excluding reimbursable expenses)
to the Agent under this Agreement less the portion of such fees paid by the
Agent to Assisting Brokers. It is understood and agreed that the above-stated
limitation on the Agent's liability is essential to the Agent and that the Agent
would not have entered into this Agreement if such limitation had not been
agreed to by the parties to this Agreement. No person found guilty of any
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution with respect to any loss or liability
arising from such misrepresentation from any person who was not found guilty of
such fraudulent misrepresentation. The duties, obligations and liabilities of
the Primary Parties and the Agent under this Section 12 and under Section 11
shall be in addition to any duties, obligations and liabilities which the
Primary Parties and the Agent may otherwise have. For purposes of this Section
12, each of the Agent's and the Primary Parties' officers and directors and each
person, if any, who controls the Agent or any of the Primary Parties within the
meaning of the 1933 Act and the 1934 Act shall have the same rights to
contribution as the Primary Parties and the Agent. Any party entitled to
contribution, promptly after receipt of notice of commencement of any
<PAGE> 30
action, suit, claim or proceeding against such party in respect of which a claim
for contribution may be made against another party under this Section 12, will
notify such party from whom contribution may be sought, but the omission to so
notify such party shall not relieve the party from whom contribution may be
sought from any other obligation it may have hereunder or otherwise than under
this Section 12.
Section 13. Survival.
(a) All representations, warranties and indemnities and other
statements contained in this Agreement (and in Paragraph 11 of the Letter
Agreement, insofar as it relates to Paragraph 9 of that Letter Agreement), or
contained in certificates of officers of the Primary Parties or the Agent
submitted pursuant hereto, shall remain operative and in full force and effect,
regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of the Agent or its controlling persons, or
by or on behalf of the Primary Parties and shall survive the issuance of the
Shares, and any legal representative, successor or assign of the Agent, any of
the Primary Parties, and any indemnified person shall be entitled to the benefit
of the respective agreements, indemnities, warranties and representations.
(b) The provisions of Paragraph 9 of the Letter Agreement shall
survive the issuance of the Shares (but not any termination or cancellation of
this Agreement) for a period of one (1) year, and any legal representative,
successor or assign of the Agent, and any of the Primary Parties shall be
entitled during such period to the benefit of the agreements contained therein.
Section 14. Termination. Agent may terminate this Agreement by giving the
notice indicated below in this Section at any time after this Agreement becomes
effective as follows:
(a) In the event the Holding Company fails to sell the minimum
number of the Conversion Shares prior to December 31, 1999, in accordance with
the provisions of the Plan or as required by the Conversion Regulations and
applicable law, this Agreement shall terminate upon refund by the Primary
Parties to each person who has subscribed for or ordered any of the Conversion
Shares the full amount which it may have received from such person, together
with interest in accordance with Section 3.
(b) If any of the conditions specified in Section 10 shall not have
been fulfilled when and as required by this Agreement, or by the Closing Date,
or waived in writing by the Agent, this Agreement and all of the Agent's
obligations hereunder may be canceled by the Agent by notifying the Bank of such
cancellation in writing at any time at or prior to the Closing Date, and any
such cancellation shall be without liability of any party to any other party
except as otherwise provided in Sections 3, 4, 9, 11 and 12 hereof and Paragraph
11 of the Letter Agreement.
(c) If Agent elects to terminate this Agreement as provided in this
Section, the Bank shall be notified by the Agent as provided in Section 15
hereof.
(d) If this Agreement is terminated in accordance with the
provisions of this Agreement, the Primary Parties shall pay the Agent the fees
earned pursuant to Section 4 and
<PAGE> 31
will reimburse the Agent for its reasonable expenses pursuant to Section 9,
including without limitation accounting, communication, legal and travel
expenses.
Section 15. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to Agent shall be
directed to Ryan, Beck & Co., 220 South Orange Avenue, Livingston, New Jersey
07039, Attention: Mr. Ben Plotkin, President (with a copy to Pitney, Hardin,
Kipp & Szuch, P.O. Box 1945, Morristown, New Jersey 07962, Attention: Ronald H.
Janis, Esq.); notices to the Primary Parties shall be directed to Hudson City
Savings Bank, West 80 Century Road, Paramus, New Jersey 07652, Attention Mr.
Ronald E. Hermance, Jr., President and Chief Operating Officer (with a copy to
Thacher Proffitt & Wood, Two World Trade Center, 38th Floor, New York, New York
10048, Attention: Omer S.J. Williams, Esq.).
Section 16. Parties. This Agreement shall inure to the benefit of and be
binding upon the Agent and the Primary Parties, and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, firm or corporation, other than the parties hereto
and their respective successors and the controlling persons and officers and
directors referred to in Sections 11 and 12 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provisions herein contained. It is understood
and agreed that this Agreement is the exclusive agreement among the parties,
supersedes any prior Agreement among the parties and may not be varied except by
a writing signed by all parties, except for Paragraphs 3, 9 and 11 of the Letter
Agreement, which are not hereby superceded.
Section 17. Partial Invalidity. In the event that any term, provision or
covenant herein or the application thereof to any circumstances or situation
shall be invalid or unenforceable, in whole or in part, the remainder hereof and
the application of said term, provision or covenant to any other circumstance or
situation shall not be affected thereby, and each term, provision or covenant
herein shall be valid and enforceable to the full extent permitted by law.
Section 18. Construction. This Agreement shall be construed in accordance
with the laws of the State of New Jersey.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement between
you and us in accordance with its terms.
Very truly yours,
HUDSON CITY BANCORP, INC.
By:
--------------------------
Ronald E. Hermance, Jr.
President and
<PAGE> 32
Chief Operating Officer
HUDSON CITY, MHC (in formation)
By:
--------------------------
Ronald E. Hermance, Jr.
President and
Chief Operating Officer
HUDSON CITY SAVINGS BANK
By:
--------------------------
Ronald E. Hermance, Jr.
President and
Chief Operating Officer
The foregoing Agency Agreement is
hereby confirmed and accepted as
of the date first set forth above.
RYAN, BECK & CO., INC.
By:
--------------------------
Ben A. Plotkin
President and
Chief Executive Officer
<PAGE> 1
Exhibit 2.1
================================================================================
PLAN OF REORGANIZATION
& STOCK ISSUANCE
OF
HUDSON CITY SAVINGS BANK
Adopted by the Board of Managers on February 11, 1999
As Amended and Restated as of April 27, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS...........................................................Plan -- 3
ARTICLE II
THE REORGANIZATION
Section 2.01 General.................................................Plan -- 9
Section 2.02 Possible Conversion of MHC to a Federal MHC............Plan -- 10
Section 2.03 Second-Step Conversion; Conversion of MHC
to Stock Form..........................................Plan -- 10
ARTICLE III
PROCEDURE FOR APPROVAL OF THE REORGANIZATION
Section 3.01 Application and Notice.................................Plan -- 11
Section 3.02 Approval of Plan by Voting Depositors;
the Special Meeting....................................Plan -- 12
Section 3.03 Regulatory Approvals...................................Plan -- 12
ARTICLE IV
SALE OF COMMON STOCK
Section 4.01 In General.............................................Plan -- 12
Section 4.02 Proceeds from Reorganization into Mutual Holding
Company Structure......................................Plan -- 14
Section 4.03 Pricing and Number of Shares of Common Stock;
Independent Appraiser..................................Plan -- 14
Section 4.04 Subscription Rights....................................Plan -- 16
Section 4.05 Community Offering.....................................Plan -- 18
Section 4.06 Subscription and Community Offering Procedures;
Order Forms............................................Plan -- 20
Section 4.07 Payment for Common Stock...............................Plan -- 21
Section 4.08 Syndicated Community Offering..........................Plan -- 22
Section 4.09 Public Offering Alternative............................Plan -- 23
Section 4.10 Restrictions on Purchase and Transfer
of Common Stock........................................Plan -- 24
Section 4.11 Time Limits for Sale of Shares; Effect
of Inability to Sell...................................Plan -- 25
Section 4.12 Enforcement of Terms and Conditions....................Plan -- 26
Plan -- i
<PAGE> 3
ARTICLE V
CERTAIN RESTRICTIONS
Section 5.01 Sale of Shares Purchased by Managers, Directors or
Officers...............................................Plan -- 26
Section 5.02 Subsequent Purchases of Shares by Managers,
Directors or Officers..................................Plan -- 27
Section 5.03 Acquisition of Control.................................Plan -- 27
ARTICLE VI
EFFECT OF REORGANIZATION;
CERTAIN COVENANTS AND AGREEMENTS
Section 6.01 Charters and Bylaws...................................Plan -- 28
Section 6.02 Effect of Reorganization...............................Plan -- 29
Section 6.03 Liquidation Account....................................Plan -- 29
Section 6.04 Voting Rights..........................................Plan -- 30
Section 6.05 Issuance of Stock......................................Plan -- 30
Section 6.06 Directors of Converted Bank............................Plan -- 31
Section 6.07 Employment Agreements..................................Plan -- 31
Section 6.08 Market for the Common Stock............................Plan -- 31
Section 6.09 Stock Repurchases and Stock Benefit Plans..............Plan -- 31
Section 6.10 Payment of Dividends and Repurchase of Stock...........Plan -- 32
ARTICLE VII
TAX RULING REQUIREMENT; AMENDMENT
AND TERMINATION; MISCELLANEOUS
Section 7.01 Conditions to Reorganization...........................Plan -- 32
Section 7.02 Amendment or Termination of the Plan...................Plan -- 32
Section 7.03 Completion Date........................................Plan -- 33
Section 7.04 Expenses of the Reorganization.........................Plan -- 33
Section 7.05 Interpretation.........................................Plan -- 33
Section 7.06 Severability...........................................Plan -- 33
Section 7.07 Miscellaneous..........................................Plan -- 33
Exhibit A Proposed Certificate of Incorporation of Hudson City Savings Bank
Exhibit B Proposed Bylaws of Hudson City Savings Bank
Exhibit C Proposed Certificate of Incorporation of Hudson City, MHC
Exhibit D Proposed Bylaws of Hudson City, MHC
Exhibit E Proposed Certificate of Incorporation of Hudson City Bancorp,
Inc.
Exhibit F Proposed Bylaws of Hudson City Bancorp, Inc.
Plan -- ii
<PAGE> 4
PLAN OF REORGANIZATION
& STOCK ISSUANCE
OF
HUDSON CITY SAVINGS BANK
INTRODUCTORY STATEMENT
The Board of Managers of Hudson City Savings Bank has adopted this Plan of
Reorganization and Stock Issuance pursuant to which the Bank proposes to
reorganize from a New Jersey chartered mutual savings bank into the mutual
savings bank holding company structure. The Reorganization will be accomplished
under the laws of the State of New Jersey and the regulations of the Department
and the FDIC, and other applicable federal laws and regulations. As part of the
Reorganization and the Plan, the Bank will convert to a New Jersey chartered
stock savings bank, and will form or cause to be formed a New Jersey chartered
mutual savings bank holding company and a Delaware corporation to become an
intermediate stock holding company. The Holding Company will be a majority-owned
subsidiary of the MHC at all times that the MHC remains in existence, and the
Bank will become a wholly-owned subsidiary of the Holding Company. Concurrently
with the Reorganization, the Holding Company will offer for sale up to 49% of
its Common Stock in the Subscription Offering on a priority basis to Eligible
Account Holders, Tax-Qualified Employee Plans and Supplemental Eligible Account
Holders. Any remaining shares may then be offered for sale in a Community
Offering, or a Syndicated Community Offering or a Public Offering. Wherever
appropriate for purposes of this Plan, capitalized terms shall have the meanings
assigned to them under Article I hereof.
The primary purpose of the Reorganization is to enable the Bank to compete
and expand more effectively in the financial services marketplace. Use of the
Holding Company is intended to provide greater organizational flexibility to the
Bank. The Reorganization will permit the Holding Company to issue capital stock,
which is a source of financing not available to mutual savings banks. The
Holding Company will not be offering all of its Common Stock for sale to
depositors and the public in the Offerings, and for this reason the
Reorganization will result in a smaller amount of capital raised in comparison
to a standard mutual-to-stock conversion. This will make deployment of offering
proceeds more manageable for the Bank. The Reorganization also will offer the
Bank more capital raising opportunities to effect future transactions, including
the acquisition of banks and other financial services companies. It will also
provide the Bank with greater flexibility to structure and finance the expansion
of its operations. The Reorganization will also enable the Bank to better manage
its capital by providing broader investment opportunities through the holding
company structure and by enabling the Bank to distribute excess capital to
shareholders of the Holding Company. As a result, the Bank's mutual form of
ownership and its ability to remain an independent savings bank and to provide
community-oriented financial services will be preserved through the mutual
holding company structure.
Plan -- 1
<PAGE> 5
This Plan has been unanimously approved by the Board of Managers of the
Bank and must be approved by the affirmative vote of at least a majority of the
eligible votes of Voting Depositors. Each Voting Depositor will be entitled to
cast one vote for each $100 or fraction thereof of deposits in the Bank on the
Voting Record Date. By approving the Plan, the Voting Depositors will also be
approving all steps necessary and incidental to the formation of the Bank (in
stock form), the Holding Company and the MHC, including any merger necessary to
consummate the Reorganization. The Reorganization is also subject to the
approval of the Commissioner, the Federal Reserve Board and the FDIC.
Upon the Reorganization, each Person having a Deposit Account at the Bank
prior to the Reorganization will continue to have a Deposit Account, without
further payment therefor, in the same amount and subject to the same terms and
conditions (except for liquidation rights) as in effect prior to the
Reorganization. After the Reorganization, the Bank will succeed to all the
rights, interests, duties and obligations as existed before the Reorganization,
including, but not limited to, all rights and interests of the Bank in and to
its assets and properties, whether real, personal or mixed. All of the Bank's
insured Deposit Accounts will continue to be insured by the Bank Insurance Fund
of the FDIC to the extent provided by applicable law.
Plan -- 2
<PAGE> 6
ARTICLE I
DEFINITIONS
As used in this Plan, the following terms shall have the following
meanings:
"Account Holder" shall mean any Person holding a Deposit Account in
the Bank.
"Acting in Concert" shall mean (i) knowing participation in a joint
activity or interdependent conscious parallel action towards a common goal
whether or not pursuant to an express agreement or understanding; or (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. A
Person acting in concert with another Person ("other party") shall also be
deemed to be acting in concert with any Person who is also acting in concert
with that other party, except that any Tax-Qualified Employee Stock Benefit Plan
will not be deemed to be acting in concert with its trustee or a Person who
serves in a similar capacity solely for the purpose of determining whether stock
held by the trustee and stock held by the plan will be aggregated, and
participants or beneficiaries of any such Tax-Qualified Employee Stock Benefit
Plan will not be deemed to be acting in concert solely as a result of their
common interests as participants or beneficiaries.
"Actual Purchase Price" shall mean the price per share at which the
Common Stock is ultimately sold in accordance with the terms hereof.
"Affiliate" shall mean a Person who, directly or indirectly, through
one or more intermediaries, controls or is controlled by or is under common
control with the Person specified.
"Associate," when used to indicate a relationship with any Person,
shall mean (a) any corporation or organization (other than the Holding Company,
the MHC, the Bank or a majority-owned subsidiary of the Bank) of which such
Person is an officer or general or limited partner or is, directly or
indirectly, either alone or with one or more members of his or her immediate
family, the beneficial owner of 10% or more of any class of equity securities;
(b) any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity, except that for the purposes of Sections 4.04(a) and 4.10, the term
"Associate" does not include any Tax-Qualified Employee Stock Benefit Plan or
any Non-Tax-Qualified Employee Stock Benefit Plan in which a Person has a
substantial beneficial interest or serves as a trustee or in a similar fiduciary
capacity, and except that, for purposes of aggregating total shares that may be
acquired or held by Managers, Officers and their Associates, the term
"Associate" does not include any Tax-Qualified Employee Stock Benefit Plan; and
(c) any relative or spouse of such Person, or any relative of such spouse, who
has the same home as such Person or who is a Director or Officer of the Holding
Company, the MHC, the Bank or any of the Bank's subsidiaries.
"Application" shall mean the application to be filed with the
Commissioner by the Bank in connection with the Reorganization.
Plan -- 3
<PAGE> 7
"Bank" shall mean Hudson City Savings Bank in its mutual form or in
its stock form, as the context of the reference requires.
"Banking Law" shall mean the Banking Act of 1948, as amended, of the
State of New Jersey.
"Benefit Plan" shall mean any Tax-Qualified Employee Stock Benefit
Plan or any Non-Tax-Qualified Employee Stock Benefit Plan.
"Commissioner" shall mean the Commissioner of Banking and Insurance
of the State of New Jersey.
"Common Stock" shall mean all of the shares of common stock, par
value $.01 per share, issued pursuant to this Plan by the Holding Company. The
Common Stock will not be insured by the FDIC.
"Community Offering" shall mean the offering for sale to Other
Depositors and certain members of the general public directly by the Bank or the
Holding Company, if utilized, of any shares of the Common Stock not subscribed
for in the Subscription Offering in accordance with Section 4.05.
"Control" (including the terms "controlling," "controlled by" and
"under common control with") shall mean the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities of such Person, the
ownership of voting securities of any company that possesses such power, or
otherwise.
"Department" shall mean the Department of Banking and Insurance of
the State of New Jersey.
"Deposit Account" shall mean all deposits of the Bank including
without limitation, savings, time, demand, negotiable orders of withdrawal
(NOW), money market and passbook accounts maintained by the Bank; provided,
however, that the term "Deposit Account" shall not include any escrow accounts
maintained at the Bank.
"Depositor" shall mean any Person owning a Deposit Account.
"Director" shall mean a member of the Board of Managers of the Bank
after the Reorganization or a member of the Board of Directors of the Holding
Company or the MHC.
"Effective Date" shall mean the effective date of the Reorganization
on which all of the Common Stock is issued and sold and the other transactions
contemplated by this Plan are consummated.
Plan -- 4
<PAGE> 8
"Eligibility Record Date" shall mean December 31, 1997, the date
established by the Board of Managers of the Bank as the date for determining
Eligible Account Holders.
"Eligible Account Holder" shall mean any Depositor of the Bank who
owned a Qualifying Deposit on the Eligibility Record Date.
"Estimated Valuation Range" shall mean the range of the minimum and
maximum aggregate values of the estimated pro forma market value of the Common
Stock as set forth in the independant valuation prepared by the Independent
Appraiser, as determined in accordance with Section 4.03.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"FRB" shall mean the Board of Governors of the Federal Reserve
System.
"Holders of Subscription Rights" shall mean the Tax-Qualified
Employee Stock Benefit Plans, Eligible Account Holders and Supplemental Eligible
Account Holders who have Subscription Rights pursuant to Section 4.04.
"Holding Company" shall mean Hudson City Bancorp, Inc., a
corporation to be organized under the laws of the State of Delaware.
"Independent Appraiser" shall mean the independent Person retained
by the Bank to prepare an appraisal of the estimated pro forma market value of
the Common Stock. Such Person shall be experienced and expert in the area of
corporate appraisal and acceptable to the Commissioner and the FDIC.
"Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended.
"Manager" shall mean a member of the Board of Managers of the Bank
prior to the Reorganization.
"Maximum Subscription Price" shall mean the price per share to be
remitted by subscribers for shares of Common Stock in the Subscription Offering
and the Community Offering.
"MHC" shall mean Hudson City, MHC, a mutual savings bank holding
company organized under the laws of the State of New Jersey.
"Non-Tax-Qualified Employee Stock Benefit Plan" shall mean any stock
option, bonus stock or restricted stock plan or other employee benefit plan that
is not a "Tax-Qualified Employee Stock Benefit Plan", and that is maintained by
the MHC, the Holding Company or the Bank for the benefit of officers, employees
or directors of the MHC, the Holding Company, the Bank or any Affiliate of any
of them and that, by its terms, is authorized or required to purchase Common
Stock.
Plan -- 5
<PAGE> 9
"Officer" shall mean an executive officer of the MHC, the Holding
Company or the Bank, which includes the chairman of the board, chief executive
officer, president, any vice president in charge of a principal business
function or functions or who otherwise has a policy-making function, secretary,
treasurer or principal financial officer, comptroller or principal accounting
officer, and any person performing functions similar to those performed by the
foregoing persons with respect to any incorporated or unincorporated
organization.
"Offering Range" shall mean the range of the minimum and maximum
aggregate values determined by the Board of Managers of the Bank within which
the aggregate offering price of Common Stock sold in the Reorganization will
fall. The Offering Range will be within the estimated aggregate pro forma market
value of the Common Stock, as determined by the Independent Appraiser in
accordance with Section 4.03. The maximum of the Offering Range shall be no more
than 15% above the average of the minimum and maximum of such range and the
minimum of which shall be no more than 15% below such average.
"Offerings" shall mean the Subscription Offering, the Community
Offering, the Syndicated Community Offering and the Public Offering,
collectively.
"Order Form" shall mean the form provided by the Holding Company or
the Bank that subscribers must use to order Common Stock in the Subscription
Offering and Community Offering.
"Other Depositor" shall mean any Depositor of the Bank (other than
an Eligible Account Holder or Supplemental Eligible Account Holder) who owns a
Qualifying Deposit on the Voting Record Date.
"OTS" shall mean the Office of Thrift Supervision.
"Overallotment Option" shall mean the option that may be granted to
the Underwriters in any Syndicated Community Offering or Public Offering to
purchase, on the same terms as other shares are purchased in such Syndicated
Community Offering or Public Offering, up to an additional fifteen percent of
the shares of the Common Stock offered in the Subscription Offering.
"Oversubscription Provision" shall mean the increase in the number
of shares of Common Stock that may be offered to subscribers in the Subscription
Offering and the Community Offering pursuant to Section 4.03(b) hereof.
"Person" shall mean any corporation, partnership, trust,
unincorporated association, any other entity or any natural person.
"Plan" or "Plan of Reorganization" shall mean this Plan of
Reorganization and Stock Issuance, including any amendments or supplements
thereto.
Plan -- 6
<PAGE> 10
"Prospectus" shall mean the Prospectus to be used in offering the
Common Stock in the Offerings.
"Proxy Statement" shall mean the document to be used to solicit
proxies from Voting Depositors to vote at the Special Meeting.
"Public Offering" shall mean the underwritten offering of certain
shares of Common Stock in accordance with Section 4.09 hereof.
"Public Offering Price" shall mean the price at which the shares of
Common Stock are offered in the Public Offering.
"Qualifying Deposit" shall mean one or more Deposit Accounts with
the Bank totaling, in the aggregate, at least one hundred dollars ($100.00).
"Regulations" shall mean the Banking Law, Subchapter 5 of Chapter 13
of Title 3 of the N.J.A.C. (the "NJ Regulations") and the regulations of the
FDIC applicable to mutual to stock conversions, 12 C.F.R. ss.ss. 303.160 et seq.
and 333.4, to the extent such regulations preempt or supplement the NJ
Regulations.
"Reorganization" shall mean (a) the reorganization of the Bank into
the mutual holding company structure including (i) the conversion of the Bank
into stock form and (ii) the organization of the MHC and the Holding Company and
(b) the issuance of the Common Stock in accordance with this Plan.
"Resident" and "residence" as used herein with respect to any person
shall mean any person who occupies a dwelling within the State of New Jersey and
establishes an ongoing physical presence within the State of New Jersey together
with an indication that such presence is something other than merely transitory
in nature. To the extent the person is a corporation or other business entity,
the principal place of business or headquarters shall be in the State of New
Jersey. To the extent a person is a personal benefit plan, the circumstances of
the beneficiary shall apply with respect to this definition. In the case of all
other benefit plans, the circumstances of the trustee shall be examined for
purposes of this definition. The Bank may utilize deposit or loan records or
such other evidence provided to it to make a determination as to whether a
person is a Resident. In all cases, however, such a determination shall be made
in the sole discretion of the Bank.
"SEC" shall mean the Securities and Exchange Commission.
"Special Meeting" shall mean the Special Meeting of Depositors to be
called for the purpose of submitting the Plan to the Voting Depositors for their
approval.
"Subaccount Balance" shall mean, with respect to each Eligible
Account Holder and Supplemental Eligible Account Holder, the portion of the
liquidation account that such Eligible Account Holder and Supplemental Eligible
Account Holder would be entitled to receive pursuant to the Regulations in the
event of a complete liquidation of the Bank subsequent to the Reorganization.
The initial Subaccount Balance of each Eligible Account Holder and Supplemental
Eligible Account Holder shall be determined in accordance with the Regulations.
Plan -- 7
<PAGE> 11
"Subscription Offering" shall mean the offering of the Common Stock
to Eligible Account Holders, Tax Qualified Employee Stock Benefit Plans and
Supplemental Eligible Account Holders in accordance with Section 4.04 hereof.
"Subscription Rights" shall mean the rights described in Section
4.04 hereof.
"Supplemental Eligibility Record Date" shall mean the supplemental
record date for determining Supplemental Eligible Account Holders, which is the
last day of the calendar quarter preceding the Commissioner's approval of the
Plan.
"Supplemental Eligible Account Holder" shall mean any Depositor of
the Bank (other than an Eligible Account Holder) who owned a Qualifying Deposit
on the Supplemental Eligibility Record Date, except Officers, Managers and their
Associates.
"Syndicated Community Offering" shall mean the best efforts offering
of Common Stock following the Subscription and Community Offerings through a
selling group of broker-dealers.
"Syndicated Community Offering Price" shall mean the per share price
submitted with orders for shares of Common Stock in the Syndicated Community
Offering.
"Tax-Qualified Employee Stock Benefit Plan" shall mean any defined
benefit plan or defined contribution plan, such as an employee stock ownership
plan, stock bonus plan, profit-sharing plan or other plan, that is maintained by
the Holding Company, the MHC or the Bank for the benefit of the officers or
employees of the Holding Company, the MHC, the Bank, or any Affiliate of any of
them; that, by its terms, is authorized or required to purchase Common Stock,
and that, with its related trust, meets the requirements to be "qualified" under
Section 401 of the Internal Revenue Code.
"Underwriters" shall mean any investment banking firm or firms
purchasing or distributing the Common Stock to be offered in a Public Offering,
if any.
"Underwriting Agreement" shall mean the agreement between the
Holding Company and the Underwriters pursuant to which the Underwriters agree to
purchase or distribute certain shares of the Common Stock for offering in a
Public Offering, if any.
"Voting Depositor" shall mean any Depositor of the Bank who owns a
Qualifying Deposit on the Voting Record Date.
"Voting Record Date" shall mean the date fixed by the Board of
Managers of the Bank as the date for determining Depositors of the Bank entitled
to notice of and to vote at the Special Meeting, which date shall not be more
than 60 nor less than 10 days before the date of the Special Meeting.
Plan -- 8
<PAGE> 12
ARTICLE II
THE REORGANIZATION
Section 2.01 General. As part of the Reorganization, the Bank will
convert to a New Jersey chartered stock savings bank and will form or cause to
be formed the Holding Company as a Delaware corporation and the MHC as a New
Jersey mutual savings bank holding company. The Reorganization may be effected
in any manner approved by the Commission that is consistent with the purposes of
this Plan and applicable law and regulations. It is currently anticipated that
the Reorganization will be effected in accordance with the following procedures:
(i) the Bank shall organize an interim stock savings bank as a
wholly-owned subsidiary ("Interim One"); (ii) Interim One shall organize
an interim stock savings bank as a wholly-owned subsidiary ("Interim
Two"); (iii) Interim One shall organize the Holding Company as a
wholly-owned subsidiary; (iv) the Bank shall exchange its charter for a
New Jersey stock savings bank charter to become the Bank in stock form and
Interim One shall exchange its charter for a New Jersey mutual savings
bank holding company charter to become the MHC; (v) simultaneously with
step (iv), Interim Two shall merge with and into the Bank with the Bank as
the resulting institution; (vi) all of the initially issued stock of the
Bank shall be transferred to the MHC in exchange for membership interests
in the MHC; and (vii) the MHC shall contribute the capital stock of the
Bank to the Holding Company, and the Bank in stock form shall become a
wholly-owned subsidiary of the Holding Company.
Upon completion of the Reorganization and Offerings, the MHC, the
Holding Company and the Bank shall be structured as follows:
------------ ------------
MHC Public
Shareholders
------------ ------------
| |
At least Up to
51% of the 49% of the
Common Common
Stock Stock
| |
--------------------------------------------
Holding Company
--------------------------------------------
|
100% of the
Common Stock
|
--------------------------------------------
Bank
--------------------------------------------
Contemporaneously with the Reorganization, the Holding Company shall
offer for sale in the Offerings shares of Common Stock representing up to 49% of
the pro forma market value of the Holding Company and the Bank. Upon
consummation of the Reorganization, the legal existence of the Bank shall not
terminate, but the Bank in stock form, shall be a continuation of the
Plan -- 9
<PAGE> 13
Bank in mutual form and all property of the Bank in mutual form, including its
right, title, and interest in and to all property of whatsoever kind and nature,
shall inure to the Bank in stock form immediately by operation of law and
without the necessity of any conveyance or transfer and without any further act
or deed. Upon consummation of the Reorganization, substantially all of the
assets and liabilities (including all Deposit Accounts) of the Bank in mutual
form shall become the assets and liabilities of the Bank in stock form, which
shall thereupon become an operating savings bank subsidiary of the Holding
Company and of the MHC. The Bank in stock form shall continue to have, succeed
to, and be responsible for all the rights, liabilities and obligations of the
Bank in mutual form and shall maintain its headquarters and operations at the
Bank's current locations.
Section 2.02 Possible Conversion of MHC to a Federal MHC.
Upon completion of the Reorganization, the MHC shall be a New Jersey
chartered mutual savings bank holding company. The MHC, however, may elect to
convert its charter to a federal mutual holding company charter in the future.
In the event of such an election, the MHC would be regulated by the OTS. Such a
charter conversion would be subject to the approval of the Board of Directors of
the MHC, the OTS and the Commissioner.
Section 2.03 Second-Step Conversion; Conversion of MHC to Stock
Form.
Following the completion of the Reorganization, the MHC may elect to
convert to stock form in accordance with applicable law (a "Conversion
Transaction"). There can be no assurance when, if ever, a Conversion Transaction
shall occur, and the Board of Managers has no present intent or plan to
undertake a Conversion Transaction. If the Conversion Transaction does not
occur, the MHC shall continue to own a majority of the Common Stock of the
Holding Company.
In a Conversion Transaction, the MHC would merge with and into the
Bank or the Holding Company (at the discretion of the MHC), and certain
depositors of the Bank would receive the right to subscribe for a number of
shares of Common Stock of the Holding Company, as determined by the formula set
forth in the following paragraphs. The additional shares of Common Stock of the
Holding Company issued in the Conversion Transaction would be sold at their
aggregate pro forma market value.
Any Conversion Transaction shall be fair and equitable to holders of
the Holding Company's Common Stock other than the MHC (the "Minority
Shareholders"). In any Conversion Transaction, Minority Shareholders, if any,
shall be entitled to maintain the same percentage ownership interest in the
Holding Company after the Conversion Transaction as their percentage ownership
interest in the Holding Company immediately prior to the Conversion Transaction
(the "Minority Ownership Interest"), subject only to the following adjustments
(if required by federal or state law, regulation, or regulatory policy) to
reflect: (i) the cumulative effect of the aggregate amount of dividends waived
by the MHC, if any; and (ii) the market value of assets of the MHC (other than
Common Stock of the Holding Company).
The adjustment referred to in clause (i) of the preceding paragraph
above would require that the Minority Ownership Interest (expressed as a
percentage) be adjusted by multiplying the Minority Ownership Interest by the
following fraction:
Plan -- 10
<PAGE> 14
(Holding Company shareholders' equity immediately preceding the Conversion
Transaction)-(aggregate amount of dividends waived by MHC, if any)
________________________________________________________________________________
Holding Company shareholders' equity immediately
preceding the Conversion Transaction
The Minority Ownership Interest (expressed as a percentage) shall
also be adjusted to reflect any assets of the MHC other than the Common Stock of
the Holding Company by multiplying the result obtained in the preceding
paragraph by the following fraction:
(pro forma market value of Holding Company)-
(market value of assets of MHC other than Holding Company common stock)
________________________________________________________________________________
pro forma market value of Holding Company
At the sole discretion of the Board of Directors of each of the MHC
and the Holding Company, a Conversion Transaction may be effected in any other
manner necessary to qualify the Conversion Transaction as a tax-free
reorganization under applicable federal and state tax law, provided such
Conversion Transaction does not diminish the rights and ownership interest of
Minority Shareholders as set forth in the preceding paragraphs. If a Conversion
Transaction does not occur, the MHC shall continue to own a majority of the
Voting Stock of the Holding Company.
Under current federal and state regulatory policy, a Conversion
Transaction would require the approval of applicable regulatory authorities, and
would be presented to a vote of the depositors of the Bank and the shareholders
of the Holding Company as of a voting record date prior to the completion of the
Conversion Transaction. Federal and state regulatory policy requires that in any
Conversion Transaction eligible depositors of the Bank shall be accorded the
same stock purchase priorities as if the MHC were a mutual savings bank
converting to stock form.
ARTICLE III
PROCEDURE FOR APPROVAL OF THE REORGANIZATION
Section 3.01 Application and Notice.
This Plan, having been duly adopted by the Board of Managers of the
Bank, shall be submitted, together with an Application in the form required by
the Regulations, to the Commissioner for approval and to request certain
waivers, if required, and to the FDIC for non-objection. Following approval of
this Plan by the Board of Managers of the Bank, the Bank shall cause notice of
the adoption of the Plan, and of its intention to convert to stock form and to
reorganize into the mutual holding company structure, to be conspicuously posted
at its home office and each of its branch offices. The Bank shall also issue a
press release containing all of the material terms of the proposed
Reorganization and shall place an advertisement containing such material terms
in a newspaper having general circulation in the communities in which the
principal office and branches of the Bank are located.
Plan -- 11
<PAGE> 15
Section 3.02 Approval of Plan by Voting Depositors; the Special
Meeting.
(a) Following (i) approval of the Bank's Application by the
Commissioner, (ii) the non-objection of the FDIC and (iii) the receipt of all
necessary waivers by the Commissioner, the Bank shall submit the Plan to the
Bank's Voting Depositors for approval at the Special Meeting. The Bank shall
mail to each Voting Depositor, at his or her last known address appearing on the
records of the Bank, a Notice of Special Meeting, a proxy card and a Proxy
Statement (which contains a detailed description of the Reorganization) in the
forms required by the Regulations, describing the Plan and certain other matters
relating to the Bank and its Reorganization. If an Order Form and Prospectus are
included in the mailing, separate and readily distinguishable postage-paid
envelopes shall be provided for the return of proxy cards and Subscription Order
Forms.
(b) The Special Meeting shall be held upon written notice given no
less than 20 days nor more than 45 days prior to the date of the Special
Meeting. At the Special Meeting, each Voting Depositor shall be entitled to cast
one vote in person or by proxy for every one hundred dollars ($100.00) of
Deposit Accounts such Voting Depositor had with the Bank as of the Voting Record
Date. The Board of Managers shall appoint an independent custodian and tabulator
to receive and hold proxies to be voted at the Special Meeting and count the
votes cast in favor of and in opposition to the Plan.
(c) The Commissioner shall be notified of the results of the Special
Meeting by a certificate signed by the appropriate Officers of the Bank promptly
after the conclusion of the Special Meeting. The Plan must be approved by the
affirmative vote of at least a majority of the amount of votes entitled to be
cast by Voting Depositors at the Special Meeting. If the Plan is so approved,
the Bank shall take all other necessary steps to effect the Reorganization
subject to the terms and conditions of the Plan. If the Plan is not so approved,
upon conclusion of the Special Meeting and any adjournment or postponement
thereof, the Plan shall not be implemented without further vote and all funds
submitted in the Subscription Offering and Community Offering shall be returned
to subscribers, with interest as provided herein, and all withdrawal
authorizations shall be canceled.
Section 3.03 Regulatory Approvals.
The Board of Managers of the Bank intends to take all necessary
steps to form the Holding Company. The Holding Company will make timely
applications for any requisite regulatory approvals, including an Application
with the Commissioner, an application with the FRB, an application with the FDIC
and a Registration Statement on Form S-1 with the SEC.
ARTICLE IV
SALE OF COMMON STOCK
Section 4.01 In General.
(a) As soon as practicable after adoption of the Plan by the Board
of Managers of the Bank and the Board of Directors of the Holding Company, the
Holding Company shall register the Common Stock under the Securities Act of
1933, as amended, and, subject to Section 4.04 (e)
Plan -- 12
<PAGE> 16
hereof, any applicable state securities or "blue sky" laws. After registration
of the Common Stock and receipt of all required regulatory approvals, up to 49%
of the Common Stock will be offered for sale to the Holders of Subscription
Rights in the respective priorities set forth in Section 4.04; provided,
however, that no offer for sale of the Common Stock shall be made prior to the
mailing to Voting Depositors of the Proxy Statement for the Special Meeting.
Shares of Common Stock not subscribed for in the Subscription Offering shall be
offered for sale in a Community Offering, or a Syndicated Community Offering or
a Public Offering or in some other manner as determined by the Board of Managers
of the Bank and the Board of Directors of the Holding Company with the approval
of the Commissioner and the FDIC. Any such Syndicated Community or Public
Offering shall be conducted in a manner that is intended to achieve the widest
distribution of the Common Stock.
(b) The Community Offering may be commenced concurrently with the
Subscription Offering; provided, however, that any orders received in the
Community Offering shall be subject to availability of shares upon conclusion of
the Subscription Offering. The offer and sale of Common Stock prior to the
Special Meeting shall, however, be conditioned upon approval of the Plan by the
Voting Depositors. The sale of all Common Stock subscribed for in the
Subscription and Community Offerings will be consummated simultaneously on the
date the sale of Common Stock in any Syndicated Community Offering or Public
Offering is consummated.
(c) The sales price per share of the Common Stock shall be a uniform
price determined in accordance with the Regulations and Section 4.03 hereof,
except that the price to be paid by or through the Underwriters in connection
with a Syndicated Community Offering or Public Offering may be less a negotiated
Underwriters' commission or discount.
(d) The Board of Managers of the Bank may determine for any reason
at any time prior to the issuance of the Common Stock not to utilize an
intermediate holding company form of organization in the Reorganization. If the
Board of Managers of the Bank determines not to complete the Reorganization
utilizing an intermediate holding company, up to 49% of the capital stock of the
Bank will be issued and sold in accordance with the Plan with the MHC holding
the remaining shares of the Bank. In such case, the Holding Company's
registration statement on Form S-l will be withdrawn from the SEC, the Bank will
take all steps necessary to complete the Reorganization, including filing any
necessary documents with the FDIC and the Commissioner, and will issue and sell
the Common Stock in accordance with this Plan. In such event, any subscriptions
or orders received for Common Stock of the Holding Company shall be deemed to be
subscriptions or orders for Common Stock of the Bank on the same terms and
conditions that such provisions apply to the Common Stock of the Holding
Company. In that event all references to the Holding Company in this Plan shall
be deemed to refer to the Bank or shall have no effect, as the context requires,
and the Bank shall take such steps as permitted or required by the Commissioner
and the FDIC.
Plan -- 13
<PAGE> 17
Section 4.02 Proceeds from Reorganization into Mutual Holding
Company Structure.
Upon the issuance of the Common Stock, the Holding Company will
contribute to the Bank in at least 50% of the net Reorganization proceeds. The
Holding Company intends to retain up to 50% of the net proceeds of the sale of
the Common Stock. A lesser percentage may be retained in the discretion of the
Boards of Managers of the Bank and the Board of Directors of the Holding
Company. The Bank believes that the Reorganization proceeds will provide
economic strength to the Holding Company and the Bank for the future in a highly
competitive and regulated environment. The Reorganization will facilitate
expansion through acquisitions of financial service organizations,
diversification into other related businesses and engagement in other business
and investment purposes, including the possible payment of dividends and
possible future repurchases of the Common Stock as permitted by the Regulations.
The above activities may also be engaged in by the Bank if the Holding Company
is eliminated.
Section 4.03 Pricing and Number of Shares of Common Stock;
Independent Appraiser.
(a) All shares sold in the Reorganization shall be sold at a
uniform price per share, the Actual Purchase Price. The aggregate price at
which the Common Stock shall be sold shall be consistent with the estimated pro
forma market value of such Common Stock on the Effective Date of the
Reorganization, based upon an independent valuation as provided for in this
Section 4.03. The Bank shall cause the Independent Appraiser to prepare a pro
forma valuation of the aggregate market value of the Common Stock, which shall
be submitted to the Commissioner and the FDIC as part of the Bank's
applications, such valuation to be stated in terms of an Estimated Valuation
Range, the maximum of which shall be no more than 15% above the average of the
minimum and maximum of such price range and the minimum of which shall be no
more than 15% below such average. From time to time, as appropriate or as
required by the Regulations or the Commissioner, the Bank shall cause the
Independent Appraiser to review developments subsequent to its valuation to
determine whether the Estimated Valuation Range should be revised. Such
valuation shall be prepared in accordance with the Regulations. The shares of
Common Stock sold in the Offerings will represent a minority ownership interest
in the outstanding Common Stock of the Holding Company equal to up to 49% of
the estimated pro forma market value of the Common Stock based upon the
Independent Valuation. The percentage of Common Stock offered for sale in the
Offerings and the Offering Range shall be determined by the Board of Directors
of the Holding Company and the Board of Managers of the Bank prior to
commencement of the Subscription and Community Offerings, and will be confirmed
upon completion of the Offerings based on the final or updated Independent
Valuation submitted by the Independent Appraiser.
(b) Based on the valuation of the Independent Appraiser pursuant to
Section 4.03(a) hereof, the Board of Managers of the Bank and the Board of
Directors of the Holding Company shall fix the Maximum Subscription Price and
the number of shares, or range thereof, to be offered. The total number of
shares of Common Stock offered shall be subject to increase or decrease at any
time prior to any Syndicated Community Offering or Public Offering or other
method of sale to reflect changes in market and financial conditions. If the
aggregate purchase price of the
Plan -- 14
<PAGE> 18
Common Stock sold in the Offerings is below the minimum of the Offering Range,
or materially above the maximum of the Offering Range, resolicitation of
purchasers may be required; provided, that up to a 15% increase above the
maximum of the Offering Range will not be deemed material so as to require a
resolicitation. Up to a 15% increase in the number of shares to be issued which
is supported by an appropriate change in the estimated pro forma market value of
the Common Stock will not be deemed to be material so as to require a
resolicitation of subscriptions. If the aggregate purchase price of the Common
Stock sold in the Offerings is below the minimum of the Offering Range or in
excess of 15% above the maximum of the Offering Range, and a resolicitation is
required, such resolicitation shall be effected in such manner and within such
time as the Holding Company or the Bank shall establish, with the approval of
the Commissioner or the FDIC, if required. The total number of shares of Common
Stock offered will be subject to increase in connection with the exercise of any
Overallotment Option or the Oversubscription Provision; provided, that any
additional number of shares of Common Stock issued in the Offerings for these
purposes shall not exceed 15% of the total number of shares of the Common Stock
offered in the Subscription Offering.
(c) If the number of shares of Common Stock to be sold in the
Reorganization, excluding any number of shares to be issued in connection with
any Overallotment Option or the Oversubscription Provision, is increased after
commencement of the Subscription Offering, any Person who subscribed for the
maximum number of shares of Common Stock shall be permitted to purchase an
additional number of shares such that such Person shall be permitted to
subscribe for the then maximum number of shares permitted to be subscribed for
by such Person as adjusted to take into account the increase in the number of
shares to be sold, subject to the rights and preferences of any Person who has
priority Subscription Rights. If either the individual purchase limitation or
the number of shares of Common Stock, excluding any number of shares to be
issued in connection with any Overallotment Option or the Oversubscription
Provision, is decreased after commencement of the Subscription Offering, the
order of any Person who subscribed for the maximum number of shares of Common
Stock shall be decreased by the minimum amount necessary so that such Person
shall be in compliance with the then maximum number of shares permitted to be
subscribed for by such Person. The Holding Company shall not otherwise be
required to offer subscribers the right to modify or rescind their subscriptions
as a result of any increase or decrease in the number of shares of Common Stock
offered, unless otherwise required by this Plan or by the Commissioner and the
FDIC, as applicable.
(d) If the shares of Common Stock sold in the Subscription Offering
and the Community Offering are in excess of the maximum of the Offering Range
(the "Adjusted Maximum"), such shares will be allocated in the following order
of priority: (i) if there is an oversubscription at the Eligible Account Holder
level, to fill unfulfilled subscriptions of Eligible Account Holders in
accordance with Section 4.04(a); (ii) to fill the Tax-Qualified Employee Stock
Benefit Plans' subscriptions in accordance with Section 4.04(b); (iii) if there
is an oversubscription at the Supplemental Eligible Account Holder level, to
fill unfulfilled subscriptions of Supplemental Eligible Account Holders in
accordance with Section 4.04(c); and (iv) to fill unfulfilled subscriptions in
the Community Offering in accordance with Section 4.05.
(e) If all of the shares of Common Stock are subscribed for in the
Subscription Offering and the Community Offering, or are sold in some manner
other than a Syndicated
Plan -- 15
<PAGE> 19
Community Offering or Public Offering, the Board of Managers of the Bank and
the Board of Directors of the Holding Company, in consultation with the
Independent Appraiser, shall determine the Actual Purchase Price, subject to
approval by the Commissioner and the FDIC, if required. If all shares of the
Common Stock offered are not subscribed for and there is a Syndicated Community
Offering or Public Offering, the Board of Managers of the Bank and the Board of
Directors of the Holding Company, in consultation with the Underwriters and the
Independent Appraiser, shall determine the Syndicated Offering Price or the
Public Offering Price, as the case may be, subject to the approval of the
Commissioner and the FDIC, if required. If there is a Syndicated Community
Offering or a Public Offering, the Syndicated Offering Price or the Public
Offering Price, as the case may be, will determine the Actual Purchase Price.
Except for the purchase price of shares sold upon the exercise of any
Overallotment Option or the Oversubscription Provision, the aggregate purchase
price of the Common Stock shall be within the Offering Range, unless
subscribers are offered the right to modify or rescind their subscriptions.
(f) The Holding Company shall not consummate any sale unless the
Independent Appraiser shall have confirmed to the Holding Company, the Bank, the
FDIC and the Commissioner that nothing of a material nature has occurred that
would cause the Independent Appraiser to conclude that the aggregate purchase
price of the shares of Common Stock sold in the Reorganization, exclusive of the
aggregate purchase price of shares sold upon the exercise of the Overallotment
Option or the Oversubscription Provision, is incompatible with its estimate of
the pro forma market value of the Common Stock at the time of such sale. If the
Independent Appraiser is unable to so confirm, the Offering may be canceled or
the Bank and the Holding Company may extend the Reorganization, establish a new
Estimated Valuation Range and Offering Range, new Actual Purchase Price, extend,
reopen or hold a new Subscription Offering and Community Offering, Syndicated
Community Offering or Public Offering, or take such other action as the Board of
Managers of the Bank and the Board of Directors of the Holding Company shall
determine and the Commissioner and the FDIC, as applicable, shall approve.
(g) The Common Stock to be issued pursuant to this Plan shall upon
issuance be fully paid and nonassessable.
Section 4.04 Subscription Rights.
(a) Each Eligible Account Holder shall receive, as first priority
and without payment, nontransferable subscription rights to subscribe for shares
of Common Stock equal to the amount permitted to be subscribed for in the
Community Offering, which amount is currently equal to $500,000 of the Common
Stock offered in connection with the Reorganization, as specified in Section
4.05(e), and may be increased to 5% of the Common Stock offered in the Offering,
exclusive of an increase in the total number of shares issued due to an increase
in the Offering Range of up to 15%. Such subscription is subject to the maximum
purchase limitation specified in Section 4.10(b) and the minimum purchase
limitation in Section 4.10(e) and exclusive of an increase in the total number
of shares issued due to an increase in the Offering Range of up to 15%. If
Eligible Account Holders subscribe for a number of shares of Common Stock that
exceeds the total number of shares of Common Stock being issued, the Common
Stock shall be allocated among subscribing Eligible Account Holders as follows:
Plan -- 16
<PAGE> 20
(i) first, to the extent possible, each Eligible Account Holder
shall be entitled to subscribe for the entire amount of his or her order,
up to 100 shares;
(ii) second, each Eligible Account Holder subscribing for in excess
of 100 shares shall be entitled, with respect to such excess, to subscribe
for the same percentage of the total remaining shares to be issued as the
value of his or her Qualifying Deposits represents to the aggregate value
of the Qualifying Deposits of all remaining Eligible Account Holders whose
subscriptions remain unsatisfied; provided, however, that no fractional
shares shall be issued; and
(iii) third, any shares then remaining shall be reallocated (one or
more times if necessary) among those Eligible Account Holders whose
subscriptions are not filled pursuant to subparagraphs (i) or (ii) above,
on the basis otherwise set forth in (ii) above until all available shares
have been allocated.
Subscription Rights to purchase Common Stock received by Managers and Officers
of the Bank, and their Associates, as Eligible Account Holders that are based on
their increased Deposit Accounts in the Bank in the one-year period preceding
the Eligibility Record Date shall be subordinated to the Subscription Rights of
all other Eligible Account Holders granted pursuant to the Regulations and this
Plan.
(b) The Tax-Qualified Employee Stock Benefit Plans shall receive,
without payment, as a second priority after the filling of subscriptions of
Eligible Account Holders, non-transferable Subscription Rights to purchase up to
a maximum of ten percent (10.0%) of the Common Stock. If, after the filling of
subscriptions of Eligible Account Holders, a sufficient number of shares is not
available to fill the subscriptions by such plans, the subscription by such
plans shall be filled to the maximum extent possible. A Tax-Qualified Employee
Stock Benefit Plan shall not be deemed to be an Associate or Affiliate of, or a
Person Acting in Concert with, any Director, Manager or Officer of the Holding
Company, the MHC or the Bank. Notwithstanding any provision contained herein to
the contrary, the Bank may make scheduled discretionary contributions to a
Tax-Qualified Employee Stock Benefit Plan; provided, among other things, that
such contributions do not cause the Bank to fail to meet its regulatory capital
requirements.
(c) Each Supplemental Eligible Account Holder shall receive, as
third priority and without payment, non-transferable Subscription Rights to
subscribe for shares of Common Stock equal to an amount up to the amount
permitted to be subscribed for in the Community Offering, which amount is
currently $500,000 of the Common Stock offered in the Reorganization, as
specified in Section 4.05(e), and may be increased to 5% of the Common Stock
offered in the Offering, exclusive of an increase in the total number of shares
issued due to an increase in the Offering Range of up to 15%. Such subscription
is subject to the maximum purchase limitation specified in Section 4.10(b) and
the minimum purchase limitation in Section 4.10(e) and exclusive of an increase
in the total number of shares issued due to an increase in the Offering Range of
up to 15%. If Supplemental Eligible Account Holders subscribe for a number of
shares of Common Stock that exceeds the total number of shares of Common Stock
being issued and available after purchases
Plan -- 17
<PAGE> 21
by Eligible Account Holders and Tax-Qualified Employee Stock Benefit Plans, the
Common Stock shall be allocated among subscribing Supplemental Eligible Account
Holders as follows:
(i) first, to the extent possible, each Supplemental Eligible
Account Holder shall be entitled to subscribe for the entire amount of his
or her order, up to 100 shares;
(ii) second, each Supplemental Eligible Account Holder subscribing
for in excess of 100 shares shall be entitled, with respect to such
excess, to subscribe for the same percentage of the total remaining shares
to be issued as the value of his or her Qualifying Deposits represents to
the aggregate value of the Qualifying Deposits of all remaining
Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied; provided, however, that no fractional shares shall be issued;
and
(iii) third, any shares then remaining shall be reallocated (one or
more times if necessary) among those Supplemental Eligible Account Holders
whose subscriptions are not filled pursuant to subparagraphs (i) or (ii)
above, on the basis otherwise set forth in (ii) above until all available
shares have been allocated.
(d) Subscription Rights are non-transferable and may not be
exercised by or on behalf of any Person other than the Holder of Subscription
Rights. Prior to the Effective Date, no Person shall offer to transfer, enter
into any agreement or understanding to transfer, or transfer the legal or
beneficial ownership of any shares of Common Stock, except pursuant to or as
contemplated by this Plan.
(e) The Holding Company and Bank shall make reasonable efforts to
comply with the securities laws of all states in the United States in which
Persons entitled to subscribe for shares of Common Stock pursuant to the Plan
reside. No Person will be offered or sold any Common Stock in the Subscription
Offering if such Person resides in a foreign jurisdiction. No payment will be
made in lieu of the granting of Subscription Rights to any such Person.
Section 4.05 Community Offering.
Shares of Common Stock not subscribed for in the Subscription
Offering may be offered in a Community Offering, commencing concurrently with or
subsequent to the commencement of the Subscription Offering, subject to the
following terms and conditions:
(a) Subject to the provisions of Section 4.05(d), the Common Stock
may be offered in the Community Offering to the following persons in the
following order of priority: (i) Other Depositors, (ii) natural persons who are
Residents of New Jersey, (iii) other Persons who are Residents of New Jersey and
(iv) certain other Persons to whom a prospectus is delivered.
(b) The Community Offering shall be completed no later than 45 days
following the termination of the Subscription Offering, unless extended with the
approval of the Commissioner and the FDIC, if applicable.
Plan -- 18
<PAGE> 22
(c) The Community Offering shall be by means of a direct marketing
program. The Bank or the Holding Company may, if the Board of Managers of the
Bank and the Board of Directors of the Holding Company deem it advisable, engage
the services of a registered broker-dealer, consultant or investment banking
firm, experienced and expert in the sale of savings institution securities, to
assist the Holding Company in the direct marketing program. The Holding Company
and the Bank shall endeavor to make distribution of the Common Stock to be sold
in the Community Offering in such a manner as to achieve the widest distribution
of Common Stock.
(d) At the option of the Bank and the Holding Company in connection
with the Community Offering or the Syndicated Community Offering, a number of
shares equal to the lesser of (i) 25% of the Common Stock offered in the
Offerings and exclusive of an increase in the total number of shares issued due
to an increase in the Offering Range of up to 15% or (ii) the number of shares
of Common Stock not subscribed for in the Subscription Offering or by Other
Depositors, may be initially reserved for institutional investors who need not
be Other Depositors or Residents of New Jersey.
(e) Any Person subscribing for Common Stock in the Community
Offering shall be required to purchase a minimum of 25 shares to the extent such
shares are available for purchase. The maximum amount that any Person, together
with any Associate or group of Persons Acting in Concert, may subscribe for in
the Community Offering shall be $500,000 of the Common Stock offered in the
Reorganization; provided, however, that the amount permitted to be purchased in
the Community Offering may be increased to 5% of the Common Stock offered in the
Offering without the further approval of depositors or resolicitation of
subscribers and exclusive of an increase in the total number of shares issued
due to an increase in the Offering Range of up to 15%. Such subscription is
subject to the maximum purchase limitation specified in Section 4.10(b). If
there are not sufficient shares available to fill all subscription requests, the
total number of shares available in the Community Offering shall be allocated,
subject to the reservation of shares set forth in Section 4.05(d), on a priority
basis, such that within each such priority, with respect to each subscriber
whose order is accepted, the shares available to such subscriber will be
allocated in the manner which permits each such person, to the extent possible,
to purchase the number of shares necessary to make his or her total allocation
of Common Stock equal to the lesser of 100 shares or the number of shares
subscribed for by such person, thereafter, unallocated shares will be allocated
among such persons whose subscriptions remain unsatisfied on a pro rata basis
until the remaining shares have been allocated.
(f) The Holding Company and Bank shall make reasonable efforts to
comply with the securities laws of all States in the United States in which
Persons entitled to subscribe for shares of Common Stock pursuant to the Plan
reside. No Person will be offered or sold any shares of Common Stock in the
Community Offering if such Person resides in a foreign jurisdiction.
(g) Notwithstanding the foregoing, the Holding Company reserves the
absolute right to accept or reject any or all orders in the Community Offering
in whole or in part for any reason not in contravention of any applicable law or
regulation. If the Holding Company rejects part of an order, the subscriber
shall not have the right to cancel the remainder of such Person's subscription.
Plan -- 19
<PAGE> 23
Section 4.06 Subscription and Community Offering Procedures; Order
Forms.
(a) After the registration statement for the Common Stock has been
declared effective by the SEC and all other required regulatory approvals have
been obtained, the Holding Company shall distribute or make available the
Prospectus, together with Order Forms for the purchase of Common Stock, to the
Holders of Subscription Rights for the purpose of enabling them to exercise
their respective Subscription Rights. Notwithstanding the foregoing, the Holding
Company may elect to send Order Forms only to those persons who request them
after such notice has been given as is approved by the Commissioner and the
FDIC, as applicable, and is adequate to apprise all Holders of Subscription
Rights of the pendency of the Subscription Offering. Such notice may be included
with the Proxy Statement for the Special Meeting and may also be included in a
notice of the pendency of the Reorganization and the Special Meeting sent to all
Eligible Account Holders, Supplemental Eligible Account Holders and Voting
Depositors in accordance with the Regulations. Each Order Form must be preceded
or accompanied by the Prospectus describing the Holding Company, the MHC, the
Bank, the Common Stock, the Subscription Offering and the Community Offering.
Each Order Form shall contain such information as may be required by the
Regulations.
(b) The Holders of Subscription Rights shall have a period of time
within which to complete and deliver an Order Form to the Holding Company. The
exact date and time by which completed Order Forms must be received by the
Holding Company, as well as the location for such delivery, shall be set forth
on the Order Form. Failure of any Holder of Subscription Rights to deliver a
properly completed and executed Order Form to the Holding Company, together with
full payment (or authorization for full payment by withdrawal from a designated
types of Deposit Account with the Bank) for the shares of Common Stock
subscribed for, within the time limits prescribed and to the location or
locations identified in the Order Form shall be deemed a waiver and release by
such Person of any Subscription Rights. The determination of whether an Order
Form is properly completed, executed and delivered shall be in the sole
discretion of the Bank and the Holding Company.
(c) The Company may also distribute or make available the
Prospectus, together with Order Forms for the purchase of Common Stock, to
certain other Persons described in Section 4.05. A subscriber in the Community
Offering shall have a period of time within which to complete and deliver an
Order Form to the Holding Company, which period of time shall end at the same
time that the Subscription Offering terminates, unless extended pursuant to
Section 4.05(b). The exact date and time by which completed Order Forms must be
received by the Holding Company shall be set forth on the Order Form.
(d) The Holding Company may, subject to the provisions of this Plan
and any required approval of the Commissioner or the FDIC, as applicable, extend
the period during which an Order Form must be completed and delivered to the
Holding Company. Any such extension shall be for a period that the Board of
Managers of the Bank and the Board of Directors of the Holding Company determine
is appropriate.
(e) The Company will reserve the right to accept or reject orders on
photocopied or facsimilied order forms. The Company may, but will not be
required to, waive any irregularity on
Plan -- 20
<PAGE> 24
any Order Form, or require the submission of corrected Order Forms or the
remittance of full payment for subscribed shares of Common Stock by such date as
set forth in the Prospectus. The interpretation by the Holding Company of the
terms and conditions of the Order Forms will be final and binding on all
subscribers.
Section 4.07 Payment for Common Stock.
(a) Payment for shares of Common Stock subscribed for in the
Subscription Offering and in any Community Offering shall be equal to the
Maximum Subscription Price multiplied by the number of shares that are being
subscribed for. Such payment must, except as noted below, be made at the time
the Order Form is delivered to the Holding Company and may be made:
(i) by check, bank draft, or money order, or
(ii) by authorization to the Bank to withdraw from Deposit Accounts,
except for money market checking accounts, NOW accounts, checking or
demand accounts or other transactional accounts, an amount equal to the
aggregate Maximum Subscription Price of the shares for which the Person
subscribed.
If the subscriber is a Benefit Plan, the subscribing Benefit Plan may pay for
the shares of Common Stock at the Actual Purchase Price on or prior to the
Effective Date. If the subscribing Benefit Plan is an employee stock ownership
plan, it may pay on or prior to the Effective Date but only if it has received,
prior to submitting its order, a loan commitment from the Holding Company or a
source of funding acceptable to the Holding Company, committing to advance to
the Benefit Plan on or before the Effective Date the aggregated Actual Purchase
Price of the shares for which the Benefit Plan subscribed. The Bank and the
Holding Company may permit institutional investors to submit contractually
irrevocable orders in the Community Offering and to thereafter submit payment
for the Common Stock for which they are subscribing in the Community Offering at
any time prior to 48 hours before the completion of the Reorganization, unless
such 48-hour period is waived by the Bank and the Holding Company, in their sole
discretion. Such payment by institutional investors may be made by wire
transfer.
(b) If the Actual Purchase Price is less than the Maximum
Subscription Price, the difference will either be promptly refunded to all
subscribers (or withdrawal authorizations from Deposit Accounts shall be
reduced) or, if the subscriber has so elected on a space that may be provided on
the Order Form, the difference (excluding accrued interest) will be applied to
the purchase of additional whole shares of Common Stock to the extent available,
and any remaining difference will be promptly refunded to all subscribers (or
withdrawal authorizations from Deposit Accounts shall be reduced).
(c) If a subscriber authorizes a withdrawal of the amount of the
Maximum Subscription Price multiplied by the number of shares that are being
subscribed for from a Deposit Account with the Bank as payment for the shares
subscribed for, the Bank will have the right upon receipt of the Order Form by
the Holding Company to make such withdrawal immediately or to place a hold on
such Deposit Account equal to such aggregate Maximum Subscription Price. If the
Bank places a hold on Deposit Accounts, then the Bank shall withdraw funds on
the Effective Date. The Bank
Plan -- 21
<PAGE> 25
will allow withdrawal from certificates of deposit for such payment without the
assessment of penalties; however, if the withdrawal results in the certificate
failing to meet any applicable minimum balance requirement, the certificate
evidencing the account may be canceled and the remaining balance transferred to
a statement savings account that will earn interest at the regular passbook
rate. Where any applicable required minimum balance is maintained in such
certificate account, the rate of return on the balance of the certificate
account will remain the same as prior to such early withdrawal. If the Bank
withdraws funds from a subscriber's certificate account, or places a hold on
such account, in accordance with this Section 4.07, the certificate account
shall be handled in accordance with the Bank's ordinary procedures and the
applicable terms and conditions for the account; provided, that if the
certificate account matures prior to the time the Reorganization is completed or
is terminated and if the account is renewed, the hold will remain in place in
accordance with the terms hereof, and if the certificate account is not renewed,
the funds shall be transferred to a statement savings account that will earn
interest at the regular passbook rate.
(d) The Bank will pay interest, at not less than the passbook rate,
for all amounts paid by check, bank draft or money order to purchase shares of
the Common Stock in the Subscription Offering or Community Offering from the
date payment is received until the date the Reorganization is completed or
terminated. If any withdrawal from a Deposit Account made pursuant to paragraph
(c) above is made at any time prior to the date the Reorganization is completed
or terminated, the Bank shall pay interest to the subscriber on the amount
withdrawn as if such amount had remained in the account from which it was
withdrawn until the date the Reorganization is completed or terminated.
(e) The Bank will not lend funds or otherwise extend credit to any
Person for the purpose of purchasing shares of the Common Stock.
Section 4.08 Syndicated Community Offering.
(a) Shares of Common Stock not sold in the Subscription Offering or
the Community Offering, if any, may be offered for sale in a Syndicated
Community Offering, subject to such terms, conditions and procedures as may be
determined by the Bank or the Holding Company, in a manner that is intended to
achieve the widest distribution of the Common Stock subject to the right of the
Bank and the Holding Company to accept or reject in whole or in part all
subscriptions in the Syndicated Community Offering.
(b) In the Syndicated Community Offering, any Person together with
any Associate or group of Persons Acting in Concert may purchase up to $500,000
of the Common Stock offered in the Reorganization subject to the maximum
purchase limitation specified in Section 4.10(b) and exclusive of an increase in
the total number of shares issued due to an increase in the Estimated Valuation
Range of up to 15%.
(c) Provided that the Subscription Offering has commenced, the Bank
may commence the Syndicated Community Offering at any time after the mailing to
the depositors of the Proxy Statement to be used in connection with the Special
Meeting; provided, that the completion of the offer and sale of the Common Stock
shall be conditioned upon the approval of this Plan by Voting Depositors. If the
Syndicated Community Offering is not sooner commenced pursuant to the provisions
of the preceding sentence, the Syndicated Community Offering will be commenced
as soon
Plan -- 22
<PAGE> 26
as practicable following the date upon which the Subscription Offering and any
Community Offering terminate.
(d) Notwithstanding the foregoing, the Holding Company reserves the
absolute right to accept or reject any or all orders in the Syndicated
Community Offering in whole or in part not in contravention of any applicable
law or regulation. If the Holding Company rejects part of any order, the
subscriber shall not have the right to cancel the remainder of such Person's
subscription.
Section 4.09 Public Offering Alternative.
Shares of Common Stock not sold in the Subscription Offering or the
Community Offering may, as an alternative to a Syndicated Community Offering
pursuant to Section 4.08, be offered for sale by the Holding Company to or
through Underwriters. The provisions of Section 4.10 shall not be applicable to
sales to Underwriters for purposes of such a Public Offering. Any such
Underwriter shall agree to (a) purchase such shares from the Holding Company
with a view to reoffering them to the general public; (b) use their best efforts
to sell, for the account of the Holding Company, such shares to the general
public; or (c) a combination of (a) and (b), subject to the following terms and
conditions:
(a) Any Underwriting Agreement shall provide that the
Underwriters shall agree to purchase all shares of the Common Stock not
sold in the Subscription Offering or any Community Offering, if any such
shares are purchased.
(b) The price paid to the Holding Company by or through the
Underwriters for the Common Stock shall be the aggregate Public Offering
Price for the shares of Common Stock so offered, less discounts and
commissions as negotiated between the Bank, the Holding Company and the
Underwriters and approved by the Commissioner, the FDIC (if applicable)
and the National Association of Securities Dealers, Inc.
(c) The Underwriting Agreement shall be subject to the
following conditions and such other conditions as may be acceptable to the
Bank, the Holding Company, the FDIC (if applicable) and the Commissioner:
(i) In the Public Offering, any Person together with any
Associate or group of Persons Acting in Concert may purchase up to
$500,000 of the Common Stock offered in the Reorganization subject
to the maximum purchase limitation specified in Section 4.10(b) and
exclusive of an increase in the total number of shares issued due to
an increase in the Estimated Valuation Range of up to 15%; and
(ii) the Holding Company and the Underwriters shall use
reasonable efforts to assure that the stock to be offered and sold
in the Public Offering shall be offered and sold in a manner that,
to the extent practicable, will achieve the widest distribution of
such stock.
(d) If for any reason a Syndicated Community Offering or a
Public Offering of shares of Common Stock not sold in the Subscription and
Community Offerings cannot be effected, or if any insignificant residue of
shares of Common Stock is not sold in the Subscription and Community
Offerings or in the Syndicated Community or Public Offering, other
arrangements will be made for the disposition of unsubscribed shares by
the Bank, if possible. Such other purchase arrangements will be subject to
the approval of the Commissioner and the FDIC, if applicable.
Plan -- 23
<PAGE> 27
Section 4.10 Restrictions on Purchase and Transfer of Common Stock.
The following limitations shall apply to all purchases of Common
Stock:
(a) The aggregate amount of outstanding Common Stock of the Holding
Company owned or controlled by Persons other than the MHC shall not exceed 49%
of the Holding Company's outstanding Common Stock.
(b) No Person, acting alone, acting together with any other Person,
or Acting in Concert with any group of Persons, shall be entitled to purchase
more than $2,500,000 of the Common Stock offered. For purposes of applying this
purchase limitation, the purchases of any Tax-Qualified Employee Stock Benefit
Plan shall not be subject to such purchase limitation, and the purchases of any
Benefit Plan shall not be aggregated with those of any other Benefit Plan or
other Person; provided, however, that any one or more Tax-Qualified Employee
Stock Benefit Plans may subscribe for up to and including 10% of the Common
Stock issued and sold in the Offerings.
(c) The Officers and Managers of the Bank and Officers and Directors
of the Holding Company, the MHC and their Associates, collectively, shall be
entitled to purchase up to and including 25% of the Common Stock issued and sold
in the Offerings. In applying this limitation, Common Stock purchased by any one
or more Tax-Qualified Employee Stock Benefit Plan shall not be counted.
(d) Shares of Common Stock subscribed for in the Subscription
Offering, the Community Offering and any Syndicated Community Offering or Public
Offering or otherwise purchased shall be aggregated for purposes of determining
if the limitations of Section 4.10(b) and (c) have been violated.
(e) Any Person exercising Subscription Rights to purchase Common
Stock shall be required to purchase a minimum of 25 shares to the extent such
shares are available for purchase. However, if the minimum number of shares of
Common Stock that must be purchased times the price per share exceeds five
hundred dollars ($500.00), then the minimum purchase requirement shall be
reduced to such number of shares that, when multiplied by the price per share,
the aggregate price for any such minimum purchase of shares of Common Stock
shall not exceed five hundred dollars ($500.00).
(f) Depending upon market or financial conditions, the Board of
Managers of the Bank and the Board of Directors of the Holding Company, without
further approval of the subscribers, may increase the purchase limitations in
this Plan, provided, that the maximum purchase limitations may not be increased
to a percentage in excess of 5% of the Common Stock offered in the Offerings
exclusive of an increase in the total number of shares issued due to an increase
in the Offering Range of up to 15%. If the Bank and the Holding Company increase
such maximum purchase limitations, the Bank and the Holding Company are only
required to resolicit Persons who subscribed for the maximum purchase amount and
may, in the sole discretion of the Bank and the Holding Company, resolicit
certain other large subscribers.
Plan -- 24
<PAGE> 28
(g) Each Person purchasing Common Stock in the Reorganization shall
be deemed to confirm that such purchase does not conflict with the purchase
limitations set forth in this Plan.
(h) As used in this Section 4.10, the Officers, Directors and
Managers of the Bank, the MHC and the Holding Company shall not be deemed to be
Associates or a group affiliated with each other or otherwise Acting in Concert
solely as a result of their being Officers, Managers or Directors of the Bank or
the Holding Company.
Section 4.11 Time Limits for Sale of Shares; Effect of Inability to
Sell.
All shares of Common Stock not subscribed for at the completion of
the Subscription Offering shall be sold within 45 days after completion of the
Subscription Offering, or such longer period as the Commissioner, and the FDIC
if applicable, may approve. If all shares are not sold as provided for herein,
the Bank and the Holding Company will consult with the Commissioner and the
FDIC, as applicable, to determine an alternative method of sale. In such event
and if required by the Commissioner, the FDIC or the SEC, a resolicitation of
those Persons who have subscribed for shares will be made. If such an
alternative method is not agreed upon, the Reorganization will not be effected,
the Bank will remain in mutual form, all funds submitted to the Bank and the
Holding Company as payment for shares of the Common Stock will be returned to
subscribers, with interest as provided herein, and all withdrawal authorizations
will be canceled.
Section 4.12 Enforcement of Terms and Conditions.
The Bank and the Holding Company shall have the right to take all
such action as they may, in their sole discretion, deem necessary, appropriate,
or advisable in order to monitor and enforce the terms, conditions, limitations
and restrictions contained in this Article IV and elsewhere in this Plan and the
terms, conditions and representations contained in the Order Forms, including,
but not limited to, the right to require any subscriber or purchaser to provide
evidence, in a form satisfactory to the Bank, of such Person's eligibility to
subscribe for or purchase shares of the Common Stock under the terms of this
Plan and the absolute right (subject only to any necessary regulatory approvals
or concurrence) to reject, limit, or revoke acceptance of any subscription or
order and to delay, terminate, or refuse to consummate any sale of Common Stock
that they believe might violate, or is designed to, or is any part of a plan to
evade or circumvent such terms, conditions, limitations, restrictions, and
representations. Any such action shall be final, conclusive, and binding on all
Persons, and the Bank, the MHC and the Holding Company and their respective
Board of Managers and Board of Directors shall be free from any liability to any
Person on account of any such action.
Plan -- 25
<PAGE> 29
ARTICLE V
CERTAIN RESTRICTIONS
Section 5.01 Sale of Shares Purchased by Managers, Directors or
Officers.
All shares of the Common Stock purchased or acquired (either
directly or indirectly) by the Managers, Directors or Officers of the Bank, the
MHC or the Holding Company, or their Associates, on original issue in the
Reorganization (or otherwise beneficially owned by such Managers, Directors or
Officers immediately upon such original issuance) shall be subject to the
restriction that the shares shall not be sold for a period of one year following
the date of purchase. Such restriction shall not apply to the shares of any such
Manager, Director or Officer in the event of the death or judicial declaration
of incompetence of such Person or any exchange of such shares in connection with
a merger or acquisition of the Holding Company, the MHC or the Bank. In
addition, such restriction shall not apply to shares held by any Tax-Qualified
Employee Stock Benefit Plan. In connection with the shares of the Common Stock
that are subject to this restriction on resale:
(a) Each certificate for such shares shall bear a legend giving
appropriate notice of such restriction;
(b) Appropriate instructions shall be issued to the transfer agent
for the Common Stock with respect to applicable restrictions on transfer of any
such restricted stock; and
(c) Any shares issued as a stock dividend, stock split or otherwise
with respect to any such restricted stock shall be subject to the same
restrictions as applicable to such originally restricted stock until the
restrictions respecting such originally restricted stock are terminated, and any
certificate for such shares shall bear a legend advising of such restrictions.
Section 5.02 Subsequent Purchases of Shares by Managers, Directors
or Officers.
For a period of three years following the Effective Date, no Officer
or Manager of the Bank and no Officer or Director of the MHC or the Holding
Company (and any person who was an Officer or Manager of the Bank or an Officer
of Director of the MHC or the Holding Company at any time after the date on
which the Board of Managers of the Bank adopted this Plan), or Associate of any
of them, shall, without the prior written approval of the Commissioner and the
FDIC, purchase or acquire direct or indirect beneficial ownership of any shares
of the capital stock of the Holding Company, except through a broker or dealer
registered with the SEC. This restriction shall not apply to any purchase or
acquisition effected pursuant to (1) any Benefit Plan or the exercise of any
options to purchase Common Stock granted pursuant to a stock option plan and (2)
negotiated transactions involving more than one percent of the outstanding
capital stock of the Holding Company.
Section 5.03 Acquisition of Control.
(a) The Certificate of Incorporation of the Bank, in stock form,
will contain a provision stipulating that, for a period of five years following
the Effective Date, no Person or group of Persons Acting in Concert, except the
Holding Company (if an intermediate holding company
Plan -- 26
<PAGE> 30
form of organization is utilized) or MHC (if the Bank does not use an
intermediate stock holding company) shall directly or indirectly offer to
acquire or acquire the beneficial ownership of more than ten percent (10%) of
any class of an equity security of the Bank. In addition, such Certificate of
Incorporation may also provide that, for a period of five years following the
Conversion, shares beneficially owned in violation of the above-described
Certificate of Incorporation provision shall not be entitled to vote and shall
not be voted by any Person or counted as voting stock in connection with any
matter submitted to shareholders for a vote. In addition, the Certificate of
Incorporation will contain provisions providing that special meetings of the
shareholders relating to changes in control or amendment of the Certificate of
Incorporation may only be called by the Board of Directors and that shareholders
shall not be permitted to cumulate their votes.
(b) The Certificate of Incorporation of the Holding Company contains
a provision to the effect that any record owner of any outstanding shares of the
Holding Company's Common Stock (except for the MHC and certain other Persons)
who beneficially owns in excess of 10% of such outstanding shares, exclusive of
any shares beneficially owned by the MHC, shall be entitled to cast only one
one-hundredth (1/100) of one vote per share with respect to any shares held in
excess of such 10%. In addition, the Certificate of Incorporation and Bylaws of
the Holding Company contain provisions for staggered terms of the directors,
non-cumulative voting for directors, limitations on the calling of special
meetings, a fair price provision for certain business combinations and certain
notice requirements.
(c) For the purposes of this Section 5.03:
(i) The term "Person" includes an individual, a group Acting in
Concert, a corporation, a partnership, an association, a joint stock
company, a trust, an unincorporated organization or similar company, a
syndicate, or any other group formed for the purpose of acquiring, holding
or disposing of securities of an insured institution, and the term
"Person" does not include the Company or any majority-owned subsidiary
thereof, or any Tax-Qualified Employee Stock Benefit Plan or any trust or
custodial arrangement established in connection with any such plan;
provided, that the plan or plans do not have beneficial ownership in the
aggregate of more than twenty-five percent (25%) of any class of equity
security of the Bank or the Company;
(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of, a security or interest in a security for value;
(iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise; and
(iv) The term "security" includes non-transferable subscription
rights issued pursuant to a plan of reorganization as well as a "security"
as defined in 15 U.S.C. ss. 8c(a)(10).
Plan -- 27
<PAGE> 31
ARTICLE VI
EFFECT OF REORGANIZATION;
CERTAIN COVENANTS AND AGREEMENTS
Section 6.01 Charters and Bylaws.
(a) The Bank shall take all appropriate steps to adopt a Certificate
of Incorporation for a New Jersey stock savings bank as specified in the
Regulations and approved by the Board of Managers of the Bank. The Bank shall
also take all appropriate steps to adopt Bylaws sufficient and appropriate for a
New Jersey stock savings bank.
(b) The MHC shall take all appropriate steps to adopt a Certificate
of Incorporation for a New Jersey chartered mutual savings bank holding company
as specified in the Regulations and approved by the Board of Managers of the
Bank. The MHC shall also take all appropriate steps to adopt Bylaws sufficient
and appropriate for a New Jersey mutual savings bank holding company.
(c) The Holding Company shall take all appropriate steps to adopt a
Certificate of Incorporation for a Delaware corporation as specified in the
Delaware General Corporation Law and approved by the Board of Managers of the
Bank. The Holding Company shall also take all appropriate steps to adopt Bylaws
sufficient and appropriate for a Delaware corporation.
(d) Copies of the proposed certificates of incorporation and bylaws
of the Bank, in stock form, the MHC and the Holding Company are attached hereto
as exhibits A, B, C, D, E and F respectively and are made part of this Plan. By
their approval of the Plan, the Voting Depositors of the Bank will thereby
approve and adopt the certificates of incorporation of each of the Bank in stock
form, the MHC and the Holding Company.
Section 6.02 Effect of Reorganization.
On the Effective Date of the Reorganization, the legal existence of
the Bank shall not terminate, but the Bank in stock form shall be a continuation
of the Bank in mutual form and all property of the Bank in mutual form including
its right, title, and interest in and to all property of whatsoever kind and
nature, shall inure to the Bank in stock form immediately by operation of law
and without the necessity of any conveyance or transfer and without any further
act or deed. Upon consummation of the Reorganization, substantially all of the
assets and liabilities (including all Deposit Accounts) of the Bank in mutual
form shall become the assets and liabilities of the Bank in stock form, which
shall thereupon become an operating savings bank subsidiary of the Holding
Company and of the MHC. Without limiting the foregoing, each depositor of the
Bank shall receive, without payment, a withdrawable deposit account or accounts
in the Bank in stock form equal in withdrawable amount to the value of such
depositor's account or accounts in the Bank in mutual form. The Bank in stock
form shall continue to have, succeed to, and be responsible for all the rights,
liabilities and obligations of the Bank in mutual form and shall maintain its
headquarters and operations at the Bank's current locations.
Plan -- 28
<PAGE> 32
Section 6.03 Liquidation Account.
(a) A liquidation account shall be established and maintained for
the benefit of Eligible Account Holders and Supplemental Eligible Account
Holders who continue to maintain an account in the Bank in the event of a
complete liquidation of the Bank following the Reorganization. Each Eligible
Account Holder and each Supplemental Eligible Account Holder shall, with respect
to each account held, have a related inchoate interest in a Subaccount Balance.
The initial liquidation account balance shall be equal to the net worth of the
Bank (determined in accordance with generally accepted accounting principles) as
set forth in its most recent statement of financial condition contained in the
Proxy Statement.
(b) In the event of a complete liquidation of the Bank (and only in
such event), each Eligible Account Holder and each Supplemental Eligible Account
Holder shall be entitled to receive a liquidation distribution from the
liquidation account in the amount of the then-current adjusted Subaccount
Balance for each account of such holder after the Reorganization, before any
liquidation distribution may be made with respect to capital stock.
(c) The initial Subaccount Balance for an account held by an
Eligible Account Holder or a Supplemental Eligible Account Holder shall be
determined by multiplying the aggregate opening balance in the liquidation
account by a fraction of which the numerator is the amount of deposits or shares
in the account of such Eligible Account Holder on the Eligibility Record Date or
such Supplemental Eligible Account Holders on the Supplemental Eligibility
Record Date, as applicable, and the denominator is the total amount of deposits
or shares owned by all Eligible Account Holders or Supplemental Eligible Account
Holders of the Bank on the applicable date. Such initial Subaccount Balance
shall not be increased, and it shall be subject to downward adjustments as
follows: if the deposit balance in any account of an Eligible Account Holder or
a Supplemental Eligible Account Holder at the end of any period for which the
Bank has prepared audited financial statements subsequent to the Eligibility
Record Date or Supplemental Eligibility Record Date, as applicable, is less than
the deposit balance in such account at the end of any period for which the Bank
has prepared audited financial statements subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, as applicable, the Subaccount
Balance for such account shall be adjusted by reducing such Subaccount Balance
in an amount proportionate to the reduction in such deposit balance. In the
event of such a downward adjustment, the Subaccount Balance shall not be
subsequently increased, notwithstanding any increase in the deposit balance of
the related account. If any such account is closed, the related Subaccount
Balance shall be reduced to zero.
(d) Subsequent to the completion of the Reorganization, the Bank
shall not declare or pay a cash dividend on any of its capital stock if the
effect thereof would cause the net worth of the Bank to be reduced below the
amount required to maintain the liquidation account. The Bank shall not be
required to set aside funds for the purpose of establishing the liquidation
account and, except as provided in this Section 6.03, the existence of such
account shall not operate to restrict the use or application of any of the net
worth accounts of the Bank subsequent to the Reorganization.
(e) Subsequent to the Effective Date of the Reorganization, all
depositors who had liquidation rights with respect to the Bank as of the date of
the Reorganization shall continue
Plan -- 29
<PAGE> 33
to have such rights solely with respect to the MHC for so long as they remain
depositors of the Bank. No person who ceases to be the holder of a Deposit
Account with the Bank after the Reorganization shall have any liquidation rights
with respect to the Bank or MHC.
Section 6.04 Voting Rights.
Except as may be provided in the Certificate of Incorporation of the
Bank pursuant to any amendment thereto subsequent to the Effective Date of the
Reorganization, the holders of the capital stock of the Bank shall have
exclusive voting rights in the Bank upon the Effective Date of the
Reorganization. Except as may be provided in the Certificate of Incorporation of
the Holding Company pursuant to any amendment thereto subsequent to the
Effective Date of the Reorganization, the holders of the Common Stock of the
Holding Company shall have exclusive voting rights in the Holding Company upon
the Effective Date of the Reorganization.
Section 6.05 Issuance of Stock.
(a) Subsequent to the Effective Date of the Reorganization, the
Board of Directors of the Bank, subject to the provisions of the Certificate of
Incorporation and the Bylaws of the Bank, shall have the authority to issue any
of the authorized, unissued and unreserved shares of common and preferred stock
and to fix the relative rights, preferences and limitations of such preferred
stock. Except as may be required by applicable law and resolution, the Board of
Directors of the Bank shall have sole discretion in the decision to issue such
shares and no shareholder approval will be required for the issuance of such
shares.
(b) Subsequent to the Effective Date of the Reorganization, the
Board of Directors of the Holding Company, subject to the provisions of the
Certificate of Incorporation and the Bylaws of the Holding Company, shall have
the authority to issue any of the authorized, unissued and unreserved shares of
common and preferred stock and to fix the relative designations, powers,
preferences, rights, qualifications, limitations and restrictions of such
preferred stock. Except as may be required by the Delaware General Corporation
Law or otherwise, the Board of Directors of the Holding Company shall have sole
discretion in the decision to issue such shares and no shareholder approval will
be required for the issuance of such shares, except in connection with a
Conversion Transaction as contemplated in Section 2.03.
Section 6.06 Directors of Converted Bank.
Following the Reorganization, the business and affairs of the Bank
shall be managed by a Board of Directors, the members of which shall be the same
individuals who constituted the Board of Managers of the Bank immediately prior
to the Reorganization. Upon the Effective Date of the Reorganization, the Board
of Directors of the Bank shall be divided into three classes with respect to
term of office, each class to contain, as near as may be possible, one-third of
the entire Board of Directors of the Bank. Each person serving as a Manager of
the Bank on the Effective Date of the Reorganization shall be appointed by the
Board of Directors to one of the three classes and shall serve as a director
until the expiration of his term and until his successor is elected and
qualified. One class of directors shall have a term of office expiring at the
first annual meeting of shareholders of the Bank, the second class shall have a
term of office expiring at the second annual
Plan -- 30
<PAGE> 34
meeting of shareholders of the Bank and the third class shall have a term of
office expiring at the third annual meeting of shareholders of the Bank.
Directors elected at each annual meeting of shareholders of the Bank (other than
directors elected to fill vacancies) shall be elected to serve for a term of
three years and until their successors are elected and qualified.
Section 6.07 Employment Agreements.
The Bank, the MHC and the Holding Company may enter into employment
agreements with such officers and employees and upon such terms and conditions
as the Board of Managers of the Bank and the Board of Directors of each of the
MHC and Holding Company shall determine.
Section 6.08 Market for the Common Stock.
Upon the Effective Date of the Reorganization, or as soon thereafter
as practicable, the Common Stock shall be registered pursuant to the Securities
Exchange Act of 1934, as amended, and shall not be deregistered for a period of
three years following such registration. Additionally, the Company shall use its
best efforts to list the Common Stock on a national or regional securities
exchange or on The Nasdaq Stock Market and to encourage and assist market makers
to establish and maintain a market for the Common Stock, if applicable.
Section 6.09 Stock Repurchases and Stock Benefit Plans.
The Holding Company, or the Bank if the Holding Company is not
utilized, will restrict repurchases of Common Stock and the implementation of
stock option and management and employee stock benefit plans as required by the
Regulations, unless such requirements are waived by the appropriate regulatory
agency or agencies.
Section 6.10 Payment of Dividends and Repurchase of Stock.
The Holding Company may not declare or pay a cash dividend on, or
repurchase any of, its Common Stock (a) if the effect thereof would cause its
regulatory capital or the regulatory capital of the Bank to be reduced below the
amount required (i) to maintain the Liquidation Account or (ii) under FDIC rules
and regulations, FRB rules and regulations or the Banking Law or (b) otherwise
in violation of applicable regulations of the FDIC or the FRB. Otherwise, the
Holding Company may declare dividends or make other capital distributions in
accordance with applicable laws and regulations. Subject to any applicable
regulatory approvals, the MHC may waive its right to receive dividends declared
by the Holding Company.
Plan -- 31
<PAGE> 35
ARTICLE VII
TAX RULING REQUIREMENT; AMENDMENT
AND TERMINATION; MISCELLANEOUS
Section 7.01 Conditions to Reorganization.
The Reorganization of the Bank pursuant to this Plan is conditioned
upon the following:
(a) Prior receipt by the Bank of rulings of the United States
Internal Revenue Service and the State of New Jersey taxing authorities, or
opinions of counsel, substantially to the effect that the Reorganization will
not result in any adverse federal or state tax consequences to Eligible Account
Holders or Supplemental Eligible Account Holders or to the Bank and the Holding
Company before or after the Reorganization;
(b) The sale of all of the Common Stock offered in the
Reorganization;
(c) The completion of the Reorganization within the time period
specified in Section 7.03; and
(d) The non-objection of the FDIC to the Reorganization, the
approval of the Reorganization by the Commissioner, the approval of the FRB of
the MHC's and the Holding Company's acquisition of the Bank and the
effectiveness of the Holding Company's Registration Statement on Form S-1.
Section 7.02 Amendment or Termination of the Plan.
This Plan will not, at the Effective Date of the Reorganization,
contain any provision that has been determined by the Commissioner or the FDIC,
in writing, to be inequitable or detrimental to the Bank, its depositors, other
savings associations or contrary to the public interest. If deemed necessary or
desirable by the Board of Managers of the Bank, this Plan may be substantively
amended, as a result of comments from regulatory authorities or otherwise, at
any time prior to solicitation of proxies from Voting Depositors to vote on the
Plan and at any time thereafter with the concurrence of the Commissioner and the
FDIC, if applicable. This Plan may be terminated by the Board of Managers of the
Bank at any time prior to the Special Meeting and at any time thereafter with
the concurrence of the Commissioner and the FDIC, if applicable. By adoption of
the Plan, the Voting Depositors of the Bank authorize the Board of Managers of
the Bank to amend or terminate the Plan under the circumstances set forth in
this Section.
Section 7.03 Completion Date.
The Reorganization shall be completed within 24 months from the date
of approval of this Plan at the Special Meeting.
Plan -- 32
<PAGE> 36
Section 7.04 Expenses of the Reorganization.
The expenses incurred in the Reorganization shall be reasonable.
Section 7.05 Interpretation.
Subject to applicable law as set forth in Section 7.07, all
interpretations of this Plan and all applications of the provisions of this Plan
to particular circumstances by a majority of the Board of Managers of the Bank
shall be final, subject to the authority of the Commissioner and the FDIC.
Section 7.06 Severability.
If any term, provision, covenant or restriction contained in this
Plan is held by a court or a federal or state regulatory agency of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions contained in this Plan shall remain in
full force and effect, and shall in no way be affected, impaired or invalidated.
Section 7.07 Miscellaneous.
This Plan is to be governed by and construed in accordance with the
laws of the State of New Jersey, without giving effect to any conflicts of laws
principles. None of the cover page, the table of contents or the Article or
Section headings are to be considered a part of this Plan, but are included
solely for convenience of reference and shall in no way define, limit, extend or
describe the scope or intent of any of the provisions hereof. Any reference to a
Section or Article shall refer to a Section or Article of this Plan, unless
otherwise stated. Except for such rights as are set forth herein for Eligible
Account Holders and Supplemental Eligible Account Holders, this Plan shall
create no rights in any Person. The terms defined in this Plan have the meanings
assigned to them in this Plan and include the plural as well as the singular,
and words of any gender shall include each other gender where appropriate.
Plan -- 33
<PAGE> 1
Exhibit 8.1
Internet ID: @thacherproffitt.com
April 27, 1999
Hudson City Bancorp, Inc.
West 80 Century Road
Paramus, New Jersey 07652
Dear Sirs:
You have requested our opinion regarding certain federal income tax
consequences of the proposed transactions (collectively, the "Reorganization"),
more fully described below, pursuant to which (i) Hudson City Savings Bank will
convert from a New Jersey chartered mutual savings bank (" Mutual Bank") into a
New Jersey chartered stock savings bank ("Stock Bank") and become the
wholly-owned subsidiary of Hudson City Bancorp, Inc., a newly formed Delaware
chartered capital stock corporation ("Stock Holding Company") and (ii) Stock
Holding Company will become a majority-owned subsidiary of Hudson City, MHC, a
New Jersey chartered mutual savings bank holding company that will be chartered
as of the closing date of the transaction ("Mutual Holding Company"). These
transactions and the related sale of Stock Holding Company common stock, also
discussed below, will be effected pursuant to the Plan of Reorganization and
Stock Issuance adopted by the Board of Managers of Mutual Bank on February 11,
1999 and amended and restated as of April 27, 1999 (the "Plan"). The
Reorganization and its component and related transactions are described in the
Plan and in the Prospectus filed with the Securities and Exchange Commission in
connection with the Reorganization (the "Prospectus"). We are rendering this
opinion pursuant to Section 7.01 of the Plan. All capitalized terms used but not
defined in this letter shall have the meanings assigned to them in the Plan or
Prospectus. For purposes of this letter, the term "mutual ownership interests",
with respect to either Mutual Bank or Mutual Holding Company, shall mean the
liquidation and limited voting rights in, respectively, Mutual Bank or Mutual
Holding Company.
The Reorganization will be effected, pursuant to the Plan, as follows:
<PAGE> 2
1. Mutual Bank will organize Mutual Holding Company, which will
initially be organized in stock form and initially exist as Mutual
Bank's wholly-owned subsidiary.
2. Mutual Holding Company will organize two wholly-owned subsidiaries,
one of which will be Stock Holding Company, and the other of which
will be an interim stock savings bank ("Interim").
3. The following events will occur simultaneously pursuant to the Plan:
(i) Mutual Bank will exchange its charter for a New Jersey stock
savings bank charter and thereby become Stock Bank (the
"Conversion"); (ii) Mutual Holding Company will cancel its stock and
exchange its charter for a New Jersey mutual savings bank holding
company charter and thereby become a mutual holding company; (iii)
Interim will merge with and into Stock Bank with Stock Bank
surviving, and the holders of mutual ownership interests in Mutual
Bank (the "Depositors") will exchange the stock of Stock Bank
constructively received in the Conversion for mutual ownership
interests in Mutual Holding Company (the "Exchange"). As a mutual
entity, Mutual Holding Company will not have any authorized capital
stock. As a result of the merger and charter exchanges, Stock Bank
will become a wholly-owned subsidiary of Mutual Holding Company, and
the Depositors will hold mutual ownership interests in Mutual
Holding Company comparable to the mutual ownership interests they
previously held in Mutual Bank.
4. Mutual Holding Company will then contribute all of the stock of
Stock Bank to Stock Holding Company.
As a result of these transactions, Stock Bank will be a wholly-owned
subsidiary of Stock Holding Company and Stock Holding Company will be a
wholly-owned subsidiary of Mutual Holding Company. In substance, upon the
Conversion and pursuant to the other transactions described above, the Mutual
Bank Members will constructively receive the stock of Stock Bank and will then
exchange such stock for mutual ownership interests in Mutual Holding Company.
Simultaneously with the Conversion and the Exchange, Stock Holding Company
will offer to sell additional shares of its common stock pursuant to the Plan,
with priority subscription rights granted in descending order of priority to
Eligible Account Holders, certain employee stock benefit plans of Mutual Bank,
Supplemental Eligible Account Holders, Other Depositors and to certain members
of the general public.
In connection with the opinions expressed below, we have examined and
relied upon originals, or copies certified or otherwise identified to our
satisfaction, of the Plan and the Prospectus and of such corporate records of
the parties to the Reorganization as we have deemed appropriate. We have also
relied, without independent verification, upon the representations of Mutual
Bank contained in its letter to us dated April 27, 1999. We have assumed that
such representations are true and that the parties to the Reorganization will
act in accordance with the Plan. In addition, we have made such investigations
of law as we have deemed appropriate to form a basis for the opinions expressed
below.
Based on and subject to the foregoing, it is our opinion that for federal
income tax purposes, under current law -
(a) AS REGARDS THE CONVERSION:
<PAGE> 3
Hudson City Savings Bank
April 27, 1999 Page 3.
(1) the Conversion will constitute a reorganization under section
368(a)(1)(F) of the Code, and Mutual Bank (in either its status as Mutual Bank
or Stock Bank) will recognize no gain or loss as a result of the Reorganization;
(2) the basis of each asset of Mutual Bank held by Stock Bank immediately
after the Conversion will be the same as Mutual Bank's basis for such asset
immediately prior to the Conversion;
(3) the holding period of each asset of Mutual Bank held by Stock Bank
immediately after the Conversion will include the period during which such asset
was held by Mutual Bank prior to the Conversion;
(4) for purposes of Code section 381(b), Stock Bank will be treated as if
there had been no reorganization and, accordingly, the taxable year of Mutual
Bank will not end on the effective date of the Reorganization and the tax
attributes of Mutual Bank (subject to application of Code sections 381, 382, and
384), including Mutual Bank's tax bad debt reserves and earnings and profits,
will be taken into account by Stock Bank as if the Reorganization had not
occurred;
(5) no Depositor will recognize gain or loss upon the constructive receipt
of shares of Stock Bank stock solely in exchange for such Depositor's mutual
ownership interests in Mutual Bank;
(6) a Depositor's basis in the shares of Stock Bank stock constructively
received in the Conversion will be the same as the basis of the Mutual Bank
mutual ownership interest constructively surrendered in exchange therefor;
(7) a Depositor's holding period for the shares of Stock Bank stock
constructively received in the Conversion will include the holding period of the
Mutual Bank mutual ownership interest constructively surrendered in exchange
therefor; and
(8) no Depositor will recognize gain or loss upon the issuance to such
Depositor of deposits in Stock Bank in the same dollar amount as such
Depositor's deposits in Mutual Bank.
(b) AS REGARDS THE EXCHANGE:
(9) the Exchange will qualify as an exchange of property for stock under
Code section 351;
(10) no shareholder of Stock Bank (i.e., a former Depositor) will
recognize gain or loss upon the transfer to Mutual Holding Company of the shares
of Stock Bank stock constructively received in the Conversion in exchange for
such Depositor's mutual ownership interests in Mutual Bank;
(11) the basis of the mutual ownership interest in Mutual Holding Company
received by each shareholder of Stock Bank in exchange for such shareholder's
shares of Stock Bank stock will be equal to the basis of such shares of Stock
Bank stock;
(12) the holding period of the mutual ownership interest in Mutual Holding
Company received by each shareholder of Stock Bank will, as of the date of the
Exchange, be equal to the holding period of the shares of Stock Bank stock
transferred in exchange therefor, provided such shares of Stock Bank stock were
held as a capital asset on the date of the Exchange;
<PAGE> 4
Hudson City Savings Bank
April 27, 1999 Page 4.
(13) Mutual Holding Company will recognize no gain or loss upon its
receipt from the shareholders of Stock Bank of shares of Stock Bank stock in
exchange for mutual ownership interests in Mutual Holding Company;
(14) Mutual Holding Company's basis for each share of Stock Bank stock
received from a shareholder of Stock Bank in exchange for a mutual ownership
interest in Mutual Holding Company will be the equal to the basis of such share
of stock in the hands of such Stock Bank shareholder; and
(15) Mutual Holding Company's holding period for each share of Stock Bank
stock received from a shareholder of Stock Bank in exchange for a mutual
ownership interest in Mutual Holding Company will, as the date of the Exchange,
be the same as the holding period of such shares in the hands of such Stock Bank
shareholder.
(c) AS REGARDS THE OFFERING UNDER THE PLAN:
(16) no gain or loss will be recognized by Stock Holding Company upon the
sale of shares of Stock Holding Company common stock under the Plan;
(17) no gain or loss will be recognized by Depositors upon the
distribution to them of nontransferable subscription rights to purchase shares
of Stock Holding Company common stock under the Plan, provided that the amount
to be paid for such shares is equal to the fair market value of such shares;
(18) the basis to the shareholders of shares of Stock Holding Company
common stock purchased under the Plan pursuant to such subscription rights will
be the amount paid therefor and the holding period for such shares will begin on
the date on which such subscription rights are exercised.
In rendering our opinion in (17), above, and our opinion regarding the tax
basis of shares of Stock Holding Company common stock in (18), above, we have
relied, without independent verification, on the opinion of RP Financial, LC.
that the nontransferable subscription rights have no value.
This opinion is given solely for the benefit of the parties to the Plan,
the shareholders of Stock Bank and Eligible Account Holders, Supplemental
Eligible Account Holders and other investors who purchase shares pursuant to the
Plan, and may not be relied upon by any other party or entity or referred to in
any document without our express written consent. We consent to the filing of
this opinion as an exhibit to the Form S-1 to be filed with the Securities and
Exchange Commission and to the references to us in the Prospectus under "The
Reorganization and the Offering - Effects of Reorganization - Tax Aspects."
Very truly yours,
THACHER PROFFITT & WOOD
By: /s/ THACHER PROFFITT & WOOD
<PAGE> 1
[Letterhead of KPMG, Short Hills, New Jersey]
Board of Managers
Hudson City Savings Bank
West 80 Century Road
Paramus, New Jersey 07652
Dear Gentlemen:
You have requested our opinion as to certain State of New Jersey tax
consequences under the Corporation Business Tax, Savings Institution Tax, and
the Gross Income Tax of a plan of conversion and plan of reorganization of
Hudson City Savings Bank (the 'Mutual Bank')
The Board of Managers of the Mutual Bank adopted on February 11, 1999 and
amended and restated as of April 27,1999, the Plan of Reorganization and Stock
Issuance (the "Plan") of Hudson City Savings Bank. Capitalized terms not
defined in this letter have the meanings assigned to them in the Plan. The
reorganization will be accomplished by the following steps:
(1) Mutual Bank will establish Mutual Holding Company to be organized
(initially in stock form) as a first-tier wholly-owned subsidiary of the
Mutual Bank.
(2) Mutual Holding Company will form two wholly-owned subsidiaries, one of
which will be Stock Holding Company, and the other of which will be an
interim stock savings bank ("Interim"), solely to facilitate the
reorganization.
(3) The following events will occur simultaneously pursuant to the Plan: (i)
Mutual Bank will exchange its charter for a New Jersey stock savings bank
charter and thereby become Stock Bank (the "Conversion"); (ii) Mutual
Holding Company will cancel its stock and exchange its charter for a New
Jersey mutual savings bank holding company charter and thereby become a
mutual holding company; (iii) interim will merge with and into Stock Bank
with Stock Bank surviving, and the holders of mutual ownership interests in
Mutual Bank (the "Depositors") will exchange the stock of Stock Bank
constructively received in the Conversion for mutual ownership interests in
Mutual Holding Company (the "Exchange"). As a mutual entity, Mutual
Holding Company will not have any authorized capital stock. As a result of
the merger and charter exchanges, Stock Bank will become a wholly-owned
subsidiary of Mutual Holding Company, and the Depositors
<PAGE> 2
Page 2
Board of Managers
Hudson City Savings Bank
will hold mutual ownership interests in Mutual Holding Company comparable
to the mutual ownership interests they previously held in Mutual Bank.
(4) Mutual Holding Company will then contribute all of the stock of Stock Bank
to Stock Holding Company.
(5) The Stock Holding Company will offer to sell additional shares of its
common stock pursuant to the Plan, with priority subscription rights
granted in descending order of priority to Eligible Account Holders,
certain employee stock benefit plans of Mutual Bank, Supplemental Eligible
Account Holders, other Depositors and to certain members of the general
public.
As a result of these transactions, Stock Bank will be a wholly-owned subsidiary
of Stock Holding Company and Stock Holding Company will initially be a
wholly-owned subsidiary of Mutual Holding Company. In substance, upon the
Conversion and pursuant to the other transactions described above, the Mutual
Bank Members will constructively receive the stock of Stock Bank and will then
exchange such stock for mutual ownership interests in Mutual Holding Company.
Our views as to the New Jersey tax consequences are based upon the opinion
("Federal Opinion") of Thacher Proffitt and Wood (dated April 27, 1999) that the
Conversion will qualify as a tax-free transaction under Sections 351 and
368(a)(1)(F) of the Internal Revenue Code (IRC), and that the Mutual Bank's
Depositors will recognize no gain or loss.
NEW JERSEY CORPORATION BUSINESS TAX ACT
While the New Jersey Corporation Business Tax Act does not address tax-free
holding company formations or reorganizations, Section 54:10A-4(k) provides, in
part, that "the amount of a taxpayer's entire net income shall be deemed prima
facie to be equal in amount to the taxable income, before net operating loss
deduction and special deductions, which the taxpayer is required to report to
the United States Treasury Department for the purposes of computing its Federal
income tax...".
Under this Act, the Attorney General issued a formal opinion which states in
pertinent part that "...gain on liquidations of wholly-owned subsidiaries and
transfers of assets from one corporation to another ... which is not recognized
for Federal income tax purposes pursuant to Internal Revenue Code Section 332
and 368(a)(1)(C), respectively.
<PAGE> 3
Page 3
Board of Managers
Hudson City Savings Bank
April 27, 1999
is not included in 'entire net income' for purposes of the New Jersey
Corporation Business Tax. The starting point for 'entire net income' is ALWAYS
Federal taxable income" (emphasis supplied - Formal Opinion 1960 - No. 2,
February 10, 1960). The opinion does not address tax-free holding company
formations, transfers of assets in exchange for stock or reorganizations.
However, the rationale for such opinion will apply to such transactions under
the New Jersey Corporation Business Tax Act. Thus, no gain or will be
recognized by the Mutual Bank, Stock Bank, Mutual Holding Company, Stock
Holding Company, nor Interim if the transaction is not a taxable transaction
for Federal income tax purposes.
New Jersey Savings Institution Tax Act
While the New Jersey Savings Institution Tax Act does not address
reorganizations, the starting point in computing taxable income is as follows:
... For the purpose of this Act, the amount of a taxpayer's net income
shall be deemed prima facie to be equal in amount to the taxable income,
before net operating loss deduction and special deductions,which the
taxpayer is required to report to the United States Treasury Department for
the purposes of computing its Federal income tax ... (Sec. 54:10D-2).
The rational for Formal Opinion 1960 - No. 2, February 10, 1960 will also apply
to such reorganizations under the New Jersey Savings Institution Tax Act. Thus,
no gain or loss will be recognized by the Mutual Bank, Stock Bank or Interim if
the transaction is not a taxable transaction for Federal income tax purposes.
New Jersey Gross Income Tax
The New Jersey Gross Income Tax Act provides, in part, as follows:
Sec. 54A:2-1. "There is hereby imposed a tax ... on the New Jersey gross
income as herein defined ..."
Sec. 54A:5-1. "... New Jersey gross income shall consist of the following
categories of income:
<PAGE> 4
Page 4
Board of Managers
Hudson City Savings Bank
April 27, 1999
(c) ... Net gains or net income ... derived from the sale, exchange, or
other disposition of property ... determined in accordance with the method
of accounting allowed for Federal income tax purposes ... The term 'net
gain or net income' shall not include gains or income from transactions to
the extent to which nonrecognition is allowed for Federal income tax
purposes. The term 'sale, exchange, or other disposition' shall not include
the exchange of stock or securities in a corporation a party to a
reorganization ...
For purposes of this clause, the term 'reorganization' means ... (iv) A
transfer by a corporation of all or a part of its assets to another
corporation if immediately after the transfer the transferor, or one or
more of its shareholders ... is in control of the corporation to which the
assets are transferred."
The above definition of a reorganization is similar to the general rule of
Section 368 of the Internal Revenue Code. Therefore, the reorganization of
Mutual Bank will not result in the recognition of taxable gain or loss to the
Mutual Bank Depositors or the stockholders of Stock Holding Company under the
New Jersey Gross Income Tax Act if the transaction is not a taxable
transaction for Federal income tax purposes.
It should be noted, however, that if the opportunity to purchase stock is
deemed to have an ascertainable value, the Depositors would recognize New
Jersey taxable income (dividends) equal to the amount of such value recognized
for Federal income tax purposes.
SCOPE OF OPINION
Since this letter is rendered in advance of the closing of this transaction, we
have assumed that the transaction will be consummated in accordance with the
Plan, as well as all the information and representations referred to herein or
made to Thacher Proffitt and Wood. Any changes in the transaction could cause
us to modify our opinion.
Our opinion as expressed above is rendered only with respect to the State of
New Jersey tax consequences under the Corporation Business Tax, Savings
Institution Tax, and the Gross Income Tax of specific matters discussed herein,
and we express no opinion with respect to any other federal, state, local, or
foreign tax matters relating to the proposed transaction or legal aspect of the
offering. Our opinion is based on the facts and circumstances as stated herein,
whether directly or by reference to the Federal Opinion. It is expressly
understood and agreed to by Hudson City Savings Bank that KPMG is
<PAGE> 5
Page 5
Board of Managers
Hudson City Savings Bank
April 27, 1999
relying solely on the Federal Opinion in all respects, including facts,
representations, and assumptions, relating to the federal tax consequences of
the matters described therein. KPMG has not independently verified the accuracy
of any fact, representation, opinion or other matter contained in the Federal
Opinion and should any fact, representation, opinion or other matter addressed
therein not be correct, it could cause the New Jersey opinion contained herein
to also be incorrect. If any of the facts and conditions are not entirely
complete or accurate, it is imperative that we be informed immediately, as the
inaccuracy or incompleteness could have a material effect on our conclusions. In
rendering our opinion, we are relying upon the relevant provisions of the
Revised Statutes of New Jersey (1937), as amended, the rules and regulations
thereunder and judicial and administrative interpretations thereof, which are
subject to change or modification by subsequent legislative, regulatory,
administrative, or judicial decisions. Any such changes could also have an
effect on the validity of our opinion. We undertake no responsibility to update
or supplement our opinion after its issuance. This opinion is not binding upon
any tax authority or any court and no assurance can be given that a position
contrary to that expressed herein will not be asserted by a tax authority and
ultimately sustained by a court.
CONSENT
We consent to the inclusion of this opinion as an exhibit to the Form S-1
Registration Statement of Hudson City Bancorp, Inc. and the references to and
summary of this opinion in such Form S-1 Registration Statement.
Very truly yours,
/s/ KPMG LLP
KPMG LLP
<PAGE> 1
LOAN AGREEMENT
BY AND BETWEEN
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
OF
HUDSON CITY SAVINGS BANK
AND
HUDSON CITY BANCORP, INC.
MADE AND ENTERED INTO AS OF
[__________], 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
SECTION 1.1 BUSINESS DAY.................................................................................... 1
SECTION 1.2 CODE............................................................................................ 1
SECTION 1.3 DEFAULT......................................................................................... 2
SECTION 1.4 ERISA........................................................................................... 2
SECTION 1.5 EVENT OF DEFAULT................................................................................ 2
SECTION 1.6 FISCAL YEAR..................................................................................... 2
SECTION 1.7 INDEPENDENT COUNSEL............................................................................. 2
SECTION 1.8 LOAN............................................................................................ 2
SECTION 1.9 LOAN DOCUMENTS.................................................................................. 2
SECTION 1.10 PLEDGE AGREEMENT................................................................................ 2
SECTION 1.11 PRINCIPAL AMOUNT................................................................................ 2
SECTION 1.12 PROMISSORY NOTE................................................................................. 2
SECTION 1.13 REGISTER........................................................................................ 2
ARTICLE II
THE LOAN; PRINCIPAL AMOUNT;
INTEREST; SECURITY; INDEMNIFICATION
SECTION 2.1 THE LOAN; PRINCIPAL AMOUNT...................................................................... 2
SECTION 2.2 INTEREST........................................................................................ 3
SECTION 2.3 PROMISSORY NOTE................................................................................. 4
SECTION 2.4 PAYMENT OF TRUST LOAN........................................................................... 4
SECTION 2.5 PREPAYMENT...................................................................................... 6
SECTION 2.6 METHOD OF PAYMENTS.............................................................................. 6
SECTION 2.7 USE OF PROCEEDS OF LOAN......................................................................... 7
SECTION 2.9 REGISTRATION OF THE PROMISSORY NOTE............................................................. 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
SECTION 3.1 POWER, AUTHORITY, CONSENTS...................................................................... 8
SECTION 3.2 DUE EXECUTION, VALIDITY, ENFORCEABILITY......................................................... 8
SECTION 3.3 PROPERTIES, PRIORITY OF LIENS................................................................... 8
SECTION 3.4 NO DEFAULTS, COMPLIANCE WITH LAWS............................................................... 8
SECTION 3.5 PURCHASES OF COMMON STOCK....................................................................... 8
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE LENDER
SECTION 4.1 POWER, AUTHORITY, CONSENTS...................................................................... 9
SECTION 4.2 DUE EXECUTION, VALIDITY, ENFORCEABILITY......................................................... 9
SECTION 4.3 ESOP; CONTRIBUTIONS............................................................................. 9
SECTION 4.4 TRUSTEE; COMMITTEE.............................................................................. 10
SECTION 4.5 COMPLIANCE WITH LAWS; ACTIONS................................................................... 10
ARTICLE V
EVENTS OF DEFAULT
SECTION 5.1 EVENTS OF DEFAULT UNDER LOAN AGREEMENT.......................................................... 10
SECTION 5.2 LENDER'S RIGHTS UPON EVENT OF DEFAULT........................................................... 11
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1 PAYMENTS DUE TO THE LENDER...................................................................... 11
SECTION 6.2 PAYMENTS........................................................................................ 11
SECTION 6.3 SURVIVAL........................................................................................ 12
SECTION 6.4 MODIFICATIONS, CONSENTS AND WAIVERS; ENTIRE AGREEMENT........................................... 12
SECTION 6.5 REMEDIES CUMULATIVE............................................................................. 12
SECTION 6.6 FURTHER ASSURANCES; COMPLIANCE WITH COVENANTS................................................... 12
SECTION 6.7 NOTICES......................................................................................... 13
SECTION 6.8 COUNTERPARTS.................................................................................... 14
SECTION 6.9 CONSTRUCTION; GOVERNING LAW..................................................................... 14
SECTION 6.10 SEVERABILITY.................................................................................... 14
SECTION 6.11 BINDING EFFECT; NO ASSIGNMENT OR DELEGATION..................................................... 14
EXHIBIT A FORM OF PROMISSORY NOTE................................................................................. A-1
EXHIBIT B FORM OF PLEDGE AGREEMENT................................................................................ B-1
EXHIBIT C FORM OF ASSIGNMENT...................................................................................... C-1
</TABLE>
(ii)
<PAGE> 4
LOAN AGREEMENT
This LOAN AGREEMENT ("Loan Agreement") is made and entered into as of
the [____ day of ____, 199_], by and between the EMPLOYEE STOCK OWNERSHIP PLAN
TRUST OF HUDSON CITY SAVINGS BANK ("Borrower"), a trust forming part of the
Employee Stock Ownership Plan of Hudson City Savings Bank ("ESOP"), acting
through and by its Trustee, [______________] ("Trustee"), a banking corporation
organized under the laws of [__________] and having an office at
[_____________________]; and Hudson City Bancorp, Inc. ("Lender"), a corporation
organized and existing under the laws of the state of Delaware, having an office
at West 80 Century Road, Paramus, New Jersey 07652-1473.
W I T N E S S E T H :
WHEREAS, the Human Resources Committee of the Lender ("Committee") has
authorized the Borrower to purchase shares of common stock of Hudson City
Bancorp, Inc. ("Common Stock"), either directly from Hudson City Bancorp, Inc.
or in open market purchases in an amount not to exceed [___________] shares of
Common Stock;
WHEREAS, the Committee has further authorized the Borrower to borrow
funds from the Lender for the purpose of financing authorized purchases of
Common Stock; and
WHEREAS, the Lender is willing to make a loan to the Borrower for such
purpose;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following definitions shall apply for purposes of this Loan
Agreement, except to the extent that a different meaning is plainly indicated by
the context:
SECTION 1.1 BUSINESS DAY means any day other than a Saturday, Sunday or
other day on which banks are authorized or required to close under federal law
or the laws of the State of New Jersey.
SECTION 1.2 CODE means the Internal Revenue Code of 1986 (including the
corresponding provisions of any succeeding law).
SECTION 1.3 DEFAULT means an event or condition which would constitute
an Event of Default. The determination as to whether an event or condition would
constitute an Event of
<PAGE> 5
-2-
Default shall be determined without regard to any applicable requirement of
notice or lapse of time.
SECTION 1.4 ERISA means the Employee Retirement Income Security Act of
1974, as amended (including the corresponding provisions of any succeeding law).
SECTION 1.5 EVENT OF DEFAULT means an event or condition described in
Article V.
SECTION 1.6 FISCAL YEAR means the fiscal year of Hudson City Bancorp,
Inc.
SECTION 1.7 INDEPENDENT COUNSEL means Thacher Proffitt & Wood or other
counsel mutually satisfactory to both the Lender and the Borrower.
SECTION 1.8 LOAN means the loan described in section 2.1.
SECTION 1.9 LOAN DOCUMENTS means, collectively, this Loan Agreement,
the Promissory Note and the Pledge Agreement and all other documents now or
hereafter executed and delivered in connection with such documents, including
all amendments, modifications and supplements of or to all such documents.
SECTION 1.10 PLEDGE AGREEMENT means the agreement described in section
2.8(a).
SECTION 1.11 PRINCIPAL AMOUNT means the face amount of the Promissory
Note, determined as set forth in section 2.1(c).
SECTION 1.12 PROMISSORY NOTE means the promissory note described in
section 2.3.
SECTION 1.13 REGISTER means the register described in section 2.9.
ARTICLE II
THE LOAN; PRINCIPAL AMOUNT;
INTEREST; SECURITY; INDEMNIFICATION
SECTION 2.1 THE LOAN; PRINCIPAL AMOUNT.
(a) The Lender hereby agrees to lend to the Borrower such amounts, and
at such times, as shall be determined under this section 2.1; provided, however,
that in no event shall the aggregate amount lent under this Loan Agreement from
time to time exceed the aggregate amount paid by the Borrower, exclusive of
commissions, fees and other charges, to purchase [____________] shares of Common
Stock.
<PAGE> 6
-3-
(b) Subject to the limitations of section 2.1(a), the Borrower shall
determine the amounts borrowed under this Agreement, and the times at which such
borrowings are effected. Each such determination shall be evidenced in a writing
which shall set forth the amount to be borrowed and the date on which the Lender
shall disburse such amount, and such writing shall be furnished to the Lender by
notice from the Borrower. The Lender shall disburse to the Borrower the amount
specified in each such notice on the date specified therein or, if later, as
promptly as practicable following the Lender's receipt of such notice; provided,
however, that the Lender shall have no obligation to disburse funds pursuant to
this Agreement (i) following the occurrence of a Default or an Event of Default
until such time as such Default or Event of Default shall have been cured; and
(ii) on and after the earliest date on which Common Stock is listed or admitted
to trading on an established market (including but not limited to the NASDAQ
Stock Market), while the Borrower is in possession of funds previously advanced
under this Agreement that have not been used to purchase Common Stock; and (iii)
on and after the earliest date on which Common Stock is listed or admitted to
trading on an established market (including but limited to the NASDAQ Stock
Market), to the extent that the making of such advance would permit the Borrower
to purchase more than [ ] shares of Common Stock during the period of [ ]
business days after the making of such advance or the period of [ ] business
days ending on the date of such advance.
(c) For all purposes of this Loan Agreement, the Principal Amount on
any date shall be equal to the excess, if any, of:
(i) the aggregate amount disbursed by the Lender pursuant to
section 2.1(b) on or before such date; over
(ii) the aggregate amount of any repayments of such amounts
made before such date.
The Lender shall maintain on the Register a record of, and shall record on the
Promissory Note, the Principal Amount, any changes in the Principal Amount and
the effective date of any changes in the Principal Amount.
SECTION 2.2 INTEREST.
(a) The Borrower shall pay to the Lender interest on the Principal
Amount, for the period commencing on the date of this Loan Agreement and
continuing until the Principal Amount shall be paid in full, the rate of eight
percent (8%) per annum. Interest payable under this Agreement shall be computed
on the basis of a year of 360 days and months consisting of 30 days each and
actual days elapsed (including the first day but excluding the last) occurring
in the period to which the computation relates.
(b) Except as otherwise provided in this section 2.2(b), accrued
interest on the Principal Amount shall be payable by the Borrower quarterly in
arrears commencing on the last Business Day of the first calendar quarter to end
following the date of this Agreement and continuing on the last Business Day of
each calendar quarter thereafter and upon the payment or prepay-
<PAGE> 7
-4-
ment of such Loan. All interest on the Principal Amount shall be paid by the
Borrower in immediately available funds. The Lender shall remit to the Borrower,
at least three (3) Business Days before the end of each calendar quarter, a
statement of the interest payment due under section 2.2(a) for such quarter;
provided, however, that a delay or failure by the Lender in providing the
Borrower with such statement shall not alter the Borrower's obligation to make
such payment.
(c) Anything in this Loan Agreement or the Promissory Note to the
contrary notwithstanding, the obligation of the Borrower to make payments of
interest shall be subject to the limitation that payments of interest shall not
be required to be made to the Lender to the extent that the Lender's receipt
thereof would not be permissible under the law or laws applicable to the Lender
limiting rates of interest which may be charged or collected by the Lender. Any
such payment referred to in the preceding sentence shall be made by the Borrower
to the Lender on the earliest interest payment date or dates on which the
receipt thereof would be permissible under the laws applicable to the Lender
limiting rates of interest which may be charged or collected by the Lender. Such
deferred interest shall not bear interest.
SECTION 2.3 PROMISSORY NOTE.
The Loan shall be evidenced by a Promissory Note of the Borrower in
substantially the form of Exhibit A attached hereto, dated the date hereof,
payable to the order of the Lender in the Principal Amount and otherwise duly
completed.
SECTION 2.4 PAYMENT OF TRUST LOAN.
(a) The Principal Amount of the Loan shall be repaid in annual
installments payable on the last Business Day of each September ending after the
date of this Agreement. The amount of each such annual installment shall be that
portion of the lesser of (i) that portion of the Principal Amount which will
result in the release for allocation to participants in the ESOP, pursuant to
the Pledge Agreement, of a cumulative fraction of the Collateral (within the
meaning of the Pledge Agreement and determined as of the last Business Day of
September, 1999) equal to the percentage set forth in Column II below and (ii)
that portion of the Principal Amount which will result in the release for
allocation to participants in the ESOP, pursuant to the Pledge Agreement, of
Collateral (within the meaning of the Pledge Agreement and valued as of the date
of payment) having a value equal to twenty-five percent (25%) of the
compensation taken into account under the ESOP for each person entitled to share
in such allocation:
<TABLE>
<CAPTION>
COLUMN I COLUMN II
INSTALLMENT DUE ON CUMULATIVE FRACTION OF
LAST BUSINESS DAY OF COLLATERAL RELEASED
SEPTEMBER
IN
-------------------- ----------------------
<S> <C>
1999 1/60
2000 3/60
</TABLE>
<PAGE> 8
-5-
<TABLE>
<CAPTION>
COLUMN I COLUMN II
INSTALLMENT DUE ON CUMULATIVE FRACTION OF
LAST BUSINESS DAY OF COLLATERAL RELEASED
SEPTEMBER
IN
-------------------- ----------------------
<S> <C>
2001 5/60
2002 7/60
2003 9/60
2004 11/60
2005 13/60
2006 15/60
2007 17/60
2008 19/60
2009 21/60
2010 23/60
2011 25/60
2012 27/60
2013 29/60
2014 31/60
2015 33/60
2016 35/60
2017 37/60
2018 39/60
2019 41/60
2020 43/60
2021 45/60
2022 47/60
2023 49/60
2024 51/60
2025 53/60
2026 55/60
2027 57/60
2028 59/60
2029 60/60
</TABLE>
, provided, however, that the Borrower shall not be required to make any payment
of principal due to be made in any Fiscal Year to the extent that such payment
would not be deductible from federal income tax purposes for such Fiscal Year
under Section 404 of the Code. Any payment
<PAGE> 9
-6-
not required to be made pursuant to the above provision shall be deferred to any
payable on the last day of the first Fiscal Year in which each payment may be
made on a tax deductible basis.
SECTION 2.5 PREPAYMENT.
The Borrower shall be entitled to prepay the Loan in whole or in part,
at any time and from time to time; provided, however, that the Borrower shall
give notice to the Lender of any such prepayment. Any such prepayment shall be:
(a) permanent and irrevocable: (b) accompanied by all accrued interest through
the date of such prepayment; (c) made without premium or penalty; and (d)
applied first to the installment of principal due and payable in the Fiscal Year
in which the prepayment is made and second in the order of the maturity of the
remaining installments thereof unless the Lender and the Borrower agree to apply
such prepayments in some order.
SECTION 2.6 METHOD OF PAYMENTS.
(a) All payments of principal, interest, other charges (including
indemnities) and other amounts payable by the Borrower hereunder shall be made
in lawful money of the United States, in immediately available funds, to the
Lender at the address specified in or pursuant to this Loan Agreement for
notices to the Lender, not later than 3:00 P.M., Eastern Standard time, on the
date on which such payment shall become due. Any such payment made on such date
but after such time shall, if the amount paid bears interest, and except as
expressly provided to the contrary herein, be deemed to have been made on, and
interest shall continue to accrue and be payable thereon until, the next
succeeding Business Day. If any payment of principal or interest becomes due on
a day other than a Business Day, such payment may be made on the next succeeding
Business Day, and when paid, such payment shall include interest to the day on
which such payment is in fact made.
(b) Notwithstanding anything to the contrary contained in this Loan
Agreement or the Promissory Note, neither the Borrower nor the Trustee shall be
obligated to make any payment, repayment or prepayment on the Promissory Note or
take or refrain from taking any other action hereunder or under the Promissory
Note if doing so would cause the ESOP to cease to be an employee stock ownership
plan within the meaning of section 4975(e)(7) of the Code or qualified under
section 401(a) of the Code or cause the Borrower to cease to be a tax exempt
trust under section 501(a) of the Code or if such act or failure to act would
cause the Borrower or the Trustee to engage in any "prohibited transaction" as
such term is defined in section 4975(c) of the Code and the regulations
promulgated thereunder which is not exempted by section 4975(c)(2) or (d) of the
Code and the regulations promulgated thereunder or in section 406 of ERISA and
the regulations promulgated thereunder which is not exempted by section 408(b)
of ERISA and the regulations promulgated thereunder; provided, however, that in
each case, the Borrower or the Trustee or both, as the case may be, may act or
refrain from acting pursuant to this section 2.6(b) on the basis of an opinion
of Independent Counsel. The Borrower and the Trustee may consult with
Independent Counsel, and any opinion of such Independent Counsel shall be full
and complete authorization and protection in respect of any action taken or
suffered or omitted by it hereunder
<PAGE> 10
-7-
in good faith and in accordance with such opinion of Independent Counsel.
Nothing contained in this section 2.6(b) shall be construed as imposing a duty
on either the Borrower or the Trustee to consult with Independent Counsel. Any
obligation of the Borrower or the Trustee to make any payment, repayment or
prepayment on the Promissory Note or to take or refrain from taking any other
act hereunder or under the Promissory Note which is excused pursuant to this
section 2.6(b) shall be considered a binding obligation of the Borrower or the
Trustee, or both, as the case may be, for the purposes of determining whether a
Default or Event of Default has occurred hereunder or under the Promissory Note
and nothing in this section 2.6(b) shall be construed as providing a defense to
any remedies otherwise available upon a Default or an Event of Default hereunder
(other than the remedy of specific performance).
SECTION 2.7 USE OF PROCEEDS OF LOAN.
The entire proceeds of the Loan shall be used solely for acquiring
shares of Common Stock, and for no other purpose whatsoever.
SECTION 2.8 SECURITY.
(a) In order to secure the due payment and performance by the Borrower
of all of its obligations under this Loan Agreement, simultaneously with the
execution and delivery of this Loan Agreement by the Borrower, the Borrower
shall:
(i) pledge to the Lender as Collateral (as defined in the
Pledge Agreement), and grant to the Lender a first priority lien on and
security interest in, the Common Stock purchased with the Principal
Amount, by the execution and delivery to the Lender of a Pledge
Agreement in the form attached hereto as Exhibit B; and
(ii) execute and deliver, or cause to be executed and
delivered, such other agreements, instruments and documents as the
Lender may reasonably require in order to effect the purposes of the
Pledge Agreement and this Loan Agreement.
(b) The Lender shall release from encumbrance under the Pledge
Agreement and transfer to the Borrower, as of the date on which any payment or
prepayment of the Principal Amount is made, a number of shares of Common Stock
held as Collateral pursuant to section 6.4 of the ESOP.
SECTION 2.9 REGISTRATION OF THE PROMISSORY NOTE.
(a) The Lender shall maintain a Register providing for the registration
of the Principal Amount and any stated interest and of transfer and exchange of
the Promissory Note. Transfer of the Promissory Note may be effected only by the
surrender of the old instrument and either the reissuance by the Borrower of the
old instrument to the new holder or the issuance by the Borrower of a new
instrument to the new holder. The old Promissory Note so surrendered shall be
cancelled by the Lender and returned to the Borrower after such cancellation.
<PAGE> 11
-8-
(b) Any new Promissory Note issued pursuant to section 2.9(a) shall
carry the same rights to interest (unpaid and to accrue) carried by the
Promissory Note so transferred or exchanged so that there will not be any loss
or gain of interest on the note surrendered. Such new Promissory Note shall be
subject to all of the provisions and entitled to all of the benefits of this
Agreement. Prior to due presentment for registration or transfer, the Borrower
may deem and treat the registered holder of any Promissory Note as the holder
thereof for purposes of payment and all other purposes. A notation shall be made
on each new Promissory Note of the amount of all payments of principal and
interest theretofore paid.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
The Borrower hereby represents and warrants to the Lender as follows:
SECTION 3.1 POWER, AUTHORITY, CONSENTS.
The Borrower has the power to execute, deliver and perform this Loan
Agreement, the Promissory Note and the Pledge Agreement, all of which have been
duly authorized by all necessary and proper corporate or other action.
SECTION 3.2 DUE EXECUTION, VALIDITY, ENFORCEABILITY.
Each of the Loan Documents, including, without limitation, this Loan
Agreement, the Promissory Note and the Pledge Agreement, have been duly executed
and delivered by the Borrower; and each constitutes the valid and legally
binding obligation of the Borrower, enforceable in accordance with its terms.
SECTION 3.3 PROPERTIES, PRIORITY OF LIENS.
The liens which have been created and granted by the Pledge Agreement
constitute valid, first liens on the properties and assets covered by the Pledge
Agreement, subject to no prior or equal lien.
SECTION 3.4 NO DEFAULTS, COMPLIANCE WITH LAWS.
The Borrower is not in default in any material respect under any
agreement, ordinance, resolution, decree, bond, note, indenture, order or
judgment to which it is a party or by which it is bound, or any other agreement
or other instrument by which any of the properties or assets owned by it is
materially affected.
<PAGE> 12
-9-
SECTION 3.5 PURCHASES OF COMMON STOCK.
Upon consummation of any purchase of Common Stock by the Borrower with
the proceeds of the Loan, the Borrower shall acquire valid, legal and marketable
title to all of the Common Stock so purchased, free and clear of any liens,
other than a pledge to the Lender of the Common Stock so purchased pursuant to
the Pledge Agreement. Neither the execution and delivery of the Loan Documents
nor the performance of any obligation thereunder violates any provision of law
or conflicts with or results in a breach of or creates (with or without the
giving of notice or lapse of time, or both) a default under any agreement to
which the Borrower is a party or by which it is bound or any of its properties
is affected. No consent of any federal, state or local governmental authority,
agency or other regulatory body, the absence of which could have a materially
adverse effect on the Borrower or the Trustee, is or was required to be obtained
in connection with the execution, delivery or performance of the Loan Documents
and the transactions contemplated therein or in connection therewith, including,
without limitation, with respect to the transfer of the shares of Common Stock
purchased with the proceeds of the Loan pursuant thereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE LENDER
The Lender hereby represents and warrants to the Borrower as follows:
SECTION 4.1 POWER, AUTHORITY, CONSENTS.
The Lender has the power to execute, deliver and perform this Loan
Agreement, the Pledge Agreement and all documents executed by the Lender in
connection with the Loan, all of which have been duly authorized by all
necessary and proper corporate or other action. No consent, authorization or
approval or other action by any governmental authority or regulatory body, and
no notice by the Lender to, or filing by the Lender with, any governmental
authority or regulatory body is required for the due execution, delivery and
performance of this Loan Agreement.
SECTION 4.2 DUE EXECUTION, VALIDITY, ENFORCEABILITY.
This Loan Agreement and the Pledge Agreement have been duly executed
and delivered by the Lender; and each constitutes a valid and legally binding
obligation of the Lender, enforceable in accordance with its terms.
<PAGE> 13
-10-
SECTION 4.3 ESOP; CONTRIBUTIONS.
The ESOP and the Borrower have been duly created, organized and
maintained by the Lender in compliance with all applicable laws, regulations and
rulings. The ESOP qualifies as an "employee stock ownership plan" as defined in
section 4975(e) (7) the Code. The ESOP provides that the Lender may make
contributions to the ESOP in an amount necessary to enable the Trustee to
amortize the Loan in accordance with the terms of the Promissory Note and this
Loan Agreement, and the Lender will make such contributions; provided, however,
that no such contributions shall be required if they would adversely affect the
qualification of the ESOP under section 401(a) of the Code.
SECTION 4.4 TRUSTEE; COMMITTEE.
The Lender has taken such action as is required to be taken by it to
duly appoint the Trustee and the members of the Committee. The Lender expressly
acknowledges and agrees that this Loan Agreement, the Promissory Note and the
Pledge Agreement are being executed by the Trustee not in its individual
capacity but solely as trustee of and on behalf of the Borrower.
SECTION 4.5 COMPLIANCE WITH LAWS; ACTIONS.
Neither the execution and delivery by the Lender of this Loan Agreement
or any instruments required thereby, nor compliance with the terms and
provisions of any such documents by the Lender, constitutes a violation of any
provision of any law or any regulation, order, writ, injunction or decree or any
court or governmental instrumentality, or an event of default under any
agreement, to which the Lender is a party or by which the Lender is bound or to
which the Lender is subject, which violation or event of default would have a
material adverse effect on the Lender. There is no action or proceeding pending
or threatened against either of the ESOP or the Borrower before any court or
administrative agency.
ARTICLE V
EVENTS OF DEFAULT
SECTION 5.1 EVENTS OF DEFAULT UNDER LOAN AGREEMENT.
Each of the following events shall constitute an "Event of Default"
hereunder:
(a) Failure to make any payment or mandatory prepayment of principal of
the Promissory Note when due, or failure to make any payment of interest on the
Promissory Note not later than five (5) Business Days after the date when due.
<PAGE> 14
-11-
(b) Failure by the Borrower to perform or observe any term, condition
or covenant of this Loan Agreement or of any of the other Loan Documents,
including, without limitation, the Promissory Note and the Pledge Agreement.
(c) Any representation or warranty made in writing to the Lender in any
of the Loan Documents or any certificate, statement or report made or delivered
in compliance with this Loan Agreement, shall have been false or misleading in
any material respect when made or delivered.
SECTION 5.2 LENDER'S RIGHTS UPON EVENT OF DEFAULT.
If an Event of Default under this Loan Agreement shall occur and be
continuing, the Lender shall have no rights to assets of the Borrower other
than: (a) contributions (other than contributions of Common Stock) that are made
by the Lender to enable the Borrower to meet its obligations pursuant to this
Loan Agreement and earnings attributable to the investment of such contributions
and (b) "Eligible Collateral" (as defined in the Pledge Agreement); provided,
however, that: (i) the value of the Borrower's assets transferred to the Lender
following an Event of Default in satisfaction of the due and unpaid amount of
the Loan shall not exceed the amount in default (without regard to amounts owing
solely as a result of any acceleration of the Loan); (ii) the Borrower's assets
shall be transferred to the Lender following an Event of Default only to the
extent of the failure of the Borrower to meet the payment schedule of the Loan;
and (iii) all rights of the Lender to the Common Stock purchased with the
proceeds of the Loan covered by the Pledge Agreement following an Event of
Default shall be governed by the terms of the Pledge Agreement.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1 PAYMENTS DUE TO THE LENDER.
If any amount is payable by the Borrower to the Lender pursuant to any
indemnity obligation contained herein, then the Borrower shall pay, at the time
or times provided therefor, any such amount and shall indemnify the Lender
against and hold it harmless from any loss or damage resulting from or arising
out of the nonpayment or delay in payment of any such amount. If any amounts as
to which the Borrower has so indemnified the Lender hereunder shall be assessed
or levied against the Lender, the Lender may notify the Borrower and make
immediate payment thereof, together with interest or penalties in connection
therewith, and shall thereupon be entitled to and shall receive immediate
reimbursement therefor from the Borrower, together with interest on each such
amount as provided in section 2.2(c). Notwithstanding any other provision
contained in this Loan Agreement, the covenants and agreements of the Borrower
<PAGE> 15
-12-
contained in this section 6.1 shall survive: (a) payment of the Promissory Note
and (b) termination of this Loan Agreement.
SECTION 6.2 PAYMENTS.
All payments hereunder and under the Promissory Note shall be made
without set-off or counterclaim and in such amounts as may be necessary in order
that all such payments shall not be less than the amounts otherwise specified to
be paid under this Loan Agreement and the Promissory Note, subject to any
applicable tax withholding requirements. Upon payment in full of the Promissory
Note, the Lender shall mark such Promissory Note "Paid" and return it to the
Borrower.
SECTION 6.3 SURVIVAL.
All agreements, representations and warranties made herein shall
survive the delivery of this Loan Agreement and the Promissory Note.
SECTION 6.4 MODIFICATIONS, CONSENTS AND WAIVERS; ENTIRE AGREEMENT.
No modification, amendment or waiver of or with respect to any
provision of this Loan Agreement, the Promissory Note, the Pledge Agreement, or
any of the other Loan Documents, nor consent to any departure from any of the
terms or conditions thereof, shall in any event be effective unless it shall be
in writing and signed by the party against whom enforcement thereof is sought.
Any such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. No consent to or demand on a party in any case
shall, of itself, entitle it to any other or further notice or demand in similar
or other circumstances. This Loan Agreement embodies the entire agreement and
understanding between the Lender and the Borrower and supersedes all prior
agreements and understandings relating to the subject matter hereof.
SECTION 6.5 REMEDIES CUMULATIVE.
Each and every right granted to the Lender hereunder or under any other
document delivered hereunder or in connection herewith, or allowed it by law or
equity, shall be cumulative and may be exercised from time to time. No failure
on the part of the Lender or the holder of the Promissory Note to exercise, and
no delay in exercising, any right shall operate as a waiver thereof, nor shall
any single or partial exercise of any right preclude any other or future
exercise thereof or the exercise of any other right. The due payment and
performance of the obligations under the Loan Documents shall be without regard
to any counterclaim, right of offset or any other claim whatsoever which the
Borrower may have against the Lender and without regard to any other obligation
of any nature whatsoever which the Lender may have to the Borrower, and no such
counterclaim or offset shall be asserted by the Borrower in any action, suit or
proceeding instituted by the Lender for payment or performance of such
obligations.
<PAGE> 16
-13-
SECTION 6.6 FURTHER ASSURANCES; COMPLIANCE WITH COVENANTS.
At any time and from time to time, upon the request of the Lender, the
Borrower shall execute, deliver and acknowledge or cause to be executed,
delivered and acknowledged, such further documents and instruments and do such
other acts and things as the Lender may reasonably request in order to fully
effect the terms of this Loan Agreement, the Promissory Note, the Pledge
Agreement, the other Loan Documents and any other agreements, instruments and
documents delivered pursuant hereto or in connection with the Loan.
SECTION 6.7 NOTICES.
Except as otherwise specifically provided for herein, all notices,
requests, reports and other communications pursuant to this Loan Agreement shall
be in writing, either by letter (delivered by hand or commercial messenger
service or sent by registered or certified mail, return receipt requested,
except for routine reports delivered in compliance with Article VI hereof which
may be sent by ordinary first-class mail) or telex or facsimile, addressed as
follows:
(a) If to the Borrower:
Employee Stock Ownership Plan Trust
of Hudson City Bancorp, Inc.
c/o Hudson City Savings Bank
West 80 Century City Road
Paramus, New Jersey 07652-1473
Attention: [____________]
with copies to:
[Trustee Information]
Thacher Proffitt & Wood
Two World Trade Center, 39th Floor
New York New York 10048
Attention: W. Edward Bright, Esq.
(b) If to the Lender:
Hudson City Bancorp, Inc.
West 80 Century Road
Paramus, New Jersey 07652-1473
Attention: [________________]
<PAGE> 17
-14-
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center, 39th Floor
New York New York 10048
Attention: W. Edward Bright, Esq.
Any notice, request or communication hereunder shall be deemed to have been
given on the day on which it is delivered by hand or by commercial messenger
service, or sent by telex or facsimile, to such party at its address specified
above, or, if sent by mail, on the third Business Day after the day deposited in
the mail, postage prepaid, addressed as aforesaid. Any party may change the
person or address to whom or which notices are to be given hereunder, by notice
duly given hereunder; provided, however, that any such notice shall be deemed to
have been given only when actually received by the party to whom it is
addressed.
SECTION 6.8 COUNTERPARTS.
This Loan Agreement may be signed in any number of counterparts which,
when taken together, shall constitute one and the same document.
SECTION 6.9 CONSTRUCTION; GOVERNING LAW.
The headings used in the table of contents and in this Loan Agreement
are for convenience only and shall not be deemed to constitute a part hereof.
All uses herein of any gender or of singular or plural terms shall be deemed to
include uses of the other genders or plural or singular terms, as the context
may require. All references in this Loan Agreement to an Article or section
shall be to an Article or section of this Loan Agreement, unless otherwise
specified. This Loan Agreement, the Promissory Note, the Pledge Agreement and
the other Loan Documents shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New Jersey.
SECTION 6.10 SEVERABILITY.
Wherever possible, each provision of this Loan Agreement shall be
interpreted in such manner as to be effective and valid under applicable law;
however, the provisions of this Loan Agreement are severable, and if any clause
or provision hereof shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision in this Loan Agreement in any jurisdiction. Each of
the covenants, agreements and conditions contained in this Loan Agreement is
independent, and compliance by a party with any of them shall not excuse
non-compliance by such party with any other. The Borrower shall not take any
action the effect of which shall constitute a breach or violation of any
provision of this Loan Agreement.
<PAGE> 18
-15-
SECTION 6.11 BINDING EFFECT; NO ASSIGNMENT OR DELEGATION.
This Loan Agreement shall be binding upon and inure to the benefit of
the Borrower and its successors and the Lender and its successors and assigns.
The rights and obligations of the Borrower under this Agreement shall not be
assigned or delegated without the prior written consent of the Lender, and any
purported assignment or delegation without such consent shall be void.
<PAGE> 19
-16-
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement
to be duly executed as of the date first above written.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
OF HUDSON CITY SAVINGS BANK
BY [______________], AS TRUSTEE
BY: ________________________________
TITLE: ________________________________
HUDSON CITY BANCORP, INC.
BY: ________________________________
TITLE: ________________________________
<PAGE> 20
EXHIBIT A
TO LOAN AGREEMENT
BY AND BETWEEN
EMPLOYEE STOCK OWNERSHIP PLAN TRUST OF
HUDSON CITY SAVINGS BANK
AND
HUDSON CITY BANCORP, INC.
FORM OF PROMISSORY NOTE
$[ ] Paramus, New Jersey
PRINCIPAL AMOUNT [ _____], 1999
FOR VALUE RECEIVED, the undersigned, Employee Stock Ownership Plan
Trust of Hudson City Savings Bank ("Borrower"), acting by and through its
Trustee, [___________] ("Trustee"), hereby promises to pay to the order of
Hudson City Bancorp, Inc. ("Lender") [________________ ($__________)] payable in
accordance with the Loan Agreement made and entered into between the Borrower
and the Lender as of [________], 1999 ("Loan Agreement") pursuant to which this
Promissory Note is issued, in one annual installment of [$________], payable on
[September 30], 1999 and twenty-nine annual installments of [_______________
($______________)] commencing on the last Business Day of [September, 2000] and
continuing on the last Business Day of September of each calendar year until the
last Business Day of 2028], and one annual installment payable on the last
business day of [June, 2029], at which time the entire Principal Amount then
outstanding and all accrued interest shall become due and payable; provided,
however, that the Borrower shall not be required to make any payment of
principal due to be made in any Fiscal Year (as defined in the Loan Agreement)
to the extent that such payment would not be deductible for federal income tax
purposes for such Fiscal Year under section 404 of the Internal Revenue Code.
Any payment not required to made pursuant to shall be deferred to and be payable
on the last day of the first Fiscal Year in which such payment may be made on a
tax deductible basis.
This Promissory Note shall bear interest at the rate per annum set
forth or established under the Loan Agreement, such interest to be payable
quarterly in arrears, commencing on [_________, 199_] and thereafter on the
last Business Day of each calendar quarter and upon payment or prepayment of
this Promissory Note.
Anything herein to the contrary notwithstanding, the obligation of the
Borrower to make payments of interest shall be subject to the limitation that
payments of interest shall not be required to be made to the Lender to the
extent that the Lender's receipt thereof would not be permissible under the law
or laws applicable to the Lender limiting rates of interest which may be charged
or collected by the Lender. Any such payments of interest which are not made as
a result of the limitation referred to in the preceding sentence shall be made
by the Borrower to the Lender on the earliest interest payment date or dates on
which the receipt thereof would be permissible under the laws applicable to the
Lender limiting rates of interest which may be charged or collected by the
Lender. Such deferred interest shall not bear interest.
<PAGE> 21
A-2
Payments of both principal and interest on this Promissory Note are to
be made at the principal office of the Lender at West 80 Century Road, Paramus,
New Jersey 07652-1473, or such other place as the holder hereof shall designate
to the Borrower in writing, in lawful money of the United States of America in
immediately available funds.
Failure to make any payment of principal on this Promissory Note when
due, or failure to make any payment of interest on this Promissory Note not
later than five (5) Business Days after the date when due, shall constitute a
default hereunder, whereupon the principal amount of and accrued interest on
this Promissory Note shall immediately become due and payable in accordance with
the terms of the Loan Agreement.
This Promissory Note is secured by a Pledge Agreement between the
Borrower and the Lender of even date herewith and is entitled to the benefits
thereof.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
OF HUDSON CITY SAVINGS BANK
BY [______________], AS TRUSTEE
BY: ________________________________
TITLE: ________________________________
<PAGE> 22
EXHIBIT B
TO LOAN AGREEMENT
BY AND BETWEEN
EMPLOYEE STOCK OWNERSHIP PLAN TRUST OF
HUDSON CITY SAVINGS BANK
AND
HUDSON CITY BANCORP, INC.
FORM OF PLEDGE AGREEMENT
This PLEDGE AGREEMENT ("Pledge Agreement") is made as of the [____] day
of [____], 1999, by and between the EMPLOYEE STOCK OWNERSHIP PLAN TRUST OF
HUDSON CITY SAVINGS BANK, acting by and through its Trustee, [______________], a
banking corporation organized under the laws of the State of [_________] and
having office at [___________________] ("Pledgor"), and Hudson City Bancorp,
Inc., corporation organized and existing under the laws of the State of
[Delaware], having an office at West 80 Century Road, Paramus, New Jersey
07652-1473 ("Pledgee").
W I T N E S S E T H :
WHEREAS, this Pledge Agreement is being executed and delivered to the
Pledgee pursuant to the terms of a Loan Agreement of even date herewith ("Loan
Agreement"), by and between the Pledgor and the Pledgee;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and in the Loan Agreement, the parties hereto do hereby covenant and
agree as follows:
SECTION 1. DEFINITIONS. The following definitions shall apply for
purposes of this Pledge Agreement, except to the extent that a different meaning
is plainly indicated by the context; all capitalized terms used but not defined
herein shall have the respective meanings assigned to them in the Loan
Agreement:
(a) Collateral shall mean the Pledged Shares and, subject to
section 5 hereof, and to the extent permitted by applicable law, all
rights with respect thereto, and all proceeds of such Pledged Shares
and rights.
(b) Event of Default shall mean an event so defined in the
Loan Agreement.
(c) Liabilities shall mean all the obligations of the Pledgor
to the Pledgee, howsoever created, arising or evidenced, whether direct
or indirect, absolute or contingent, now or hereafter existing, or due
or to become due, under the Loan Agreement and the Promissory Note.
<PAGE> 23
B-2
(d) Pledged Shares shall mean all the shares of Common Stock
of Hudson City Bancorp, Inc. purchased by the Pledgor with the proceeds
of the loan made by the Pledgee to the Pledgor pursuant to the Loan
Agreement, but excluding any such shares previously released pursuant
to section 4.
SECTION 2. PLEDGE. To secure the payment of and performance of all the
Liabilities, the Pledgor hereby pledges to the Pledgee, and grants to the
Pledgee a security interest in and lien upon, the Collateral.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PLEDGOR. The Pledgor
represents, warrants, and covenants to the Pledgee as follows:
(a) the execution, delivery and performance of this Pledge
Agreement and the pledging of the Collateral hereunder do not and will
not conflict with, result in a violation of, or constitute a default
under any agreement binding upon the Pledgor;
(b) the Pledged Shares are and will continue to be owned by
the Pledgor free and clear of any liens or rights of any other person
except the lien hereunder and under the Loan Agreement in favor of the
Pledgee, and the security interest of the Pledgee in the Pledged Shares
and the proceeds thereof is and will continue to be prior to and senior
to the rights of all others;
(c) this Pledge Agreement is the legal, valid, binding and
enforceable obligation of the Pledgor in accordance with its terms;
(d) the Pledgor shall, from time to time, upon request of the
Pledgee, promptly deliver to the Pledgee such stock powers, proxies,
and similar documents, satisfactory in form and substance to the
Pledgee, with respect to the Collateral as the Pledgee may reasonably
request; and
(e) subject to the first sentence of section 4(b), the Pledgor
shall not, so long as any Liabilities are outstanding, sell, assign,
exchange, pledge or otherwise transfer or encumber any of its rights in
and to any of the Collateral.
SECTION 4. ELIGIBLE COLLATERAL.
(a) As used herein the term "Eligible Collateral" shall mean that
amount of Collateral which has an aggregate fair market value equal to the
amount by which the Pledgor is in default (without regard to any amounts owing
solely as the result of an acceleration of the Loan Agreement) or such lesser
amount of Collateral as may be required pursuant to section 13 of this Pledge
Agreement.
(b) The Pledged Shares shall be released from this Pledge Agreement in
a manner conforming to the requirements of Treasury Regulations Section
54.4975-7(b)(8), as the same may be from time to time amended or supplemented,
and section 6.4(a) of the ESOP.
<PAGE> 24
B-3
Subject to such Regulations, the Pledgee may from time to time, after any
Default or Event of Default, and without prior notice to the Pledgor, transfer
all or any part of the Eligible Collateral into the name of the Pledgee or its
nominee, with or without disclosing that such Eligible Collateral is subject to
any rights of the Pledgor and may from time to time, whether before or after any
of the Liabilities shall become due and payable, without notice to the Pledgor,
take all or any of the following actions: (i) notify the parties obligated on
any of the Eligible Collateral to make payment to the Pledgee of any amounts due
or to become due thereunder, (ii) release or exchange all or any part of the
Eligible Collateral, or compromise or extend or renew for any period (whether or
not longer than the original period) any obligations of any nature of any party
with respect thereto, and (iii) take control of any proceeds of the Eligible
Collateral.
SECTION 5. DELIVERY.
(a) The Pledgor shall deliver to the Pledgee upon execution of this
Pledge Agreement (i) an assignment by the Pledgor of all the Pledgor's rights to
and interest in the Pledged Shares and (ii) an irrevocable proxy, in form and
substance satisfactory to the Pledgee, signed by the Pledgor with respect to the
Pledged Shares.
(b) So long as no Default or Event of Default shall have occurred and
be continuing, (i) the Pledgor shall be entitled to exercise any and all voting
and other rights pertaining to the Collateral or any part thereof for any
purpose not inconsistent with the terms of this Pledge Agreement, and (ii) the
Pledgor shall be entitled to receive any and all cash dividends or other
distributions paid in respect of the Collateral.
SECTION 6. EVENTS OF DEFAULT.
(a) If a Default or an Event of Default shall be existing, in addition
to the rights it may have under the Loan Agreement, the Promissory Note, and
this Pledge Agreement, or by virtue of any other instrument, (i) the Pledgee may
exercise, with respect to the Eligible Collateral, from time to time any rights
and remedies available to it under the Uniform Commercial Code as in effect from
time to time in the State of New Jersey or otherwise available to it and (ii)
the Pledgee shall have the right, for and in the name, place and stead of the
Pledgor, to execute endorsements, assignments, stock powers and other
instruments of conveyance or transfer with respect to all or any of the Eligible
Collateral. Written notification of intended disposition of any of the Eligible
Collateral shall be given by the Pledgee to the Pledgor at least three (3)
Business Days before such disposition. Subject to section 13 below, any proceeds
of any disposition of Eligible Collateral may be applied by the Pledgee to the
payment of expenses in connection with the Eligible Collateral, including,
without limitation, reasonable attorneys' fees and legal expenses, and any
balance of such proceeds may be applied by the Pledgee toward the payment of
such of the Liabilities as are in Default, and in such order of application, as
the Pledgee may from time to time elect. No action of the Pledgee permitted
hereunder shall impair or affect its rights in and to the Eligible Collateral.
All rights and remedies of the Pledgee expressed hereunder are in addition to
all other rights and remedies possessed by it, including, without limitation,
those contained in the documents referred to in the definition of Liabilities in
section 1 hereof.
<PAGE> 25
B-4
(b) In any sale of any of the Eligible Collateral after a Default or an
Event of Default shall have occurred, the Pledgee is hereby authorized to comply
with any limitation or restriction in connection with such sale as it may be
advised by counsel is necessary in order to avoid any violation of applicable
law (including, without limitation, compliance with such procedures as may
restrict the number of prospective bidders and purchasers or further restrict
such prospective bidders or purchasers to persons who will represent and agree
that they are purchasing for their own account for investment and not with a
view to the distribution or resale of such Eligible Collateral), or in order to
obtain such required approval of the sale or of the purchase by any governmental
regulatory authority or official, and the Pledgor further agrees that such
compliance shall not result in such sale's being considered or deemed not to
have been made in a commercially reasonable manner, nor shall the Pledgee be
liable or accountable to the Pledgor for any discount allowed by reason of the
fact that such Eligible Collateral is sold in compliance with any such
limitation or restriction.
SECTION 7. PAYMENT IN FULL. Upon the payment in full of all outstanding
Liabilities, this Pledge Agreement shall terminate and the Pledgee shall
forthwith assign, transfer and deliver to the Pledgor, against receipt and
without recourse to the Pledgee, all Collateral then held by the Pledgee
pursuant to this Pledge Agreement.
SECTION 8. NO WAIVER. No failure or delay on the part of the Pledgee in
exercising any right or remedy hereunder or under any other document which
confers or grants any rights in the Pledgee in respect of the Liabilities shall
operate as a waiver thereof nor shall any single or partial exercise of any such
right or remedy preclude any other or further exercise thereof or the exercise
of any other right or remedy of the Pledgee.
SECTION 9. BINDING EFFECT; NO ASSIGNMENT OR DELEGATION. This Pledge
Agreement shall be binding upon and inure to the benefit of the Pledgor, the
Pledgee and their respective successors and assigns, except that the Pledgor
may not assign or transfer its rights hereunder without the prior written
consent of the Pledgee (which consent shall not unreasonably be withheld). Each
duty or obligation of the Pledgor to the Pledgee pursuant to the provisions of
this Pledge Agreement shall be performed in favor of any person or entity
designated by the Pledgee, and any duty or obligation of the Pledgee to the
Pledgor may be performed by any other person or entity designated by the
Pledgee.
SECTION 10. GOVERNING LAW. This Pledge Agreement shall be governed by
and construed in accordance with the laws of the State of New Jersey applicable
to agreements to be performed wholly within the State of New Jersey.
SECTION 11. NOTICES. All notices, requests, instructions or documents
hereunder shall be in writing and delivered personally or sent by United States
mail, registered or certified, return receipt requested, with proper postage
prepaid, as follows:
<PAGE> 26
B-5
(a) If to the Pledgee:
Hudson City Bancorp, Inc.
West 80 Century Road
Paramus, New Jersey 07652-1473
Attention: [___________]
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center, 39th Floor
New York, New York 10048
Attention: W. Edward Bright, Esq.
(b) If to the Pledgor:
Employee Stock Ownership Plan Trust
of Hudson City Savings Bank
c/o Hudson City Savings Bank
West 80 Century Road
Paramus, New Jersey 07652-1473
Attention: [________________]
with copies to:
[Trustee Information]
Thacher Proffitt & Wood
Two World Trade Center, 39th Floor
New York, New York 10048
Attention: W. Edward Bright, Esq.
or at such other address as either of the parties may designate by written
notice to the other party. If delivered personally, the date on which a notice,
request, instruction or document is delivered shall be the date on which such
delivery is made, and, if delivered by mail, the date on which such notice,
request, instruction or document is deposited in the mail shall be the date of
delivery. Each notice, request, instruction or document shall bear the date on
which it is delivered.
SECTION 12. INTERPRETATION. Wherever possible each provision of this
Pledge Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision hereof shall be prohibited by
or invalid under such law, such provisions shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions hereof.
<PAGE> 27
B-6
SECTION 13. CONSTRUCTION. All provisions hereof shall be construed so
as to maintain (a) the ESOP as a qualified leveraged employee stock ownership
plan under section 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986
(the "Code"), (b) the Trust as exempt from taxation under section 501(a) of the
Code and (c) the Trust Loan as an exempt loan under section 54.4975-7(b) of the
Treasury Regulations and as described in Department of Labor Regulation section
2550.408b-3.
IN WITNESS WHEREOF, this Pledge Agreement has been duly executed by the
parties hereto as of the day and year first above written.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
OF HUDSON CITY SAVINGS BANK
BY [______________], AS TRUSTEE
AND NOT IN ANY OTHER CAPACITY
BY: ________________________________
TITLE: ________________________________
HUDSON CITY BANCORP, INC.
BY: ________________________________
TITLE: ________________________________
<PAGE> 28
EXHIBIT C
TO LOAN AGREEMENT
BY AND BETWEEN
EMPLOYEE STOCK OWNERSHIP PLAN TRUST OF
HUDSON CITY SAVINGS BANK
AND
HUDSON CITY BANCORP, INC.
FORM OF ASSIGNMENT
In consideration of the loan made by Hudson City Bancorp, Inc.
("Lender") to the Employee Stock Ownership Plan Trust of Hudson City Savings
Bank ("Borrower") pursuant to the Loan Agreement of even date herewith between
the Lender and the Borrower ("Loan Agreement") and pursuant to the Pledge
Agreement between the Lender and the Borrower of even date herewith pertaining
thereto, the undersigned Borrower hereby transfers, assigns and conveys to
Lender all its right, title and interest in and to those certain shares of
common stock of the Lender which it shall purchase with the proceeds of the loan
made pursuant to the Loan Agreement, and agrees to transfer and endorse to
Lender the certificates representing such shares as and when required pursuant
to the Loan Agreement or Pledge Agreement.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
OF HUDSON CITY SAVINGS BANK
BY [______________], AS TRUSTEE
AND NOT IN ANY OTHER CAPACITY
BY: ________________________________
TITLE: ________________________________
[________, 199_]
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
The Board of Managers
Hudson City Savings Bank:
We consent to the use of our report dated February 12, 1999 relating to the
statements of financial condition of Hudson City Savings Bank as of December 31,
1998 and 1997 and the related statements of income, changes in equity, and cash
flows for each of the years in the three-year period ended December 31, 1998,
and to the reference to our firm under the headings "Experts," "Legal and Tax
Opinions," and "Statements of Income" in the Pre-Effective Amendment No.1 to the
registration statement/ prospectus, which Pre-Effective Amendment No. 1 to the
registration statement/prospectus is also included in the Application for
Formation of Mutual Savings Bank Holding Company and related applications with
the Federal Deposit Insurance Corporation and the Federal Reserve Board.
KPMG LLP
Short Hills, New Jersey
April 28, 1999
<PAGE> 1
Hudson City Bancorp, Inc. Logo
Dear Customer:
I am pleased to inform you that Hudson City Savings Bank is undergoing an
internal restructuring resulting in a structure known as a mutual savings bank
holding company (the "Reorganization"). Additionally, our Bank's newly-formed
parent company, Hudson City Bancorp, Inc., is offering shares of its common
stock for sale. Both the Reorganization and the stock offering are being
conducted pursuant to a Plan of Reorganization and Stock Issuance (the "Plan").
To implement the Plan, we must receive the approval of our depositors. YOUR
VOTE IS VERY IMPORTANT. The enclosed Proxy Statement describes the Plan,
including your voting rights and the business reasons for the Bank's
Reorganization.
Please mark your vote and sign the enclosed proxy card(s). Return the
card(s) to us promptly using the white return envelope provided. Note that NONE
of the proxy cards are duplicates -- you may receive more than one proxy card
depending on the ownership structure of your accounts at the Bank. NOT RETURNING
YOUR PROXY CARD(S) HAS THE SAME EFFECT AS VOTING AGAINST THE PLAN.
We are providing eligible depositors an opportunity to purchase shares of
common stock before they are offered to the public. Before making an investment
decision, please carefully review the information contained in the enclosed
Prospectus (including the "Risk Factors" section), which includes details about
the stock offering. Also review the enclosed Question and Answer Brochure. If
you are interested in purchasing shares of Hudson City Bancorp, Inc. common
stock, complete the enclosed Stock Order Form and return it in the blue return
envelope provided. We must RECEIVE Stock Order Forms, completed and with full
payment at $10 per share, prior to 10:00 a.m., Eastern time, on ,
1999.
PLEASE NOTE THAT:
- The Reorganization will not result in changes to the balance, interest
rate or maturity of your deposit or loan accounts. You will continue to
enjoy the same services in the same offices, with the same staff.
- Your deposit accounts at the Bank will continue to be insured up to the
maximum legal limit by the Federal Deposit Insurance Corporation (FDIC).
- Voting in favor of the Reorganization will not obligate you to buy any
shares of common stock.
Upon completion of the offering, Hudson City Bancorp, Inc. common stock
will trade on the Nasdaq National Market System under the symbol "HCBK."
If you have questions regarding the offering or voting, you may call our
Stock Information Center at (800) 541-3187, Monday through Friday from 9:00 a.m.
to 4:00 p.m.
Sincerely,
Leonard S. Gudelski
Chairman and Chief Executive Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
THE SHARES OF COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
<PAGE> 2
[Hudson City Bancorp, Inc. Logo]
Dear Friend:
I am pleased to inform you that Hudson City Savings Bank is undergoing an
internal restructuring resulting in a structure known as a mutual savings bank
holding company (the "Reorganization"). Additionally, our Bank's newly-formed
parent company, Hudson City Bancorp, Inc., is offering shares of its common
stock for sale. Both the Reorganization and the stock offering are being
conducted pursuant to a Plan of Reorganization and Stock Issuance.
As an eligible depositor of Hudson City Savings Bank on December 31, 1997
or March 31, 1999, whose account was closed thereafter, you have an opportunity
to purchase shares of common stock before they are offered to the public. Of
course, you are not obligated to purchase shares.
Before making an investment decision, please carefully review the
information in the enclosed Prospectus (including the "Risk Factors" section),
which includes details about the Bank's Reorganization and the stock offering.
Also review the enclosed Question and Answer Brochure. If you are interested in
purchasing shares of Hudson City Bancorp, Inc. common stock, complete the
enclosed Stock Order Form and return it in the blue return envelope provided. We
must RECEIVE Stock Order Forms, completed and with full payment at $10 per
share, prior to 10:00 a.m., Eastern time, on , 1999.
Upon completion of the offering, Hudson City Bancorp, Inc., common stock
will trade on the Nasdaq National Market System under the symbol "HCBK."
If you have questions regarding the offering, you may call our Stock
Information Center at (800) 541-3187, Monday through Friday from 9:00 a.m. to
4:00 p.m.
Sincerely,
Leonard S. Gudelski
Chairman and Chief Executive Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
THE SHARES OF COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
<PAGE> 3
[Ryan,Beck & Co. Logo]
Dear Potential Investor:
At the request of Hudson City Bancorp, Inc., we are enclosing materials
regarding the offering of Hudson City Bancorp, Inc. common stock. Included in
the package are a Prospectus and Questions & Answers Brochure describing the
stock offering. Ryan, Beck & Co., Inc., has been retained by Hudson City
Bancorp, Inc. as selling agent in connection with the stock offering.
We have been asked to forward these materials to you in view of certain
regulatory requirements and the securities laws of your state.
Sincerely,
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
THE SHARES OF COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
[Logo with cities]
<PAGE> 4
Hudson City Bancorp, Inc. Logo
Dear Friend:
I am pleased to inform you of an investment opportunity. Hudson City
Savings Bank is undergoing an internal restructuring resulting in a structure
known as a mutual savings bank holding company (the "Reorganization").
Additionally, our Bank's newly-formed parent company, Hudson City Bancorp, Inc.,
is offering shares of its common stock of sale. Both the Reorganization and the
stock offering are being conducted pursuant to a Plan of Reorganization and
Stock Issuance.
Before making an investment decision regarding the stock offering, please
carefully review the information in the enclosed Prospectus (including the "Risk
Factors" section), which includes details about the Bank's Reorganization and
the stock offering. Also review the enclosed Questions and Answers Brochure. If
you are interested in purchasing shares of Hudson City Bancorp, Inc. common
stock, complete the enclosed Stock Order Form and return it in the envelope
provided. We must receive Stock Order Forms, completed and with full payment at
$10 per share, prior to 10:00 a.m., Eastern time, on , 1999.
Upon completion of the offering, Hudson City Bancorp, Inc. common stock
will trade on the Nasdaq National Market System under the symbol "HCBK."
If you have questions regarding the offering, you may call our Stock
Information Center at (800) 541-3187, Monday through Friday from 9:00 a.m. to
4:00 p.m.
Sincerely,
Leonard S. Gudelski
Chairman and Chief Executive Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
THE SHARES OF COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
<PAGE> 5
Hudson City Bancorp, Inc. Logo
Dear Customer:
I am pleased to inform you that Hudson City Savings Bank is undergoing an
internal restructuring resulting in a structure known as a mutual savings bank
holding company (the "Reorganization"). Additionally, our Bank's newly-formed
parent company, Hudson City Bancorp, Inc., is offering shares of its common
stock for sale. Both the Reorganization and the stock offering are being
conducted pursuant to a Plan of Reorganization and Stock Issuance (the "Plan").
To implement the Plan, we must receive the approval of our depositors. YOUR
VOTE IS VERY IMPORTANT. The enclosed Proxy Statement describes the Plan,
including your voting rights and the business reasons for the Bank's
Reorganization.
Please mark your vote and sign the enclosed proxy card(s). Return the
card(s) to us as quickly as possible, addressed to:
Hudson City Savings Bank
Midtown Station
P.O. Box 959
New York, New York 10138-0813
Please note that NONE of the proxy cards sent to you are duplicates -- you
may receive more than one proxy card depending on the ownership structure of
your accounts at the Bank. NOT RETURNING YOUR PROXY CARD(S) HAS THE SAME EFFECT
AS VOTING AGAINST THE PLAN.
PLEASE NOTE THAT:
- The Reorganization will not result in changes to the balance, interest
rate or maturity of your deposit or loan accounts. You will continue to
enjoy the same services in the same offices, with the same staff.
- Your deposit accounts at the Bank will continue to be insured up to the
maximum legal limit by the Federal Deposit Insurance Corporation (FDIC).
Unfortunately, because the current address that you have provided to us is
located outside of the United States, we are unable to offer you an opportunity
to participate in the stock offering.
If you have questions regarding voting, please refer to the enclosed
Questions and Answers Brochure. Thank you for your time.
Sincerely,
Leonard S. Gudelski
Chairman and Chief Executive Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
THE SHARES OF COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
<PAGE> 6
BACKGROUND
The Board of Managers of Hudson City Savings Bank has unanimously approved a
Plan of Reorganization and Stock Issuance. Pursuant to the Plan, Hudson City
Savings Bank is changing its legal form of organization from a mutual ("mutual,"
meaning no stockholders) savings bank to a stock savings bank and reorganizing
into the mutual holding company structure. As part of the reorganization, Hudson
City Bancorp, Inc has been newly organized and is offering shares of its common
stock to the public. After the reorganization, Hudson City Bancorp will own
Hudson City Savings Bank and Hudson City, MHC will own more than half of the
outstanding common stock of Hudson City Bancorp. By issuing only a minority of
Hudson City Bancorp's common stock to stockholders, we will preserve our ability
to remain an independent community-oriented organization. We refer to these
transactions collectively as our "reorganization." Our reorganization must be
approved by federal and state bank regulatory authorities and by our depositors.
WE WILL CONDUCT BUSINESS AS USUAL
The reorganization will change our corporate form of organization, but not our
business relationships. We are not affiliating with another company. Hudson City
Savings Bank's name will not change. Our employees will continue to serve our
customers in the same offices. The Board of Managers of Hudson City Savings Bank
will serve as its Board of Directors and will also serve as the initial
directors of the two new holding companies.
This brochure answers questions about Hudson City Savings Bank's reorganization
and the related proxy vote by our depositors and about the opportunity to invest
in Hudson City Bancorp common stock in the stock offering.
Investment in common stock involves certain risks. Before making an investment
decision, please read the Prospectus carefully, including the section titled
"Risk Factors."
GENERAL
Q. WHY IS HUDSON CITY SAVINGS BANK REORGANIZING?
A. The reorganization will afford Hudson City Savings Bank greater
operating flexibility to meet future business goals. The mutual holding
company corporate structure better positions Hudson City Savings Bank
to compete with other financial institutions and to take advantage of
business opportunities.
Proceeds that we raise from the sale of common stock in the offering
will be used for general corporate purposes, which may include lending
and investing, paying dividends to stockholders and possible
acquisitions of financial institutions.
<PAGE> 7
Q. WILL THE REORGANIZATION HAVE ANY EFFECT ON MY DEPOSIT ACCOUNT OR LOAN
ACCOUNT WITH HUDSON CITY SAVINGS BANK?
A. No, except to the extent that you authorize withdrawal of funds from
your current deposit account(s) to pay for shares of common stock in
the offering. The reorganization will not affect the account number,
amount, interest rate or withdrawal rights of deposit accounts. Deposit
accounts will continue to be insured by the Federal Deposit Insurance
Corporation (FDIC) to the maximum legal limit. Loan accounts and rights
of borrowers will not be affected.
THE PROXY VOTE
YOUR VOTE IS VERY IMPORTANT --
PLEASE PROMPTLY MAIL IN YOUR PROXY CARD(S)!
Q. AM I REQUIRED TO VOTE ON THE PLAN OF REORGANIZATION AND STOCK ISSUANCE?
A. No. You are not required to vote. However, regulations require that we
solicit your vote. We cannot complete the reorganization, including the
offering, unless our depositors approve the Plan. We hope you will vote
IN FAVOR of the Plan. Please note that not voting has the same effect
as voting AGAINST the Plan.
Q. HOW DO I VOTE?
A. Please mark your vote, sign and return the Proxy Card(s) using the
white return envelope provided. You may also choose to attend the
Special Meeting of Depositors.
Q. DOES MY VOTE IN FAVOR OF THE PLAN MEAN THAT I MUST BUY COMMON STOCK OF
HUDSON CITY BANCORP?
A. No. Voting on the Plan does not obligate you to purchase stock.
Q. HOW MANY VOTES DO I HAVE?
A. Each depositor with an aggregate of at least $100 of deposits at Hudson
City Savings Bank on April 30, 1999 is entitled to one vote for each
$100, or fraction thereof, on deposit at that date.
2
<PAGE> 8
Q. WHY DID I RECEIVE SEVERAL PROXY CARDS?
A. If you had more than one deposit account at Hudson City Savings Bank on
April 30, 1999, you may have received more than one Proxy Card,
depending on the ownership structure of your accounts. None of the
cards are duplicates - please promptly mark your vote, sign and mail
all the cards that we sent to you.
Q. I HAVE A JOINT SAVINGS ACCOUNT. MUST BOTH PARTIES SIGN THE PROXY CARD?
A. Only one signature is required, but both parties should sign if
possible.
Q. WHO MUST SIGN PROXY CARDS FOR TRUST OR CUSTODIAN ACCOUNTS?
A. The trustee or custodian, not the
beneficiary, must sign for such accounts.
Q. I AM THE EXECUTOR (ADMINISTRATOR) FOR A DECEASED DEPOSITOR. MAY I SIGN
THE DEPOSITOR'S PROXY CARD?
A. Yes. Please indicate on the card the capacity in which you are signing
the card.
THE OFFERING
The offering includes a subscription offering and a community offering.
Q. HOW MANY SHARES IS HUDSON CITY BANCORP OFFERING AND AT WHAT PRICE?
A. We are offering between 49,937,500 and 67,562,500 shares of common
stock, although we may sell up to 77,696,875 shares because of
regulatory considerations or changes in market or economic conditions.
We will sell all shares at $10 per share. We will not charge you any
commission or brokerage fee for purchasing shares in the offering.
Q. WHO IS ELIGIBLE TO PURCHASE STOCK IN THE SUBSCRIPTION OFFERING?
A. We have granted subscription rights to subscribe for shares of common
stock of Hudson City Bancorp in the subscription offering in the order
of priority listed below:
1. Depositors with accounts at Hudson City Savings Bank with
total balances of at least $100 on December 31, 1997;
3
<PAGE> 9
2. Our employee stock ownership plan, which will provide
retirement benefits to our employees; and
3. Depositors with accounts at Hudson City Savings Bank with
total balances of at least $100 on March 31, 1999.
Q. WHO IS ELIGIBLE TO PURCHASE STOCK IN THE COMMUNITY OFFERING?
A. The shares of common stock not purchased in the subscription offering
will be offered in the community offering in the order of
priority listed below:
1. Depositors with accounts at Hudson City Savings Bank with
total balances of at least $100 on April 30, 1999;
2. Individuals who are residents of New Jersey;
3. Corporations and other entities that are residents of New
Jersey;
4. Other members of the public to whom we deliver a prospectus.
Q. I AM ELIGIBLE TO PURCHASE STOCK IN THE SUBSCRIPTION OFFERING, BUT AM
NOT INTERESTED IN INVESTING. MAY I ALLOW SOMEONE ELSE TO USE MY
SUBSCRIPTION RIGHTS?
A. No. The Plan does not allow you to do so. If you order stock in the
SUBSCRIPTION OFFERING, you will be required to state that you are
purchasing the stock for yourself and that you have no agreement or
understanding to sell or transfer your rights or the stock. We intend
to take legal action against anyone who sells or gives away their
subscription rights. We will not accept your order if we have reason to
believe that you intend to sell or transfer your subscription rights.
If anyone offers to give you money to buy stock in your name in
exchange for later transferring the stock, or if someone requests to
share in the proceeds upon your future sale of Hudson City Bancorp
stock, please inform our Stock Information Center at (800) 541-3187.
Q. HOW MANY SHARES AM I ALLOWED TO ORDER?
A. The minimum order is 25 shares, or $250. In the subscription offering,
you may not purchase more than $500,000 (50,000 shares) of stock. In
the Community Offering, you, together with associates or persons acting
in concert with you, may not purchase more than $500,000 (50,000
shares) of stock. The maximum amount that may be purchased in the
subscription and community offerings and any syndicated community
offering or public offering, by any person acting together with others,
is $2.5 million (250,000 shares) of stock. See the Prospectus, pages
___ - ___ for detailed information concerning purchase limitations.
4
<PAGE> 10
Q. HOW ARE ORDERS PLACED IN THE SUBSCRIPTION OFFERING AND COMMUNITY
OFFERING?
A. Complete the Stock Order Form included in the offering materials and
return it, along with the required payment, in the blue return envelope
provided. You may also deliver your Stock Order Form by overnight
delivery to the address provided on the form. Stock Order Forms may not
be hand-delivered. In order to determine the required payment, multiply
the number of shares subscribed for by the $10.00 per share purchase
price. You may pay for your shares by including a check, money order or
bank check and/or by authorizing funds to be withdrawn from your
current Hudson City Savings Bank club, money market (without
check-writing privileges) savings, or certificate of deposit accounts.
Any applicable penalty for early withdrawal from Hudson City Savings
Bank certificates will be waived if you use certificate funds to
purchase stock in the offering. See the back of the Stock Order Form
for detailed instructions, including account types that cannot be
authorized for withdrawal.
As explained in detail on the back of the Stock Order Form, if you
order shares in the subscription offering, you must register the stock
only in the name(s) of persons/entities with qualifying accounts at the
same date that you have such accounts. Adding the name(s) of persons
without accounts or the names of persons with a later eligibility date
than yours may result in a loss of your eligibility.
Q. WHAT IS THE DEADLINE FOR ORDERING IN THE SUBSCRIPTION OFFERING AND
COMMUNITY OFFERING?
A. We must receive the original Stock Order Form, properly executed with
full payment, by 10:00 a.m., Eastern time, on _____, 1999. It is not
sufficient that the envelope be post-marked on this date.
Q. CAN I PURCHASE THE STOCK USING MY HUDSON CITY SAVINGS BANK IRA FUNDS?
A. Yes, however, you will need to establish or use a pre-existing
self-directed IRA account with a brokerage firm or independent trustee
and transfer to it all, or part, of your Hudson City Savings Bank IRA
funds. Your stock purchase should be made through the self-directed
IRA. IRA-related purchases require additional processing time, so
please call the Stock Information Center by no later than ________,
1999, for assistance with IRA-related questions.
Q. WILL I RECEIVE INTEREST ON FUNDS I SUBMIT?
A. Yes. Funds received as a check, money order or bank check will be
cashed immediately and placed in a segregated account at Hudson City
Savings Bank, and interest will be accrued at Hudson City Savings
Bank's passbook rate until we complete the reorganization. With respect
to authorized account withdrawals. Interest will continue to accrue at
the account's contractual rate until we complete the reorganization.
5
<PAGE> 11
Q. MAY I OBTAIN A LOAN FROM HUDSON CITY SAVINGS BANK TO PAY FOR THE COMMON
STOCK?
A. No. Hudson City Savings Bank may not make loans for this purpose.
Q. AM I GUARANTEED TO RECEIVE SHARES BY PLACING AN ORDER?
A. No. It is possible that orders received during the offering period will
exceed the number of shares sold. Such an oversubscription would result
in shares being allocated among subscribers. If the offering is
oversubscribed in the subscription offering, no orders received in
the community offering will be filled. Please refer to pages ____-____
of the Prospectus for a detailed explanation of the manner in which
shares will be allocated.
Q. CAN I CHANGE MY MIND AFTER I PLACE AN ORDER TO SUBSCRIBE FOR STOCK?
A. No. After receipt, your order may not be modified or withdrawn without
Hudson City Savings Bank's consent.
Q. IS HUDSON CITY SAVINGS BANK'S MANAGEMENT PURCHASING COMMON STOCK IN THE
OFFERING?
A. Yes. As described on page of the Prospectus, the Board of Managers
and executive officers intend to purchase an aggregate of 651,000
shares, or $6,510,000.
Q. WILL THE COMMON STOCK BE INSURED BY THE FDIC?
A. No. Hudson City Bancorp's common stock, like all common stock, is not
insured by the FDIC or any other government agency. The common stock is
subject to investment risk, including loss of principal invested.
Q. WILL I RECEIVE DIVIDENDS ON THE STOCK?
A. Hudson City Bancorp currently intends to pay a cash dividend at an
annual rate of $0.20 per share, payable quarterly at $0.05 per share.
We expect to begin paying dividends starting with the first quarter
after the completion of the reorganization. However, we cannot assure
you that we will pay dividends.
Q. WHEN WILL THE STOCK TRADE, AND WHEN WILL STOCK CERTIFICATES BE MAILED?
A. Although the deadline for receipt of orders is 10:00 a.m. Eastern time,
on , 1999, it may take several weeks to process orders and to
receive final regulatory approval to complete the reorganization. The
shares cannot trade and stock certificates cannot be
6
<PAGE> 12
issued until regulatory approval is received. The stock will commence
trading and the stock certificates will be mailed as soon as
practicable after receipt of regulatory approval.
Q. HOW MAY I PURCHASE OR SELL SHARES IN THE FUTURE?
A. You may purchase or sell shares through a stockbroker. Following the
reorganization, the common stock will be listed for trading on the
Nasdaq National Market System of the Nasdaq Stock Market under the
symbol "HCBK." Ryan, Beck & Co., Inc. intends to make a market in the
common stock, but is under no obligation to do so. We will seek to
encourage and assist at least two additional market makers to make a
market in the common stock.
We cannot assure you that an active and liquid trading market for
Hudson City Bancorp's common stock will develop, and we cannot assure
you that purchasers of shares of common stock will be able to sell
those shares at or above the $10 per share purchase price in the
reorganization.
ADDITIONAL QUESTIONS?
Call the Stock Information Center at (800) 541-3187
from 9:00 a.m. to 4:00 p.m. Monday through Friday
THIS BROCHURE IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
THE SHARES OF COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
7
<PAGE> 13
[VOTE -- BRANCH LOBBY POSTER]
HAVE YOU CAST YOUR VOTE YET?
We would like to remind customers to mail in their Proxy Card(s),
voting on Hudson City Savings Bank's Plan of Reorganization.
Please call our Information Center at (800) 541-3187 if
you have a question about voting.
The Reorganization does not involve an outside company and will not result in
changes to your account relationships with us. Your deposit accounts will
continue to be insured by the FDIC, up to the maximum legal limits.
Voting does not obligate you to purchase stock in our stock offering.
HUDSON CITY BANK [LOGO]
This notice is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus.
The shares of common stock are not savings accounts or savings deposits and are
not insured by the Federal Deposit Insurance Corporation or any other government
agency.
<PAGE> 14
[STOCK OFFERING -- BRANCH LOBBY POSTER - Optional]
HUDSON CITY BANCORP, INC. [LOGO]
Holding Company for Hudson City Savings Bank
UP TO ________ SHARES
COMMON STOCK
$10 Per Share
Purchase Price
We are conducting an offering of common stock!
THIS OFFERING EXPIRES AT 10:00 A.M., EASTERN TIME, ON _________, 1999
If you have questions or to obtain a Prospectus, please call our Stock
Information Center at (800) 541-3187, Monday through Friday,
from 9:00 a.m. to 4:00 p.m.
HUDSON CITY BANK [LOGO]
This notice is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus.
The shares of common stock are not savings accounts or savings deposits and are
not insured by the Federal Deposit Insurance Corporation or any other government
agency.
<PAGE> 15
[FLYER ENCLOSURE]
Stock Offering Subscription Rights Notice
Any transfer of, or attempt to transfer, a subscription right to any other
person is illegal and subject to civil fines and/or penalties or criminal fines
and/or penalties. Hudson City Bancorp, Inc. intends to prosecute any such action
that comes to its attention.
If you are a customer of Hudson City Savings Bank and anyone contacts you
requesting that you transfer your subscription rights in any way (including
offering you money to buy stock in exchange for transferring the stock to them
later or in exchange for sharing proceeds upon the sale of the stock) please
call us immediately at (800) 541-3187.
<PAGE> 16
[LOGO]
DEADLINE AND DELIVERY STOCK ORDER FORM (Instructions on Reverse Side)
Expiration Date: 10:00 a.m., Eastern time, on ______, 1999, unless extended.
This original Stock Order Form, properly executed and with full payment, must be
received (not postmarked) by this deadline or it will be void. Delivery will
only be accepted by the return envelope provided, or by overnight delivery to
the address on the reverse side of this form. Stock Order Forms may not be
hand-delivered to the Stock Information Center or to Hudson City branches.
COPIES AND FACSIMILES OF STOCK ORDER FORMS WILL NOT BE ACCEPTED.
FOR INTERNAL USE
Date Rec'd_______________________
Batch No. _______________________ Order No. ______________________
YOU MUST PRINT CLEARLY AND COMPLETE ALL SHADED AREAS.
(1) SHARES REQUESTED
Number of Shares Price per Amount Due
Share
________________ X $10.00 = $_______________
(25 share minimum. See reverse side for maximum purchase limitations.)
(2) METHOD OF PAYMENT (CASH AND WIRES WILL NOT BE ACCEPTED)
/ / CHECK OR MONEY ORDER PAYMENT
Enclosed is/are check(s), bank check(s) or money order(s) payable to HUDSON
CITY SAVINGS BANK totaling: $________________
/ / PAYMENT BY ACCOUNT WITHDRAWAL
The undersigned authorizes withdrawal from the Hudson City savings, club,
money market (without check-writing privileges) or CD account(s) listed
below. Retirement accounts and checking or other check-writing accounts may
not be designated for withdrawal. There will be no early withdrawal penalty
applicable for funds authorized below.
<TABLE>
<CAPTION>
For Internal Use Only Account Number Amount
<S> <C> <C>
_______________________ ______________ $__________________
_______________________ ______________ $__________________
_______________________ ______________ $__________________
_______________________ ______________ $__________________
_______________________ ______________ $__________________
TOTAL WITHDRAWAL(S) $__________________
</TABLE>
Funds enclosed or authorized for withdrawal must be available at the
time this order is submitted.
(3) PURCHASER INFORMATION (CHECK THE ONE BOX WHICH APPLIES)
/ / Eligible Account Holder -- You were a Hudson City depositor with an
aggregate of at least $100 on deposit on December 31, 1997. In the
spaces below, list all accounts you had at that eligibility date.
/ / Supplemental Eligible Account Holder -- You are not an Eligible
Account Holder, but you were a Hudson City depositor with an aggregate
of at least $100 on deposit on March 31, 1999. In the spaces below,
list all accounts you had at that eligibility date.
/ / Other Depositor -- You were not a Hudson City depositor at either of
the above dates, but were a depositor with an aggregate of at least
$100 on deposit on April 30, 1999. In the spaces below, list all
accounts you had at that eligibility date.
/ / I do not qualify as any of the above.
<TABLE>
<CAPTION>
Account Title/(Name(s) on Eligibility Date) Account Number
<S> <C>
______________________________________________ _________________________
______________________________________________ _________________________
______________________________________________ _________________________
______________________________________________ _________________________
</TABLE>
If additional space is needed, attach a separate page. Failure to complete this
section, or completing it incorrectly, may result in a loss of part or all of
your stock allocation.
(4) HUDSON CITY MANAGERS AND EMPLOYEES
/ / Check here if you are a Hudson City manager, director, officer or any
employee, or a member of the immediate family (definition is on reverse
side of form).
(5) ASSOCIATES/PERSONS ACTING IN CONCERT
/ / Check here if, to the best of your knowledge, any associate of yours,
or any person acting in concert with you, have submitted other orders
for shares in the stock offering.
(6) STOCK REGISTRATION (See instructions on reverse side. PRINT clearly. Provide
all information, which will be used for future mailings and stock certificate
delivery).
_______________________________________________________________________________
(First Name, Middle Initial, Last Name)
_______________________________________________________________________________
(First Name, Middle Initial, Last Name)
_______________________________________________________________________________
(Street Address)
_______________________________________________________________________________
(City, State, Zip Code)
_______________________________________________________________________________
(Social Security No./Tax ID No.) (certificate will show only this number)
_______________________________________________________________________________
(Social Security No./Tax ID No.)
_______________________________________________________________________________
(Daytime Phone Number)
_______________________________________________________________________________
(Evening Phone Number)
(7) FORM OF STOCK OWNERSHIP (CHECK ONE -- SEE OWNERSHIP DEFINITIONS ON REVERSE
SIDE).
<TABLE>
<CAPTION>
<S> <C> <C> <C>
/ / Individual / / Joint / / Tenants in Common / / Trust (Under Agreement Dated _______)
/ / Corporation / / Partnership / / Uniform Transfer to Minors / / Other
</TABLE>
FOR BROKER USE ONLY: / / IRA
Social Security # of Beneficial Owner:____ - ____ - __________
(8) NATIONAL ASSOCIATION OF SECURITIES DEALERS ("NASD") AFFILIATION (CHECK
ONLY IF APPLICABLE)
/ / Check here if you are a member of the NASD or a person affiliated with an
NASD member or a member of the immediate family of any such person to whose
support such person contributes directly or indirectly, or if you have an
account in which an NASD member, or person associated with an NASD member, has a
beneficial interest. I agree 1) not to sell, transfer or hypothecate the stock
for a period of three months following issuance, and 2) to report this stock
order in writing to the applicable NASD member within one day of payment for the
stock.
(9) ACKNOWLEDGEMENT AND SIGNATURE
I acknowledge receipt of the prospectus dated ___________, 1999 and that I have
read the terms and conditions described therein, including the section entitled
"Risk Factors". The undersigned agrees that after receipt by Hudson City, this
Stock Order Form may not be modified, withdrawn or canceled without Hudson
City's consent, and, if authorization to withdraw from Hudson City accounts has
been given as payment for shares, the amount authorized for withdrawal shall not
otherwise be available for withdrawal by the undersigned. Under penalty of
perjury, I certify that 1) the Social Security Number or Tax ID Number and the
information provided on this Stock Order Form are true, correct and complete, 2)
I am purchasing solely for my own account, and there is no agreement or
understanding regarding the sale or transfer of such shares, and 3) I am not
subject to backup withholding tax. (Cross out 3) if you have been notified by
the IRS that you are subject to backup withholding).
SUBSCRIPTION RIGHTS PERTAIN TO PURCHASERS IN THE SUBSCRIPTION OFFERING. THE PLAN
OF REORGANIZATION AND APPLICABLE LAW AND REGULATIONS PROHIBIT ANY PERSON FROM
TRANSFERRING, OR ENTERING INTO ANY AGREEMENT, DIRECTLY OR INDIRECTLY, TO
TRANSFER, THE LEGAL OR BENEFICIAL OWNERSHIP OF SUBSCRIPTION RIGHTS OR THE
UNDERLYING STOCK TO THE ACCOUNT OF ANOTHER. HUDSON CITY BANCORP, INC. WILL
PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE EVENT MANAGEMENT BECOMES
AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS, AND THEY WILL NOT HONOR ORDERS
KNOWN BY THEM TO INVOLVE SUCH TRANSFER.
ONE SIGNATURE REQUIRED, UNLESS SECTION 2 OF THIS FORM INCLUDES ACCOUNTS
REQUIRING MORE THAN ONE SIGNATURE TO AUTHORIZE WITHDRAWAL. IF SIGNING AS A
CUSTODIAN, CORPORATE OFFICER, ETC., PLEASE INCLUDE YOUR TITLE.
ORDER NOT VALID UNLESS SIGNED.
_____________________________________________________ _______________
Signature Date
_____________________________________________________ _______________
Signature Date
QUESTIONS? SEE INSTRUCTIONS ON REVERSE SIDE OF THIS FORM, OR
CALL THE STOCK INFORMATION CENTER AT (800) 541-3187, MONDAY THROUGH FRIDAY,
FROM 9:00 a.m. TO 4:00 p.m.
<PAGE> 17
STOCK ORDER FORM INSTRUCTIONS
(1) SHARES REQUESTED -- Indicate the number of shares that you wish to purchase,
and indicate the amount due. The minimum purchase is 25 shares. Maximum purchase
limitations apply to aggregate orders. In the Subscription Offering, the maximum
purchase by each Eligible Account Holder or Supplemental Eligible Account Holder
is $500,000 (50,000 shares). In the Community Offering, the maximum purchase by
any person, together with associates and persons acting in concert with such
person, is $500,000 (50,000 shares). However, no person, together with
associates and persons acting in concert with such person, may purchase, in all
categories of the stock offering, an aggregate of more than $2.5 million
(250,000 shares). See "The Reorganization and the Offering" section of the
Prospectus, page ____ for a definition of "associates." By signing this Stock
Order Form, you are deemed to confirm that your order does not conflict with
these purchase limitations.
(2) METHOD OF PAYMENT -- CHECKS OR MONEY ORDERS: Make checks, bank checks or
money orders payable to Hudson City Savings Bank. These funds will be cashed
immediately and must be drawn against available funds. You will earn interest at
Hudson City's passbook rate from the time funds are received until the offering
is consummated. ACCOUNT WITHDRAWALS: List the savings, club, money market
(without check-writing privileges) or certificate of deposit account(s), and
designate the withdrawal amount from each. A hold will immediately be placed on
the amounts designated by you, and those funds will be unavailable for
withdrawal for other purposes. You will continue to earn interest at the
account's contractual rate, and early withdrawal penalties will be waived. FUNDS
AUTHORIZED FOR WITHDRAWAL MUST BE AVAILABLE AT THE TIME THIS FORM IS SUBMITTED.
Note: Retirement accounts (such as IRAs and Qualified Plans) may not be
designated for direct withdrawal in this section; please contact the Stock
Information Center by _____, 1999, if you want to use Hudson City retirement
accounts (or any other retirement funds), to make your stock purchase. YOU MAY
NOT USE CASH OR WIRE TRANSFERS TO PAY FOR STOCK.
(3) PURCHASER INFORMATION -- Purchase priorities are based on eligibility dates.
There are three dates. Please check the one box that reflects the earliest date
at which you had a deposit account. List the name(s) on the account(s) and the
account number(s) at the applicable eligibility date. For example, if ordering
in just your name, list all the accounts you had at the applicable date. This
may include accounts on which you were a joint owner, your individual deposit
accounts and your IRA account. If ordering jointly, list the accounts in which
either person had beneficial ownership at the applicable date. If purchasing
shares for a minor, list only the minor's account(s). Similarly, if purchasing
shares for a corporate entity, list only that entity's corporate accounts. If
additional space is needed, attach a separate page. FAILURE TO COMPLETE THIS
SECTION, COMPLETING IT INCORRECTLY OR OMITTING INFORMATION MAY RESULT IN THE
LOSS OF ALL OR PART OF YOUR STOCK ALLOCATION. Please see the section of the
Prospectus entitled "The Reorganization and the Offering", pages ___-___, for
explanation of purchase priorities in the Subscription Offering and the
Community Offering, and a detailed explanation of how shares will be allocated
in the event of an oversubscription.
(4) HUDSON CITY MANAGERS AND EMPLOYEES -- Check the box, if applicable.
Immediate family members are mother, father, sister, brother, son, daughter.
(5) ASSOCIATES/PERSONS ACTING IN CONCERT -- Check the box if, to the best of
your knowledge, any "associate" of yours or any person acting in concert with
you has submitted another Stock Order Form. See "The Reorganization and the
Offering" section of the Prospectus, page ___ for a definition of associates.
(6) STOCK REGISTRATION -- CLEARLY PRINT the name(s) and address in which you
want the stock certificate registered and mailed. If you are ordering stock in
the Subscription Offering (i.e. as a Hudson City (i) Eligible Account Holder as
of 12/31/97 or (ii) Supplemental Eligible Account Holder as of 3/31/99), you
must register the stock only in the name(s) of person(s)/entity(ies) with
qualifying accounts at the same date. Adding the name(s) of persons who were not
account holders, or were account holders only at a later eligibility date than
checked in Section 3 of this form, will be a violation of your subscription
right and may result in a loss of your purchase priority in the Subscription
Offering. Enter the Social Security Number or Tax ID Number of the registered
owner(s). The first number listed will be identified with the stock certificate
for tax purposes. Listing a phone number is important. NOTE: ONE STOCK
CERTIFICATE WILL BE GENERATED PER STOCK ORDER FORM. IF VARIOUS REGISTRATIONS AND
SHARE AMOUNTS ARE DESIRED, A SEPARATE STOCK ORDER FORM MUST BE COMPLETED FOR
EACH CERTIFICATE DESIRED. CONTACT THE STOCK INFORMATION CENTER IF YOU NEED
ADDITIONAL FORMS. Note: Purchase limitations apply to aggregate orders.
(7) FORM OF STOCK OWNERSHIP -- For reasons of clarity and standardization, the
stock transfer industry has developed uniform stockholder registrations which we
will utilize in the issuance of Hudson City Bancorp, Inc. stock certificates. If
you have any questions, please consult your legal advisor. When registering
stock, avoid the use of two initials. Use first name, middle initial and last
name. Check the one box which applies.
BUYING STOCK INDIVIDUALLY: Indicate the name, mailing address and Social
Security Number of the individual owner. Include the first name, middle initial
and last name of the individual. Avoid using two initials. Omit words that do
not affect ownership, such as "Mrs", "Dr.", "special account", etc. You may not
indicate a beneficiary. Upon the individual's death, the stock will be owned by
the individual's estate and distributed as indicated by the will or otherwise in
accordance with law. If ordering in the Subscription Offering, the individual
listed must have had qualifying deposits at Hudson City on either 12/31/97 or
3/31/99.
BUYING STOCK JOINTLY: Note that if registering stock in more than one person's
name for an order placed in the Subscription Offering, only persons with
qualifying accounts at the same date (either 12/31/97 or 3/31/99) may be listed.
Two alternatives exist when registering stock in more than one name:
JOINT TENANTS -- Joint Tenancy (with Right of Survivorship) may be
specified to identify two or more owners where ownership is intended to
pass automatically to the surviving tenant(s). All parties must agree
to the transfer or sale of shares held in this form.
TENANTS IN COMMON -- Tenants in Common may also be specified to
identify two or more owners. When stock is held as Tenants in Common,
upon the death of one co-tenant, ownership of the stock will be held by
the surviving co-tenant(s) and by the heirs of the deceased co-tenant.
All parties must agree to the transfer or sale of shares held in this
form.
BUYING STOCK FOR A MINOR: A minor may acquire stock under the Uniform
Transfer to Minors Act if the minor is the actual owner of the stock,
with an adult custodian listed on the registration who is responsible
for the investment until the minor reaches legal age (18 or 21 years of
age, depending on the state). Only one minor and one custodian may be
listed. Please note that if ordering in the Subscription Offering, the
minor must have had qualifying deposits at Hudson City on either
12/31/97 or 3/31/99.
How to complete Section 6 (Stock Registration) when buying stock for a minor: On
the first line, print the first name, middle initial and last name of the
custodian; after the name write the initials "CUST". On the second line, print
the first name, middle initial and last name of the minor. To the right of the
minor's name, indicate his or her Social Security Number only; do not list the
custodian's Social Security Number. Standard postal service state abbreviations
should be used. For example, stock held by John P. Doe as custodian for Susan A.
Doe under the New Jersey Uniform Transfer to Minors Act will be abbreviated John
P. Doe, CUST Susan A. Doe UTMA-NJ.
BUYING STOCK FOR A CORPORATION/PARTNERSHIP: On the first line, write the name of
the corporation or partnership and list that entity's Tax ID Number. If ordering
in the Subscription Offering, the corporation or partnership must have had
qualifying deposits at Hudson City at either 12/31/97 or 3/31/99.
BUYING STOCK THROUGH AN IRA: Stock may be purchased using self-directed
Individual Retirement Accounts which have the ability to hold the securities,
such as at a brokerage firm. The purchase of shares using such funds can only be
made through a self-directed retirement account, not through a Hudson City IRA.
Please contact the Stock Information Center by _______, 1999, for assistance
with IRA-related questions. If ordering in the Subscription Offering, the
beneficial owner of the IRA must have had qualifying deposits at Hudson City on
either 12/31/97 or 3/31/99.
FOR BROKER/TRUSTEE USE ONLY -- How to complete Section 6 (Stock Registration)
when buying stock using a self-directed retirement account: Registration should
be completed to reflect your firm's registration requirements for any subsequent
mailings, including stock certificates. For example, on the first line you would
indicate the name of the firm followed by "TRUSTEE" or "CUSTODIAN". On the
second line, indicate the name of the beneficial owner, for example: "FBO JOHN
SMITH IRA". You may also indicate the owner's account number or other
identifying information. Indicate the address and name of the department at your
firm to which mailings should be directed. Also indicate the Tax ID Number under
which your firm's IRAs are reported.
BUYING STOCK IN A TRUST/FIDUCIARY CAPACITY: Information provided with respect to
stock to be held in a fiduciary capacity must include:
- - The name(s) of the fiduciary. If an individual, list the first name,
middle initial and last name. If a corporation, list the full corporate
title (name). If an individual and a corporation, list the
corporation's title before the individual.
- - The fiduciary capacity, such as administrator, executor, personal
representative, conservator, etc.
- - A description of the document governing the fiduciary relationship,
such as a trust agreement or court order. Documentation may be required
to register your stock in a fiduciary capacity.
- - The date of the document governing the relationship, except that the
date of a trust created by a will need not be included.
- - The name of the maker, donor or testator and the name of the
beneficiary.
An example of fiduciary ownership of stock in the case of a trust is:John P.
Doe, Trustee Under Agreement Dated 10-1-87 for Susan A. Doe.
(8) NASD AFFILIATION -- If applicable, check the box.
(9) ACKNOWLEDGMENT AND SIGNATURE -- Please review this form before signing.
Stock Order Forms submitted without a signature will not be accepted. Only one
signature is required, unless Section 2 (Method of Payment) includes
authorization to withdraw from a Hudson City deposit account requiring more than
one signature. If signing as a custodian, trustee, corporate officer, etc.,
please include your title. If exercising a Power of Attorney ("POA"), you must
submit a copy of the POA agreement with this Stock Order Form.
ADDRESS DELIVERIES TO:
Hudson City Savings Bank, West 80 Century Rd., Paramus, NJ 07652
Attn: Stock Orders
QUESTIONS? Call the Stock Information Center at (800) 541-3187, Monday
through Friday, from 9:00 a.m. to 4:00 p.m.
