-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NnYBQvOZj4mEEPIk8OQ8i2ZuS7K3CWm/Rjkbd/VrFFJfLhln17s/ScnXZLAAQUX/ aiqwvyCPuNjQRVpnDML/jQ== 0000950172-99-001835.txt : 19991231 0000950172-99-001835.hdr.sgml : 19991231 ACCESSION NUMBER: 0000950172-99-001835 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991229 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19991230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH FORK BANCORPORATION INC CENTRAL INDEX KEY: 0000352510 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 363154608 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-10458 FILM NUMBER: 99783455 BUSINESS ADDRESS: STREET 1: 275 BROAD HOLLOW RD STREET 2: PO BOX 8914 CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5168441004 MAIL ADDRESS: STREET 1: 275 BROAD HOLLOW RD STREET 2: PO BOX 8914 CITY: MELVILLE STATE: NY ZIP: 11747 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------- DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) DECEMBER 29, 1999 ---------------------------- NORTH FORK BANCORPORATION, INC. ------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) DELAWARE 1-10458 36-3154608 - -------------------------- ------------------------- -------------------- (STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER OF INCORPORATION) IDENTIFICATION NO.) 275 BROAD HOLLOW ROAD MELVILLE, NEW YORK 11747 ------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) (516) 844-1004 -------------------------- Item 5. Other Events On August 16, 1999, North Fork Bancorporation, Inc. ("North Fork") and JSB Financial, Inc. ("JSB") entered into an Agreement and Plan of Merger (as amended and restated, the "JSB Merger Agreement") providing for the merger of JSB with and into North Fork (the "JSB Merger"). At September 30, 1999, JSB had $1.6 billion in total assets, $1.1 billion in deposits, $374 million in stockholders' equity and served customers from 13 retail banking facilities in Suffolk and Nassau counties on Long Island, New York, as well as in the New York City boroughs of Manhattan and Queens. Consummation of the JSB Merger is subject to certain conditions, including, but not limited to, approval of the JSB Merger Agreement by the holders of a majority of the outstanding shares of JSB common stock and the holders of a majority of the outstanding shares of North Fork common stock and the receipt of all required regulatory approvals. North Fork intends to account for the JSB Merger using the "pooling-of-interests" method of accounting. North Fork expects to complete the JSB Merger in the first quarter of 2000. The JSB Merger Agreement is included herein as Exhibit 2.2. On August 30, 1999, North Fork and Reliance Bancorp, Inc. ("Reliance") entered into an Agreement and Plan of Merger (as amended and restated, the "Reliance Merger Agreement") providing for the merger of Reliance with and into North Fork (the "Reliance Merger"). At September 30, 1999, Reliance had $2.5 billion in total assets, $1.6 billion in deposits, $171.7 million in stockholders' equity and served customers from 29 retail banking facilities throughout Suffolk and Nassau counties on Long Island, New York, as well as in the New York City boroughs of Manhattan and Queens. Consummation of the Reliance Merger is subject to certain conditions, including, but not limited to, approval of the Reliance Merger Agreement by the holders of a majority of the outstanding shares of Reliance common stock and the receipt of all required regulatory approvals. North Fork intends to account for the Reliance Merger using the purchase method of accounting. North Fork expects to complete the Reliance Merger in the first quarter of 2000. The Reliance Merger Agreement is included herein as Exhibit 2.1. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (c) Exhibits 2.1 Amended and Restated Agreement and Plan of Merger, dated as of August 30, 1999, by and between North Fork Bancorporation, Inc., and Reliance Bancorp, Inc. 2.2 Amended and Restated Agreement and Plan of Merger, dated as of August 16, 1999, by and between North Fork Bancorporation, Inc., and JSB Financial, Inc. 23.1 Consent of Independent Accountants of Reliance Bancorp, Inc. 23.2 Consent of Independent Accountants of Reliance Bancorp, Inc. 23.3 Consent of Independent Accountants of JSB Financial, Inc. 99.1 Unaudited Financial Statements of Reliance Bancorp, Inc. as of September 30, 1999. 99.2 Report of Independent Auditors of Reliance Bancorp, Inc. as of June 30, 1999, Report of Independent Auditors of Reliance Bancorp, Inc. as of June 30, 1998, and Financial Statements of Reliance Bancorp, Inc. as of June 30, 1999. 99.3 Unaudited Financial Statements of JSB Financial, Inc. as of September 30, 1999. 99.4 Report of Independent Auditors of JSB Financial, Inc. as of December 31, 1998 and Financial Statements of JSB Financial, Inc. as of December 31, 1998. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. NORTH FORK BANCORPORATION, INC. By: /s/ Daniel M. Healy --------------------------------- Name: Daniel M. Healy Title: Executive Vice President and Chief Financial Officer Date: December 29, 1999 EXHIBIT INDEX Exhibit Number Description - -------- ------------ 2.1 Amended and Restated Agreement and Plan of Merger, dated as of August 30, 1999, by and between North Fork Bancorporation, Inc., and Reliance Bancorp, Inc. 2.2 Amended and Restated Agreement and Plan of Merger, dated as of August 16, 1999, by and between North Fork Bancorporation, Inc., and JSB Financial, Inc. 23.1 Consent of Independent Accountants of Reliance Bancorp, Inc. 23.2 Consent of Independent Accountants of Reliance Bancorp, Inc. 23.3 Consent of Independent Accountants of JSB Financial, Inc. 99.1 Unaudited Financial Statements of Reliance Bancorp, Inc. as of September 30, 1999. 99.2 Report of Independent Auditors of Reliance Bancorp, Inc. as of June 30, 1999, Report of Independent Auditors of Reliance Bancorp, Inc. as of June 30, 1998, and Financial Statements of Reliance Bancorp, Inc. as of June 30, 1999. 99.3 Unaudited Financial Statements of JSB Financial, Inc. as of September 30, 1999. 99.4 Report of Independent Auditors of JSB Financial, Inc. as of December 31, 1998 and Financial Statements of JSB Financial, Inc. as of December 31, 1998. EX-2 2 EXHIBIT 2.1 EXHIBIT 2.1 ============================================================================== AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER Between NORTH FORK BANCORPORATION, INC. and RELIANCE BANCORP, INC. Dated as of August 30, 1999 ============================================================================== TABLE of CONTENTS Page ---- ARTICLE I THE MERGER.............................................................1 1.1. The Merger.......................................................1 1.2. Effective Time...................................................2 1.3. Effects of the Merger............................................2 1.4. Conversion of Company Common Stock...............................2 1.5. Stock Options....................................................3 1.6. Buyer Common Stock...............................................5 1.7. Certificate of Incorporation.....................................5 1.8. By-Laws..........................................................5 1.9. Directors and Officers...........................................5 1.10. Tax Consequences.................................................5 ARTICLE II EXCHANGE OF SHARES.....................................................5 2.1. Buyer to Make Shares Available...................................5 2.2. Exchange of Shares...............................................6 ARTICLE III DISCLOSURE SCHEDULES; STANDARDS FOR REPRESENTATIONS AND WARRANTIES.....................................9 3.1. Disclosure Schedules.............................................9 3.2. Standards........................................................9 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................10 4.1. Corporate Organization..........................................11 4.2. Capitalization..................................................12 4.3. Authority; No Violation.........................................13 4.4. Consents and Approvals..........................................15 4.5. Reports.........................................................16 4.6. Financial Statements............................................16 4.7. Broker's Fees...................................................17 4.8. Absence of Certain Changes or Events............................18 4.9. Legal Proceedings...............................................18 4.10. Taxes...........................................................19 4.11. Employees.......................................................21 4.12. SEC Reports.....................................................23 4.13. Company Information.............................................23 4.14. Compliance with Applicable Law..................................23 4.15. Certain Contracts...............................................24 4.16. Agreements with Regulatory Agencies.............................25 4.17. Investment Securities...........................................25 4.18. State Takeover Laws; Business Combination Provision.....................................................25 4.19. Environmental Matters...........................................26 4.20. Derivative Transactions.........................................27 4.21. Opinion.........................................................27 4.22. Approvals.......................................................28 4.23. Loan Portfolio..................................................28 4.24. Property........................................................29 4.25. Reorganization..................................................29 4.26. Company Rights Agreement........................................29 4.27. Equity and Real Estate Investments..............................30 4.28. Year 2000 Matters...............................................30 ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER..............................................................30 5.1. Corporate Organization..........................................30 5.2. Capitalization..................................................31 5.3. Authority; No Violation.........................................33 5.4. Consents and Approvals..........................................34 5.5. Reports.........................................................35 5.6. Financial Statements............................................35 5.7. Broker's Fees...................................................36 5.8. Absence of Certain Changes or Events............................36 5.9. Legal Proceedings...............................................37 5.10. Taxes...........................................................37 5.11. Employees.......................................................38 5.12. SEC Reports.....................................................40 5.13. Buyer Information...............................................40 5.14. Compliance with Applicable Law..................................41 5.15. Ownership of Company Common Stock...............................41 5.16. Agreements with Regulatory Agencies.............................41 5.17. Approvals.......................................................42 5.18. Tax Treatment for the Merger; Reorganization................................................42 5.19. Environmental Matters...........................................42 5.20. Loan Portfolio..................................................43 5.21. Property........................................................44 5.22. Derivative Transactions.........................................44 5.23. Year 2000 Matters...............................................45 5.24. Insurance.......................................................45 ARTICLE VI COVENANTS RELATING TO CONDUCT OF BUSINESS.............................45 6.1. Covenants of the Company........................................45 6.2. Covenants of Buyer..............................................50 ARTICLE VII ADDITIONAL AGREEMENTS.................................................51 7.1. Regulatory Matters..............................................51 7.2. Access to Information...........................................53 7.3. Stockholder Meetings............................................55 7.4. Legal Conditions to Merger......................................55 7.5. Affiliates......................................................56 7.6. Stock Exchange Listing..........................................56 7.7. Employee Benefit Plans; Existing Agreements.....................................................56 7.8. Indemnification.................................................58 7.9. Additional Agreements...........................................60 7.10. Advice of Changes...............................................61 7.11. Current Information.............................................61 7.12. Execution and Authorization of Bank Merger Agreement...............................................62 7.13. Coordination of Dividends.......................................62 7.14. Directorship....................................................62 7.15. Accountants' Letter.............................................63 7.16. Certain Revaluations, Changes and Adjustments....................................................63 7.17. Year 2000.......................................................63 7.18. JSB Financial Merger............................................63 7.19. Advisory Board..................................................64 ARTICLE VIII CONDITIONS PRECEDENT..................................................64 8.1. Conditions to Each Party's Obligation To Effect the Merger...........................................64 8.2. Conditions to Obligations of Buyer..............................65 8.3. Conditions to Obligations of the Company........................66 ARTICLE IX TERMINATION AND AMENDMENT.............................................68 9.1. Termination.....................................................68 9.2. Effect of Termination; Expenses.................................73 9.3. Amendment.......................................................73 9.4. Extension; Waiver...............................................74 ARTICLE X GENERAL PROVISIONS....................................................74 10.1. Closing........................................................74 10.2. Alternative Structure..........................................75 10.3. Nonsurvival of Representations, Warranties and Agreements.....................................75 10.4. Expenses.......................................................75 10.5. Notices........................................................76 10.6. Interpretation.................................................77 10.7. Counterparts...................................................77 10.8. Entire Agreement...............................................77 10.9. Governing Law..................................................77 10.10. Enforcement of Agreement.......................................77 10.11. Severability...................................................78 10.12. Publicity......................................................78 10.13. Assignment; No Third Party Beneficiaries................................................78 AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of August 30, 1999 (this "Agreement"), by and between North Fork Bancorporation, Inc., a Delaware corporation ("Buyer"), and Reliance Bancorp, Inc., a Delaware corporation (the "Company"). Buyer and the Company are sometimes collectively referred to herein as the "Constituent Corporations". WHEREAS, the Boards of Directors of Buyer and the Company have determined that it is in the best interests of their respective companies and their stockholders to consummate the business combination transaction provided for herein in which the Company will, subject to the terms and conditions set forth herein, merge (the "Merger") with and into Buyer; and WHEREAS, the parties desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe certain conditions to the Merger. NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained herein, and intending to be legally bound hereby, the parties agree as follows: ARTICLE ARTICLE I THE MERGER Section 1.1 The Merger. Subject to the terms and conditions of this Agreement, in accordance with the Delaware General Corporation Law (the "DGCL"), at the Effective Time (as defined in Section 1.2 hereof), the Company shall merge with and into Buyer. Buyer shall be the surviving corporation (hereinafter sometimes called the "Surviving Corporation") in the Merger, and shall continue its corporate existence under the laws of the State of Delaware. The name of the Surviving Corporation shall continue to be North Fork Bancorporation, Inc. Upon consummation of the Merger, the separate corporate existence of the Company shall terminate. Section 1.2 Effective Time. The Merger shall become effective as set forth in the certificate of merger (the "Certificate of Merger") which shall be filed with the Secretary of State of the State of Delaware (the "Secretary") on the Closing Date (as defined in Section 10.1 hereof). The term "Effective Time" shall be the date and time when the Merger becomes effective, as set forth in the Certificate of Merger. Section 1.3 Effects of the Merger. At and after the Effective Time, the Merger shall have the effects set forth in Sections 259 and 261 of the DGCL. Section 1.4 Conversion of Company Common Stock. (a) At the Effective Time, subject to Section 2.2(e) and Section 9.1(h) hereof, each share of the common stock, par value $0.01 per share, of the Company (the "Company Common Stock") issued and outstanding immediately prior to the Effective Time (other than (x) shares of Company Common Stock held in the Company's treasury, (y) shares of Company Common Stock held directly or indirectly by Buyer or the Company or any of their respective Subsidiaries (as defined below) (except for Trust Account Shares and DPC shares, as such terms are defined in Section 1.4(b) hereof), or (z) unallocated shares of Company Common Stock held in the Company's Recognition and Retention Plans) together with the related Company Rights issued pursuant to the Company Rights Agreement (each as defined in Section 4.2(a) hereof) shall, by virtue of this Agreement and without any action on the part of the holder thereof, be converted into and exchangeable for 2.0 (two) shares (the "Exchange Ratio") of the common stock, par value $2.50 per share, of Buyer ("Buyer Common Stock"). All of the shares of Company Common Stock converted into Buyer Common Stock pursuant to this Article I shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and each certificate (each a "Certificate") previously representing any such shares of Company Common Stock shall thereafter only represent the right to receive (i) the number of whole shares of Buyer Common Stock and (ii) the cash in lieu of fractional shares into which the shares of Company Common Stock represented by such Certificate have been converted pursuant to this Section 1.4(a) and Section 2.2(e) hereof. Certificates previously representing shares of Company Common Stock shall be exchanged for certificates representing whole shares of Buyer Common Stock and cash in lieu of fractional shares issued in consideration therefor upon the surrender of such Certificates in accordance with Section 2.2 hereof, without any interest thereon. If, between the date of this Agreement and the Effective Time, the shares of Buyer Common Stock shall be changed into a different number or class of shares by reason of any reclassification, recapitalization, spilt-up, combination, exchange of shares or readjustment, or a stock dividend thereon shall be declared with a record date within said period, the Exchange Ratio shall be adjusted accordingly. (b) At the Effective Time, all shares of Company Common Stock that are owned by the Company as treasury stock, all shares of Company Common Stock that are owned directly or indirectly by Buyer or the Company or any of their respective Subsidiaries (other than shares of Company Common Stock (x) held directly or indirectly in trust accounts, managed accounts and the like or otherwise held in a fiduciary capacity for the benefit of third parties (any such shares, and shares of Buyer Common Stock which are similarly held, whether held directly or indirectly by Buyer or the Company, as the case may be, being referred to herein as "Trust Account Shares") and (y) held by Buyer or the Company or any of their respective Subsidiaries in respect of a debt previously contracted (any such shares of Company Common Stock, and shares of Buyer Common Stock which are similarly held, whether held directly or indirectly by Buyer or the Company, being referred to herein as "DPC Shares") and all unallocated shares of Company Common Stock that are held in the Company's Recognition and Retention Plans) shall be cancelled and shall cease to exist and no stock of Buyer or other consideration shall be delivered in exchange therefor. All shares of Buyer Common Stock that are owned by the Company or any of its Subsidiaries (other than Trust Account Shares and DPC Shares) shall become treasury stock of Buyer. Section 1.5 Stock Options. At the Effective Time, each option granted by the Company to purchase shares of Company Common Stock (a "Company Option") which is outstanding and unexercised immediately prior thereto shall cease to represent a right to acquire shares of Company Common Stock and shall be converted automatically into an option to purchase shares of Buyer Common Stock in an amount and at an exercise price determined as provided below (and otherwise subject to the terms of the Company's Amended and Restated 1996 Incentive Stock Option Plan, 1994 Incentive Stock Option Plan or Amended and Restated 1994 Stock Option Plan for Outside Directors (collectively, the "Company Option Plans"), the agreements evidencing grants thereunder, and any other agreements between the Company and an optionee regarding Company Options): (1) the number of shares of Buyer Common Stock to be subject to the new option shall be equal to the product of the number of shares of Company Common Stock subject to the original option and the Exchange Ratio, provided that any fractional share of Buyer Common Stock resulting from such multiplication shall be rounded down to the nearest whole share; and (2) the exercise price per share of Buyer Common Stock under the new option shall be equal to the exercise price per share of Company Common Stock under the original option divided by the Exchange Ratio, provided that such exercise price shall be rounded up to the nearest cent. The adjustment provided herein with respect to any options which are intended to be "incentive stock options" (as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")) shall be and is intended to be effected in a manner which is consistent with Section 424(a) of the Code, and to the extent it is not so consistent, such Section 424(a) shall override such adjustment. The duration and other terms of the new option shall be the same as the original option, except that all references to the Company shall be deemed to be references to Buyer, it being understood that any option that is intended to be an incentive stock option and which is exercised by the option holder more than 3 (three) months from the date of the option holder's termination of employment from the Company or its Subsidiaries or from Buyer or its Subsidiaries shall be treated as a non-statutory option. Section 1.6 Buyer Common Stock. Except for shares of Buyer Common Stock owned by the Company or any of its Subsidiaries (other than Trust Account Shares and DPC Shares), which shall be converted into treasury stock of Buyer as contemplated by Section 1.4 hereof, the shares of Buyer Common Stock issued and outstanding immediately prior to the Effective Time shall be unaffected by the Merger and such shares shall remain issued and outstanding. Section 1.7 Certificate of Incorporation. At the Effective Time, the Restated Certificate of Incorporation of Buyer, as in effect at the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation. Section 1.8 By-Laws. At the Effective Time, the ByLaws of Buyer, as in effect immediately prior to the Effective Time, shall be the By-Laws of the Surviving Corporation until thereafter amended in accordance with applicable law. Section 1.9 Directors and Officers. Except as provided in Section 7.14 hereof, the directors and officers of Buyer immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and By-Laws of the Surviving Corporation until their respective successors are duly elected or appointed and qualified. Section 1.10 Tax Consequences. It is intended that the Merger shall constitute a reorganization within the meaning of Section 368(a) of the Code, and that this Agreement shall constitute a "plan of reorganization" for the purposes of Section 368 of the Code. ARTICLE ARTICLE II EXCHANGE OF SHARES Section 2.1 Buyer to Make Shares Available. At or prior to the Effective Time, Buyer shall deposit, or shall cause to be deposited, with a bank or trust company (which may be a Subsidiary of Buyer) (the "Exchange Agent") selected by Buyer and reasonably satisfactory to the Company, for the benefit of the holders of Certificates, for exchange in accordance with this Article II, certificates representing the shares of Buyer Common Stock and the cash in lieu of fractional shares (such cash and certificates for shares of Buyer Common Stock, together with any dividends or distributions with respect thereto, being hereinafter referred to as the "Exchange Fund") to be issued pursuant to Section 1.4 and paid pursuant to Section 2.2(a) in exchange for outstanding shares of Company Common Stock. Section 2.2 Exchange of Shares. (a) As soon as practicable after the Effective Time, and in no event more than three business days thereafter, the Exchange Agent shall mail to each holder of record of a Certificate or Certificates a form letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent) and instructions for use in effecting the surrender of the Certificates in exchange for certificates representing the shares of Buyer Common Stock and the cash in lieu of fractional shares into which the shares of Company Common Stock represented by such Certificate or Certificates shall have been converted pursuant to this Agreement. Upon surrender of a Certificate for exchange and cancellation to the Exchange Agent, together with such letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor (x) a certificate representing that number of whole shares of Buyer Common Stock to which such holder of Company Common Stock shall have become entitled pursuant to the provisions of Article I hereof and (y) a check representing the amount of cash in lieu of fractional shares, if any, which such holder has the right to receive in respect of the Certificate surrendered pursuant to the provisions of this Article II, and the Certificate so surrendered shall forthwith be cancelled. No interest will be paid or accrued on the cash in lieu of fractional shares and unpaid dividends and distributions, if any, payable to holders of Certificates. (b) No dividends or other distributions declared after the Effective Time with respect to Buyer Common Stock and payable to the holders of record thereof shall be paid to the holder of any unsurrendered Certificate until the holder thereof shall surrender such Certificate in accordance with this Article II. After the surrender of a Certificate in accordance with this Article II, the record holder thereof shall be entitled to receive any such dividends or other distributions, without any interest thereon, which theretofore had become payable with respect to shares of Buyer Common Stock represented by such Certificate. No holder of an unsurrendered Certificate shall be entitled, until the surrender of such Certificate, to vote the shares of Buyer Common Stock into which his Company Common Stock shall have been converted. (c) If any certificate representing shares of Buyer Common Stock is to be issued in a name other than that in which the Certificate surrendered in exchange therefor is registered, it shall be a condition of the issuance thereof that the Certificate so surrendered shall be properly endorsed (or accompanied by an appropriate instrument of transfer) and otherwise in proper form for transfer, and that the person requesting such exchange shall pay to the Exchange Agent in advance any transfer or other taxes required by reason of the issuance of a certificate representing shares of Buyer Common Stock in any name other than that of the registered holder of the Certificate surrendered, or required for any other reason, or shall establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable. (d) After the Effective Time, there shall be no transfers on the stock transfer books of the Company of the shares of Company Common Stock which were issued and outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates representing such shares are presented for transfer to the Exchange Agent, they shall be cancelled and exchanged for certificates representing shares of Buyer Common Stock as provided in this Article II. (e) Notwithstanding anything to the contrary contained herein, no certificates or scrip representing fractional shares of Buyer Common Stock shall be issued upon the surrender for exchange of Certificates, no dividend or distribution with respect to Buyer Common Stock shall be payable on or with respect to any fractional share, and such fractional share interests shall not entitle the owner thereof to vote or to any other rights of a shareholder of Buyer. In lieu of the issuance of any such fractional share, Buyer shall pay to each former stockholder of the Company who otherwise would be entitled to receive a fractional share of Buyer Common Stock an amount in cash determined by multiplying (i) the average of the closing sale prices of Buyer Common Stock on the New York Stock Exchange (the "NYSE") as reported by The Wall Street Journal for the five trading days immediately preceding the date on which the Effective Time shall occur by (ii) the fraction of a share of Buyer Common Stock to which such holder would otherwise be entitled to receive pursuant to Section 1.4 hereof. (f) Any portion of the Exchange Fund that remains unclaimed by the stockholders of the Company for six months after the Effective Time shall be paid to Buyer. Any stockholders of the Company who have not theretofore complied with this Article II shall thereafter look only to Buyer for payment of their shares of Buyer Common Stock, cash in lieu of fractional shares and unpaid dividends and distributions on the Buyer Common Stock deliverable in respect of each share of Company Common Stock such stockholder holds as determined pursuant to this Agreement, in each case, without any interest thereon. Notwithstanding the foregoing, none of Buyer, the Company, the Exchange Agent or any other person shall be liable to any former holder of shares of Company Common Stock for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. (g) In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by Buyer, the posting by such person of a bond in such amount as Buyer may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the shares of Buyer Common Stock and cash in lieu of fractional shares deliverable in respect thereof pursuant to this Agreement. ARTICLE ARTICLE III DISCLOSURE SCHEDULES; STANDARDS FOR REPRESENTATIONS AND WARRANTIES Section 3.1 Disclosure Schedules. Prior to the execution and delivery of this Agreement, the Company has delivered to Buyer, and Buyer has delivered to the Company, a schedule (in the case of the Company, the "Company Disclosure Schedule," and in the case of Buyer, the "Buyer Disclosure Schedule") setting forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more of such party's representations or warranties contained in Article IV, in the case of the Company, or Article V, in the case of Buyer, or to one or more of such party's covenants contained in Article VI; provided, however, that notwithstanding anything in this Agreement to the contrary (a) no such item is required to be set forth in the Disclosure Schedule as an exception to a representation or warranty (other than a representation or warranty contained in Sections 4.2, 4.3(a), 4.3(b)(i), 4.6, 4.7, 4.8(a)(ii), 4.8(b), 4.11(a), 4.12, 4.15(a), 4.18, 4.21, 4.26 and 4.27, with respect to the Company Disclosure Schedule, or Sections 5.2, 5.3(a), 5.3(b), 5.3(c)(i), 5.6, 5.7, 5.8(ii), 5.11(a) 5.12 and 5.15, with respect to the Buyer Disclosure Schedule) if its absence would not result in the related representation or warranty being deemed untrue or incorrect under the standard established by Section 3.2, and (b) the mere inclusion of an item in a Disclosure Schedule as an exception to a representation or warranty shall not be deemed an admission by a party that such item represents a material exception or material fact, event or circumstance or that such item has had or is reasonably likely to have a Material Adverse Effect (as defined herein) with respect to either the Company or Buyer, respectively. Section 3.2 Standards. (a) No representation or warranty of the Company contained in Article IV (other than the representations and warranties contained in Sections 4.2, 4.3(a), 4.3(b)(i), 4.6, 4.7, 4.8(a)(ii), 4.8(b), 4.11(a), 4.12, 4.15(a), 4.18, 4.21, 4.26 and 4.27) or of Buyer contained in Article V (other than the representations and warranties contained in Sections 5.2, 5.3(a), 5.3(b), 5.3(c)(i), 5.6, 5.7, 5.8(ii), 5.11(a), 5.12 and 5.15) shall be deemed untrue or incorrect for any purpose under this Agreement, and no party hereto shall be deemed to have breached any such representation or warranty for any purpose under this Agreement, in any case as a consequence of the existence or absence of any fact, circumstance or event unless such fact, circumstance or event, individually or when taken together with all other facts, circumstances or events inconsistent with any representations or warranties contained in Article IV, in the case of the Company, or Article V, in the case of Buyer, has had or is reasonably likely to have a Material Adverse Effect with respect to the Company or Buyer, respectively. (b) As used in this Agreement, the term "Material Adverse Effect" means, with respect to Buyer or the Company, as the case may be, a material adverse effect on (i) the business, assets, liabilities, results of operations or financial condition of such party and its Subsidiaries taken as a whole, other than any such effect attributable to or resulting from (x) any change in banking or similar laws, rules or regulations of general applicability or interpretations thereof by courts or governmental authorities, (y) any change in GAAP (as defined herein) or regulatory accounting principles, in each case which affects banks, thrifts or their holding companies generally, except to the extent any such condition or change affects the referenced party to a materially greater extent than banks, thrifts or their holding companies generally, or (z) any change in interest rates, provided, that any such change in interest rates shall not affect the referenced party to a materially greater extent than banks, thrifts or their holding companies generally, and provided further, that any such change shall not have a materially adverse effect on the credit quality of such party's assets, or (ii) the ability of such party and its Subsidiaries to consummate the transactions contemplated hereby. ARTICLE ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY Subject to Article III hereof and except as set forth in the Company Disclosure Schedule, the Company hereby represents and warrants to Buyer as follows: Section 4.1 Corporate Organization. (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has the corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted, and is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary. The Company is duly registered as a non-diversified unitary savings and loan holding company under the Home Owners' Loan Act of 1933, as amended. The Restated Certificate of Incorporation and By-laws of the Company, copies of which have previously been made available to Buyer, are true and correct copies of such documents as in effect as of the date of this Agreement. As used in this Agreement, the word "Subsidiary" when used with respect to any party means any corporation, partnership or other organization, whether incorporated or unincorporated, which is consolidated with such party for financial reporting purposes. (b) Reliance Federal Savings Bank (the "Company Bank") is a stock savings bank duly organized, validly existing and in good standing under the laws of the United States of America. The deposit accounts of the Company Bank are insured by the Federal Deposit Insurance Corporation (the "FDIC") through the Savings Association Insurance Fund to the fullest extent permitted by law, and all premiums and assessments required to be paid in connection therewith have been paid when due. Each of the Company's other Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization. Each of the Company's Subsidiaries has the corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted and is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or the location of the properties and assets owned or leased by it makes such licensing or qualification necessary. The articles of incorporation, by-laws and similar governing documents of each Subsidiary of the Company, copies of which have previously been made available to Buyer, are true and correct copies of such documents as in effect as of the date of this Agreement. (c) The minute books of the Company and each of its Subsidiaries contain true and correct records of all meetings and other corporate actions held or taken since December 31, 1996 of their respective stockholders and Boards of Directors (including committees of their respective Boards of Directors). Section 4.2 Capitalization. (a) The authorized capital stock of the Company consists of 20,000,000 shares of Company Common Stock and 4,000,000 shares of preferred stock, par value $.01 per share (the "Company Preferred Stock"). As of the date of this Agreement, there are (x) 8,584,410 shares of Company Common Stock outstanding and 2,166,410 shares of Company Common Stock held in the Company's treasury, (y) no shares of Company Common Stock reserved for issuance upon exercise of outstanding stock options or otherwise except for (i) 1,080,876 shares of Company Common Stock reserved for issuance pursuant to the Company Option Plans and described in Section 4.2(a) of the Company Disclosure Schedule, and (ii) 1,708,297 shares of Company Common Stock reserved for issuance upon exercise of the option issued to Buyer pursuant to the Stock Option Agreement, dated August 30, 1999, between Buyer and the Company (the "Option Agreement") and (z) no shares of Company Preferred Stock issued or outstanding, held in the Company's treasury or reserved for issuance upon exercise of outstanding stock options or otherwise, except for 150,000 shares of Company Series A Junior Participating Preferred Stock reserved for issuance upon exercise of the rights (the "Company Rights") distributed to holders of Company Common Stock pursuant to the Stockholder Protection Rights Agreement, dated September 18, 1996 between the Company and Registrar and Transfer Co., as Rights Agent (the "Company Rights Agreement"). All of the issued and outstanding shares of Company Common Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. Except as referred to above or reflected in Section 4.2(a) of the Company Disclosure Schedule, and except for the Option Agreement, the Company does not have and is not bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of Company Common Stock or Company Preferred Stock or any other equity security of the Company or any securities representing the right to purchase or otherwise receive any shares of Company Common Stock or any other equity security of the Company. The names of the optionees, the date of each option to purchase Company Common Stock granted, the number of shares subject to each such option, the expiration date of each such option, and the price at which each such option may be exercised under the Company Option Plans are set forth in Section 4.2(a) of the Company Disclosure Schedule. (b) Section 4.2(b) of the Company Disclosure Schedule sets forth a true and correct list of all of the Subsidiaries of the Company. Except as set forth in Section 4.2(b) of the Company Disclosure Schedule, the Company owns, directly or indirectly, all of the issued and outstanding shares of the capital stock of each of such Subsidiaries, free and clear of all liens, charges, encumbrances and security interests whatsoever, and all of such shares are duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. No Subsidiary of the Company has or is bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of capital stock or any other equity security of such Subsidiary or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of such Subsidiary. Assuming compliance by Buyer with Section 1.5 hereof, at the Effective Time, there will not be any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character by which the Company or any of its Subsidiaries will be bound calling for the purchase or issuance of any shares of the capital stock of the Company or any of its Subsidiaries. Section 4.3 Authority; No Violation. (a) The Company has full corporate power and authority to execute and deliver this Agreement and the Option Agreement (this Agreement and the Option Agreement, collectively, the "Company Documents") and to consummate the transactions contemplated hereby and thereby. The execution and delivery of each of the Company Documents and the consummation of the transactions contemplated hereby and thereby have been duly and validly approved by the Board of Directors of the Company. The Board of Directors of the Company has directed that this Agreement and the transactions contemplated hereby be submitted to the Company's stockholders for approval at a meeting of such stockholders and, except for the approval and adoption of this Agreement by the affirmative vote of the holders of a majority of the outstanding shares of the Company Common Stock, no other corporate proceedings on the part of the Company are necessary to approve the Company Documents and to consummate the transactions contemplated hereby and thereby. Each of the Company Documents has been duly and validly executed and delivered by the Company, and (assuming due authorization, execution and delivery by Buyer) this Agreement constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforcement may be limited by general principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally. (b) Except as set forth in Section 4.3(b) of the Company Disclosure Schedule, neither the execution and delivery of the Company Documents by the Company, nor the consummation by the Company of the transactions contemplated hereby, nor compliance by the Company with any of the terms or provisions hereof, will (i) violate any provision of the Certificate of Incorporation or By-Laws of the Company or the certificate of incorporation, by-laws or similar governing documents of any of its Subsidiaries, or (ii) assuming that the consents and approvals referred to in Section 4.4 hereof are duly obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to the Company or any of its Subsidiaries, or any of their respective properties or assets, or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any lien, pledge, security interest, charge or other encumbrance upon any of the respective properties or assets of the Company or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which the Company or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected. Section 4.4 Consents and Approvals. Except for (a) the filing of an application with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") under the Bank Holding Company Act of 1956, as amended (the "BHC Act") and approval of such application, (b) the filing of an application with the FDIC under the Bank Merger Act and approval of such application, in the event the parties enter into the Bank Merger Agreement (as defined in Section 7.12) (c) the filing of applications and notices, as applicable, with the Office of Thrift Supervision (the "OTS") and approval of such applications and notices, (d) the filing of an application with the New York State Banking Department (the "Banking Department") and the approval of such application, (e) the filing with the Securities and Exchange Commission (the "SEC") of a proxy statement in definitive form relating to the meeting of the Company's stockholders to be held in connection with this Agreement and the transactions contemplated hereby (the "Proxy Statement") and the filing and declaration of effectiveness of the registration statement on Form S-4 (the "S-4") in which the Proxy Statement will be included as a prospectus, (f) the approval of this Agreement by the requisite vote of the stockholders of the Company, (g) the filing of the Certificate of Merger with the Secretary pursuant to the DGCL, (h) such filings and approvals as are required to be made or obtained under the securities or "Blue Sky" laws of various states in connection with the issuance of the shares of Buyer Common Stock pursuant to this Agreement, (i) approval of the listing of the Buyer Common Stock to be issued in the Merger on the NYSE, and (j) such filings, authorizations or approvals as may be set forth in Section 4.4 of the Company Disclosure Schedule, no consents or approvals of or filings or registrations with any court, administrative agency or commission or other governmental authority or instrumentality (each a "Governmental Entity") or with any third party are necessary in connection with the execution and delivery by the Company of the Company Documents or the consummation by the Company of the Merger and the other transactions contemplated hereby and thereby. Section 4.5 Reports. The Company and each of its Subsidiaries have timely filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since December 31, 1996 with (i) the OTS, (ii) the FDIC, (iii) any state banking commissions or any other state regulatory authority (each a "State Regulator") and (iv) any other self-regulatory organization ("SRO") (collectively, with the Federal Reserve Board, the "Regulatory Agencies"), and have paid all fees and assessments due and payable in connection therewith. Except for normal examinations conducted by a Regulatory Agency in the regular course of the business of the Company and its Subsidiaries, and except as set forth in Section 4.5 of the Company Disclosure Schedule, no Regulatory Agency has initiated any proceeding or, to the knowledge of the Company, investigation into the business or operations of the Company or any of its Subsidiaries since December 31, 1996. There is no unresolved violation, criticism, or exception by any Regulatory Agency with respect to any report or statement relating to any examinations of the Company or any of its Subsidiaries. Section 4.6 Financial Statements. The Company has previously made available to Buyer copies of (a) the consolidated statements of condition of the Company and its Subsidiaries as of June 30 for the fiscal years 1997 and 1998, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the fiscal years 1996 through 1998, inclusive, as reported in the Company's Annual Report on Form 10- K for the fiscal year ended June 30, 1998 filed with the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in each case accompanied by the audit report of KPMG LLP, independent public accountants with respect to the Company, (b) the unaudited consolidated statements of condition of the Company and its Subsidiaries as of March 31, 1998 and March 31, 1999 and the related unaudited consolidated statements of income, cash flows and changes in stockholders' equity for the nine-month periods then ended as reported in the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1999 filed with the SEC under the Exchange Act, and (c) the consolidated statements of condition of the Company and its Subsidiaries as of June 30 for the fiscal years 1998 and 1999, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the fiscal years 1997 through 1999, inclusive, as reported in the draft of the Company's Annual Report for the fiscal year ended June 30, 1999 to be filed with the SEC (the "Draft Financials"). The June 30, 1998 and June 30, 1999 consolidated statements of condition of the Company (including the related notes, where applicable) fairly present the consolidated financial position of the Company and its Subsidiaries as of the dates thereof, and the other financial statements referred to in this Section 4.6 (including the related notes, where applicable) fairly present, and the financial statements to be filed by the Company with the SEC after the date of this Agreement will fairly present (subject, in the case of the unaudited statements, to recurring audit adjustments normal in nature and amount), the results of the consolidated operations and consolidated financial position of the Company and its Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth; each of such statements (including the related notes, where applicable) complies, and the financial statements to be filed by the Company with the SEC after the date of this Agreement will comply, with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto; and each of such statements (including the related notes, where applicable) has been, and the financial statements to be filed by the Company with the SEC after the date of this Agreement will be, prepared in accordance with generally accepted accounting principles ("GAAP") consistently applied during the periods involved, except as indicated in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q. The books and records of the Company and its Subsidiaries have been, and are being, maintained in accordance with GAAP and any other applicable legal and accounting requirements and reflect only actual transactions. Section 4.6 of the Company Disclosure Schedule sets forth a true and correct description of the Company's "Borrowed Funds" as reflected in the Draft Financials. Section 4.7 Broker's Fees. Neither the Company nor any Subsidiary of the Company nor any of their respective officers or directors has employed any broker or finder or incurred any liability for any broker's fees, commissions or finder's fees in connection with any of the transactions contemplated by the Company Documents, except that the Company has engaged, and will pay a fee or commission to, Sandler, O'Neill & Partners, L.P. ("Sandler O'Neill") in accordance with the terms of a letter agreement between Sandler O'Neill and the Company, a true and correct copy of which has been previously delivered by the Company to Buyer. Section 4.8 Absence of Certain Changes or Events. (a) Except as may be set forth in Section 4.8(a) of the Company Disclosure Schedule or as disclosed in any Company Report filed with the SEC prior to the date of this Agreement, since June 30, 1998, (i) neither the Company nor any of its Subsidiaries has incurred any liability, except in the ordinary course of their business consistent with their past practices, and (ii) there has been no change or development or combination of changes or developments which has had, or is reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on the Company. (b) Except as set forth in Section 4.8(b) of the Company Disclosure Schedule or as disclosed in any Company Report filed with the SEC prior to the date of this Agreement, since June 30, 1998, the Company and its Subsidiaries have carried on their respective businesses in the ordinary course consistent with their past practices. (c) Except as set forth in Section 4.8(c) of the Company Disclosure Schedule, since June 30, 1999, neither the Company nor any of its Subsidiaries has (i) increased the wages, salaries, compensation, pension, or other fringe benefits or perquisites payable to any executive officer, employee, or director from the amount thereof in effect as of June 30, 1999 (which amounts have been previously disclosed to Buyer), granted any severance or termination pay, entered into any contract to make or grant any severance or termination pay, or paid any bonus, (ii) suffered any strike, work stoppage, slow-down, or other labor disturbance, (iii) been a party to a collective bargaining agreement, contract or other agreement or understanding with a labor union or organization, or (iv) had any union organizing activities. Section 4.9 Legal Proceedings. (a) Except as set forth in Section 4.9 of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party to any, and there are no pending or, to the Company's knowledge, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against the Company or any of its Subsidiaries or challenging the validity or propriety of the transactions contemplated by any of the Company Documents. (b) There is no injunction, order, judgment, decree, or regulatory restriction imposed upon the Company, any of its Subsidiaries or the assets of the Company or any of its Subsidiaries. Section 4.10 Taxes. (a) Except as set forth in Section 4.10(a) of the Company Disclosure Schedule, each of the Company and its Subsidiaries has (i) duly and timely filed (including applicable extensions granted without penalty) all Tax Returns (as hereinafter defined) required to be filed at or prior to the Effective Time, and such Tax Returns are true and correct, and (ii) paid in full or made adequate provision in the financial statements of the Company (in accordance with GAAP) for all Taxes (as hereinafter defined). No deficiencies for any Taxes have been proposed, asserted, assessed or, to the knowledge of the Company, threatened against or with respect to the Company or any of its Subsidiaries. Except as set forth in Section 4.10(a) of the Company Disclosure Schedule, (i) there are no liens for Taxes upon the assets of either the Company or its Subsidiaries except for statutory liens for current Taxes not yet due, (ii) neither the Company nor any of its Subsidiaries has requested any extension of time within which to file any Tax Returns in respect of any fiscal year which have not since been filed and no request for waivers of the time to assess any Taxes are pending or outstanding, (iii) with respect to each taxable period of the Company and its Subsidiaries, the federal and state income Tax Returns of the Company and its Subsidiaries have been audited by the Internal Revenue Service or appropriate state tax authorities or the time for assessing and collecting income Tax with respect to such taxable period has closed and such taxable period is not subject to review, (iv) neither the Company nor any of its Subsidiaries has filed or been included in a combined, consolidated or unitary income Tax Return other than one in which the Company was the parent of the group filing such Tax Return, (v) neither the Company nor any of its Subsidiaries is a party to any agreement providing for the allocation or sharing of Taxes (other than the allocation of federal income taxes as provided by Regulation 1.1552-1(a)(1) under the Code), (vi) neither the Company nor any of its Subsidiaries is required to include in income any adjustment pursuant to Section 481(a) of the Code (or any similar or corresponding provision or requirement of state, local or foreign income Tax law), by reason of the voluntary change in accounting method (nor has any taxing authority proposed any such adjustment or change of accounting method), (vii) neither the Company nor any of its Subsidiaries has filed a consent pursuant to Section 341(f) of the Code, and (viii) neither the Company nor any of its Subsidiaries has made any payment or provided any benefit or may be obligated to make any payment or provide any benefit (by contract or otherwise) which will not be deductible by reason of Section 280G or Section 162(m) of the Code. (b) Except as set forth in Section 4.10(b) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries owns, directly or indirectly (including, without limitation, through partnerships, corporations, trusts or other entities), interests in real property ("Real Property Interests") situated in (A) New York State, which by reason of the Merger would be subject to either (i) the New York State Real Property Transfer Tax, or (ii) the New York City Real Property Transfer Tax (collectively, the "New York Transfer Taxes"), or (B) any state other than New York State which by reason of the Merger would be subject to any tax similar to the New York Transfer Taxes. For purposes of this Section 4.10(b), Real Property Interests include, without limitation, titles in fee, leasehold interests, beneficial interests, encumbrances, developments rights or any other interests with the right to use or occupy real property or the right to receive rents, profits or other income derived therefrom, or any options or contracts to purchase real property. (c) For the purposes of this Agreement, "Taxes" shall mean all taxes, charges, fees, levies, penalties or other assessments imposed by any United States federal, state, local or foreign taxing authority, including, but not limited to income, excise, property, sales, transfer, franchise, payroll, withholding, social security or other taxes, including any interest, penalties or additions attributable thereto. For purposes of this Agreement, "Tax Return" shall mean any return, report, information return or other document (including any related or supporting information) with respect to Taxes. Section 4.11 Employees. (a) Section 4.11(a) of the Company Disclosure Schedule sets forth a true and correct list of each deferred compensation plan, incentive compensation plan, equity compensation plan, "welfare" plan, fund or program (within the meaning of Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")); "pension" plan, fund or program (within the meaning of Section 3(2) of ERISA); each employment, termination or severance agreement; and each other employee benefit plan, fund, program, agreement or arrangement, in each case, that is sponsored, maintained or contributed to or required to be contributed to (the "Plans") by the Company, any of its Subsidiaries or by any trade or business, whether or not incorporated (an "ERISA Affiliate"), all of which together with the Company would be deemed a "single employer" within the meaning of Section 4001 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), for the benefit of any employee or former employee of the Company or any Subsidiary. (b) The Company has heretofore made available to Buyer true and correct copies of each of the Plans and all related documents, including but not limited to (i) the actuarial report for such Plan (if applicable) for each of the last two years, and (ii) the most recent determination letter from the Internal Revenue Service (if applicable) for such Plan. (c) Except as set forth in Section 4.11(c) of the Company Disclosure Schedule, (i) each of the Plans has been operated and administered in all material respects in accordance with its terms and applicable law, including but not limited to ERISA and the Code, (ii) each of the Plans intended to be "qualified" within the meaning of Section 401(a) of the Code either (1) has received a favorable determination letter from the IRS, or (2) is or will be the subject of an application for a favorable determination letter, and the Company is not aware of any circumstances likely to result in the revocation or denial of any such favorable determination letter, (iii) with respect to each Plan which is subject to Title IV of ERISA, the present value of accrued benefits under such Plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such Plan's actuary with respect to such Plan, did not, as of its latest valuation date, exceed the then current value of the assets of such Plan allocable to such accrued benefits, (iv) no Plan provides benefits, including without limitation death or medical benefits (whether or not insured), with respect to current or former employees of the Company, its Subsidiaries or any ERISA Affiliate beyond their retirement or other termination of service, other than (w) coverage mandated by applicable law, (x) death benefits or retirement benefits under any "employee pension plan," as that term is defined in Section 3(2) of ERISA, (y) deferred compensation benefits accrued as liabilities on the books of the Company, its Subsidiaries or the ERISA Affiliates or (z) benefits the full cost of which is borne by the current or former employee (or his beneficiary), (v) no liability under Title IV of ERISA has been incurred by the Company, its Subsidiaries or any ERISA Affiliate that has not been satisfied in full, and no condition exists that presents a material risk to the Company, its Subsidiaries or an ERISA Affiliate of incurring a material liability thereunder, (vi) no Plan is a "multiemployer pension plan," as such term is defined in Section 3(37) of ERISA, (vii) all contributions or other amounts payable by the Company, its Subsidiaries or any ERISA Affiliates as of the Effective Time with respect to each Plan in respect of current or prior plan years have been paid or accrued in accordance with generally accepted accounting practices and Section 412 of the Code, (viii) neither the Company, its Subsidiaries nor any ERISA Affiliate has engaged in a transaction in connection with which the Company, its Subsidiaries or any ERISA Affiliate could be subject to either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section 4975 or 4976 of the Code, (ix) there are no pending, or, to the best knowledge of the Company, threatened or anticipated claims or proceedings (other than routine claims for benefits) by, on behalf of or against any of the Plans or any trusts related thereto and (x) the consummation of the transactions contemplated by this Agreement will not (y) entitle any current or former employee or officer of the Company or any ERISA Affiliate to severance pay, termination pay or any other payment or benefit, except as expressly provided in this Agreement or (z) accelerate the time of payment or vesting or increase the amount or value of compensation or benefits due any such employee or officer. Section 4.12 SEC Reports. The Company has previously made available to Buyer a true and correct copy of each (a) final registration statement, prospectus, report, schedule and definitive proxy statement filed since January 1, 1997 by the Company with the SEC pursuant to the Securities Act of 1933, as amended (the "Securities Act") or the Exchange Act (the "Company Reports") and (b) communication mailed by the Company to its stockholders since January 1, 1997, and no such registration statement, prospectus, report, schedule, proxy statement or communication contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading. The Company has timely filed all Company Reports and other documents required to be filed by it under the Securities Act and the Exchange Act, and, as of their respective dates, all Company Reports complied with the published rules and regulations of the SEC with respect thereto. Section 4.13 Company Information. The information relating to the Company and its Subsidiaries which is provided to Buyer by the Company or any of its affiliates or representatives for inclusion in the Proxy Statement and the S-4, or in any other document filed with any other regulatory agency in connection herewith, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. The Proxy Statement (except for such portions thereof that relate only to Buyer or any of its Subsidiaries) will comply with the provisions of the Exchange Act and the rules and regulations thereunder. Section 4.14 Compliance with Applicable Law. The Company and each of its Subsidiaries hold, and have at all times held, all licenses, franchises, permits and authorizations necessary for the lawful conduct of their respective businesses under and pursuant to all, and have complied with and are not in default in any respect under any, applicable law, statute, order, rule, regulation, policy and/or guideline of any Governmental Entity relating to the Company or any of its Subsidiaries, and neither the Company nor any of its Subsidiaries knows of, or has received notice of, any violations of any of the above. Section 4.15 Certain Contracts. (a) Except as set forth in Section 4.15(a) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party to or bound by any contract, arrangement, commitment or understanding (whether written or oral) (i) with respect to the employment of any directors, officers, employees or consultants, (ii) which, upon the consummation of the transactions contemplated by this Agreement, will (either alone or upon the occurrence of any additional acts or events) result in any payment or benefits (whether of severance pay or otherwise) becoming due, or any increase in the amount of or acceleration or vesting of any rights to any payment or benefits, from Buyer, the Company, the Surviving Corporation or any of their respective Subsidiaries to any director, officer, employee or consultant thereof, (iii) which is a material contract (as defined in Item 601(b)(10) of Regulation S-K of the SEC) to be performed after the date of this Agreement that has not been filed or incorporated by reference in the Company Reports, (iv) which is a consulting agreement (including data processing, software programming and licensing contracts) not terminable on 60 days or less notice involving the payment of more than $100,000 per annum, or (v) which materially restricts the conduct of any line of business by the Company or any of its Subsidiaries. Each contract, arrangement, commitment or understanding of the type described in this Section 4.15(a), whether or not set forth in Section 4.15(a) of the Company Disclosure Schedule, is referred to herein as a "Company Contract." The Company has previously delivered or made available to Buyer true and correct copies of each Company Contract. (b) Except as set forth in Section 4.15(b) of the Company Disclosure Schedule, (i) each Company Contract is valid and binding and in full force and effect, (ii) the Company and each of its Subsidiaries has performed all obligations required to be performed by it to date under each Company Contract, (iii) no event or condition exists which constitutes or, after notice or lapse of time or both, would constitute, a default on the part of the Company or any of its Subsidiaries under any Company Contract, and (iv) no other party to such Company Contract is, to the knowledge of the Company, in default in any respect thereunder. Section 4.16 Agreements with Regulatory Agencies. Except as set forth in Section 4.16 of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is subject to any cease-and-desist or other order issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or is a recipient of any extraordinary supervisory letter from, or has adopted any board resolutions at the request of (each, whether or not set forth on Section 4.16 of the Company Disclosure Schedule, a "Regulatory Agreement"), any Regulatory Agency or other Governmental Entity that restricts the conduct of its business or that in any manner relates to its capital adequacy, its credit policies, its management or its business, nor has the Company or any of its Subsidiaries been advised by any Regulatory Agency or other Governmental Entity that it is considering issuing or requesting any Regulatory Agreement. Section 4.17 Investment Securities. Section 4.17 of the Company Disclosure Schedule sets forth the book and market value as of July 31, 1999 of the investment securities, mortgage backed securities and securities held for sale of the Company and its Subsidiaries. Section 4.17 of the Company Disclosure Schedule sets forth, with respect to such securities, descriptions thereof, CUSIP numbers, pool face values and coupon rates. Section 4.18 State Takeover Laws; Business Combination Provision. The Board of Directors of the Company has approved the transactions contemplated by this Agreement and the Option Agreement such that the provisions of Section 203 of the DGCL and Article VIII of the Company's Certificate of Incorporation will not, assuming the accuracy of the representations contained in Section 5.15 hereof, apply to this Agreement or the Option Agreement or any of the transactions contemplated hereby or thereby. Section 4.19 Environmental Matters. Except as set forth in Section 4.19 of the Company Disclosure Schedule: (a) Each of the Company and its Subsidiaries and, to the knowledge of the Company, each of the Participation Facilities and the Loan Properties (each as hereinafter defined) are and have been in compliance with all applicable federal, state and local laws including common law, regulations and ordinances and with all applicable decrees, orders and contractual obligations relating to pollution or the discharge of, or exposure to Hazardous Materials (as hereinafter defined) in the environment or workplace ("Environmental Laws"); (b) There is no suit, claim, action or proceeding, pending or, to the knowledge of the Company, threatened, before any Governmental Entity or other forum in which the Company, any of its Subsidiaries, any Participation Facility or any Loan Property, has been or, with respect to threatened proceedings, may be, named as a defendant (x) for alleged noncompliance (including by any predecessor), with any Environmental Laws, or (y) relating to the release, threatened release or exposure to any Hazardous Material whether or not occurring at or on a site owned, leased or operated by the Company or any of its Subsidiaries, any Participation Facility or any Loan Property; (c) During the period of (x) the Company's or any of its Subsidiaries' ownership or operation of any of their respective current or former properties, (y) the Company's or any of its Subsidiaries' participation in the management of any Participation Facility, or (z) to the knowledge of the Company, the Company's or any of its Subsidiaries' interest in a Loan Property, there has been no release of Hazardous Materials in, on, under or affecting any such property. To the knowledge of the Company, prior to the period of (x) the Company's or any of its Subsidiaries' ownership or operation of any of their respective current or former properties, (y) the Company's or any of its Subsidiaries' participation in the management of any Participation Facility, or (z) the Company's or any of its Subsidiaries' interest in a Loan Property, there was no release or threatened release of Hazardous Materials in, on, under or affecting any such property, Participation Facility or Loan Property; and (d) The following definitions apply for purposes of this Section 4.19: (x) "Hazardous Materials" means any chemicals, pollutants, contaminants, wastes, toxic substances, petroleum or other regulated substances or materials, (y) "Loan Property" means any property in which the Company or any of its Subsidiaries holds a security interest, and, where required by the context, said term means the owner or operator of such property; and (z) "Participation Facility" means any facility in which the Company or any of its Subsidiaries participates in the management and, where required by the context, said term means the owner or operator of such property. Section 4.20 Derivative Transactions. Except as set forth in Section 4.20 of the Company Disclosure Schedule, since June 30, 1998, neither Company nor any of its Subsidiaries has engaged in transactions in or involving forwards, futures, options on futures, swaps or other derivative instruments except (i) as agent on the order and for the account of others, or (ii) as principal for purposes of hedging interest rate risk on U.S. dollar-denominated securities and other financial instruments. None of the counterparties to any contract or agreement with respect to any such instrument is in default with respect to such contract or agreement and no such contract or agreement, were it to be a Loan (as defined below) held by the Company or any of its Subsidiaries, would be classified as "Other Loans Specially Mentioned", "Special Mention", "Substandard", "Doubtful", "Loss", "Classified", "Criticized", "Credit Risk Assets", "Concerned Loans" or words of similar import. The financial position of the Company and its Subsidiaries on a consolidated basis under or with respect to each such instrument has been reflected in the books and records of the Company and such Subsidiaries in accordance with GAAP consistently applied, and no open exposure of the Company or any of its Subsidiaries with respect to any such instrument (or with respect to multiple instruments with respect to any single counterparty) exceeds $250,000. Section 4.21 Opinion. Prior to the execution of this Agreement, the Company has received an opinion from Sandler O'Neill to the effect that as of the date thereof and based upon and subject to the matters set forth therein, the Exchange Ratio is fair to the stockholders of the Company from a financial point of view. Such opinion has not been amended or rescinded as of the date of this Agreement. Section 4.22 Approvals. As of the date of this Agreement, the Company knows of no reason why all regulatory approvals required for the consummation of the transactions contemplated hereby should not be obtained. Section 4.23 Loan Portfolio. (a) Except as set forth in Section 4.23 of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party to any written or oral (i) loan agreement, note or borrowing arrangement (including, without limitation, leases, credit enhancements, commitments, guarantees and interest-bearing assets) (collectively, "Loans"), other than any Loan the unpaid principal balance of which does not exceed $100,000, under the terms of which the obligor was, as of June 30, 1999, over 90 days delinquent in payment of principal or interest or in default of any other provision, or (ii) Loan with any director, executive officer or five percent or greater stockholder of the Company or any of its Subsidiaries, or to the knowledge of the Company, any person, corporation or enterprise controlling, controlled by or under common control with any of the foregoing. Section 4.23 of the Company Disclosure Schedule sets forth (i) all of the Loans in original principal amount in excess of $100,000 of the Company or any of its Subsidiaries that as of June 30, 1999, were classified by any bank examiner (whether regulatory or internal) as "Other Loans Specially Mentioned", "Special Mention", "Substandard", "Doubtful", "Loss", "Classified", "Criticized", "Credit Risk Assets", "Concerned Loans", "Watch List" or words of similar import, together with the principal amount of and accrued and unpaid interest on each such Loan and the identity of the borrower thereunder, (ii) by category of Loan (i.e., commercial, consumer, etc.), all of the other Loans of the Company and its Subsidiaries that as of June 30, 1999, were classified as such, together with the aggregate principal amount of and accrued and unpaid interest on such Loans by category and (iii) each asset of the Company that as of June 30, 1999, was classified as "Other Real Estate Owned" and the book value thereof. The Company shall promptly inform Buyer in writing of any Loan that becomes classified in the manner described in the previous sentence, or any Loan the classification of which is changed, at any time after the date of this Agreement. (b) Each Loan in original principal amount in excess of $250,000 (i) is evidenced by notes, agreements or other evidences of indebtedness which are true, genuine and what they purport to be, (ii) to the extent secured, has been secured by valid liens and security interests which have been perfected and (iii) is the legal, valid and binding obligation of the obligor named therein, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. Section 4.24 Property. Each of the Company and its Subsidiaries has good and marketable title free and clear of all liens, encumbrances, mortgages, pledges, charges, defaults or equitable interests to all of the properties and assets, real and personal, tangible or intangible, which are reflected on the consolidated statement of financial condition of the Company as of June 30, 1999 or acquired after such date, except (i) liens for taxes not yet due and payable or contested in good faith by appropriate proceedings, (ii) pledges to secure deposits and other liens incurred in the ordinary course of business, (iii) such imperfections of title, easements and encumbrances, if any, as do not interfere with the use of the property as such property is used on the date of this Agreement, (iv) for dispositions and encumbrances of, or on, such properties or assets in the ordinary course of business or (v) mechanics', materialmen's, workmen's, repairmen's, warehousemen's, carrier's and other similar liens and encumbrances arising in the ordinary course of business. All leases pursuant to which the Company or any Subsidiary of the Company, as lessee, leases real or personal property are valid and enforceable in accordance with their respective terms and neither the Company nor any of its Subsidiaries nor, to the knowledge of the Company, any other party thereto is in default thereunder. Section 4.25 Reorganization. As of the date of this Agreement, the Company has no reason to believe that the Merger will fail to qualify as a reorganization under Section 368(a) of the Code. Section 4.26 Company Rights Agreement. The Company has (a) duly entered into an appropriate amendment to the Company Rights Agreement and (b) taken all other action necessary or appropriate, in each case so that the execution of this Agreement and the Option Agreement and the consummation of the transactions contemplated hereby and thereby (including, without limitation, the Merger) do not and will not result in the ability of any person to exercise any rights under the Company Rights Agreement or enable or require the Company Rights to separate from the shares of Company Common Stock to which they are attached or to be triggered or become exercisable. Section 4.27 Equity and Real Estate Investments. Except as set forth in Section 4.27 of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has (i) equity investments other than investments in wholly owned Subsidiaries or (ii) investments in real estate or real estate development projects, other than assets classified as "other real estate owned." Section 4.28 Year 2000 Matters. Section 4.28 of the Company Disclosure Schedule contains a true and correct copy of the Company's plan for addressing year 2000 computer issues (the "Year 2000 Plan"). The Company is in material compliance with the Company's Year 2000 Plan. The Company has been examined by the OTS with respect to being "Year 2000 Compliant" and the Company's Year 2000 Plan has been reviewed by the OTS and the Company has received a "satisfactory" rating in connection therewith, and neither the Company nor the Company Bank has received any written communication from the OTS commenting adversely with respect to the ability of the Company to become Year 2000 compliant. ARTICLE ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER Subject to Article III hereof and except as set forth in the Buyer Disclosure Schedule, Buyer hereby represents and warrants to the Company as follows: Section 5.1 Corporate Organization. (a) Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Buyer has the corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted, and is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary. Buyer is duly registered as a bank holding company under the BHC Act. The Restated Certificate of Incorporation and By-laws of Buyer, copies of which have previously been made available to the Company, are true and correct copies of such documents as in effect as of the date of this Agreement. (b) North Fork Bank ("Buyer Bank") is a commercial bank duly organized, validly existing and in good standing under the laws of the State of New York. The deposit accounts of Buyer Bank are insured by the FDIC through the Bank Insurance Fund to the fullest extent permitted by law, and all premiums and assessments required in connection therewith have been paid when due. Each of Buyer's other Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Each Subsidiary of Buyer has the corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted, and is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary. The articles of organization and by-laws of Buyer Bank, copies of which have previously been made available to the Company, are true and correct copies of such documents as in effect as of the date of this Agreement. (c) The minute books of Buyer and each of its Subsidiaries contain true and correct records of all meetings and other corporate actions held or taken since December 31, 1996 of their respective stockholders and Boards of Directors (including committees of their respective Boards of Directors). Section 5.2 Capitalization. (a) As of the date of this Agreement, the authorized capital stock of Buyer consists of 200,000,000 shares of Buyer Common Stock and 10,000,000 shares of preferred stock, par value $1.00 per share ("Buyer Preferred Stock"). As of August 23, 1999, (i) 135,802,670 shares of Buyer Common Stock were issued and outstanding, (ii) no shares of Buyer Preferred Stock were issued and outstanding, (iii) no shares of Buyer Common Stock were reserved for issuance, except that 2,000,000 shares of Buyer Common Stock were reserved for issuance pursuant to the Buyer Dividend Investment and Stock Purchase Plan, 1,973,140 shares of Buyer Common Stock were reserved for issuance pursuant to the Buyer 1985 Incentive Stock Option Plan, the Buyer 1987 Long-Term Incentive Plan, the Buyer 1989 Executive Management and Compensation Plan, the Buyer 1994 Key Employee Stock Plan, the Buyer 1997 Non-Officer Stock Plan and the Buyer 1998 Stock Compensation Plan (the "Buyer Stock Plans"), and 31,000,000 shares of Buyer Common Stock were reserved for issuance pursuant to the Agreement and Plan of Merger, dated as of August 16, 1999, between Buyer and JSB Financial, Inc., (iv) no shares of Buyer Preferred Stock were reserved for issuance and (v) 9,323,852 shares of Buyer Common Stock were held by Buyer in its treasury or by Buyer's Subsidiaries. All of the issued and outstanding shares of Buyer Common Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. As of the date of this Agreement, except as referred to above or reflected in Section 5.2(a) of the Buyer Disclosure Schedule, Buyer does not have and is not bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of Buyer Common Stock or Buyer Preferred Stock or any other equity securities of Buyer or any securities representing the right to purchase or otherwise receive any shares of Buyer Common Stock or Buyer Preferred Stock or any other equity security of the Buyer. The shares of Buyer Common Stock to be issued pursuant to the Merger will be duly authorized and validly issued and, at the Effective Time, all such shares will be fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. (b) Section 5.2(b) of the Buyer Disclosure Schedule sets forth a true and correct list of all of the Subsidiaries of the Buyer as of the date of this Agreement. Except as set forth in Section 5.2(b) of the Buyer Disclosure Schedule, as of the date of this Agreement, Buyer owns, directly or indirectly, all of the issued and outstanding shares of capital stock of each of the Subsidiaries of Buyer, free and clear of all liens, charges, encumbrances and security interests whatsoever, and all of such shares are duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. As of the date of this Agreement, no Subsidiary of Buyer has or is bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character with any party that is not a direct or indirect Subsidiary of Buyer calling for the purchase or issuance of any shares of capital stock or any other equity security of such Subsidiary or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of such Subsidiary. Section 5.3 Authority; No Violation. (a) Buyer has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly approved by the Board of Directors of Buyer, and no other corporate proceedings on the part of Buyer are necessary to approve this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Buyer and (assuming due authorization, execution and delivery by the Company) this Agreement constitutes a valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as enforcement may be limited by general principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally. (b) Except as set forth in Section 5.3(b) of the Buyer Disclosure Schedule, neither the execution and delivery of this Agreement by Buyer nor the consummation by Buyer of the transactions contemplated hereby, nor compliance by Buyer with any of the terms or provisions hereof, will (i) violate any provision of the Restated Certificate of Incorporation or By-Laws of Buyer, or the articles of incorporation or by-laws or similar governing documents of any of its Subsidiaries or (ii) assuming that the consents and approvals referred to in Section 4.4 are duly obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to Buyer or any of its Subsidiaries or any of their respective properties or assets, or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any lien, pledge, security interest, charge or other encumbrance upon any of the respective properties or assets of Buyer or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Buyer or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected. Section 5.4 Consents and Approvals. Except for (a) the filing of an application with the Federal Reserve Board under the BHC Act, and approval of such application, (b) the filing of an application with the FDIC under the Bank Merger Act and approval of such application, in the event the parties enter into the Bank Merger Agreement (as defined in Section 7.12), (c) the filing of applications and notices, as applicable, with the OTS and approval of such applications and notices, (d) the State Banking Approvals, (e) the filing with the SEC of the Proxy Statement and the filing and declaration of effectiveness of the S-4, (f) the approval of this Agreement by the requisite vote of the stockholders of the Company, (g) the filing of the Certificate of Merger with the Secretary, (h) such filings and approvals as are required to be made or obtained under the securities or "Blue Sky" laws of various states in connection with the issuance of the shares of Buyer Common Stock pursuant to this Agreement, (i) approval of the listing of the Buyer Common Stock to be issued in the Merger on the NYSE, and (j) such filings, authorizations or approvals as may be set forth in Section 5.4 of the Buyer Disclosure Schedule, no consents or approvals of or filings or registrations with any Governmental Entity or with any third party are necessary in connection with the execution and delivery by Buyer of this Agreement or the consummation by Buyer of the Merger and the other transactions contemplated hereby. Section 5.5 Reports. Buyer and each of its Subsidiaries have timely filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since December 31, 1996 with any Regulatory Agency, and have paid all fees and assessments due and payable in connection therewith. Except for normal examinations conducted by a Regulatory Agency in the regular course of the business of Buyer and its Subsidiaries, and except as set forth in Section 5.5 of the Buyer Disclosure Schedule, no Regulatory Agency has initiated any proceeding or, to the knowledge of Buyer, investigation into the business or operations of Buyer or any of its Subsidiaries since December 31, 1996. There is no unresolved violation, criticism, or exception by any Regulatory Agency with respect to any report or statement relating to any examinations of Buyer or any of its Subsidiaries. Section 5.6 Financial Statements. Buyer has previously made available to the Company copies of (a) the consolidated statements of financial condition of Buyer and its Subsidiaries as of December 31 for the fiscal years 1997 and 1998 and the related consolidated statements of income, changes in stockholders' equity and cash flows for the fiscal years 1996 through 1998, inclusive, as reported in Buyer's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 filed with the SEC under the Exchange Act, in each case accompanied by the audit report of KPMG LLP, independent public accountants with respect to Buyer, and (b) the unaudited consolidated statements of financial condition of Buyer and its Subsidiaries as of March 31, 1998 and March 31, 1999 and the related unaudited consolidated statements of income, changes in stockholder's equity and cash flows for the three-month periods then ended as reported in Buyer's Quarterly Report on Form 10-Q for the period ended March 31, 1999 filed with the SEC under the Exchange Act. The December 31, 1998 consolidated statements of financial condition of Buyer (including the related notes, where applicable) fairly presents the consolidated financial position of Buyer and its Subsidiaries as of the date thereof, and the other financial statements referred to in this Section 5.6 (including the related notes, where applicable) fairly present, and the financial statements to be filed by Buyer with the SEC after the date of this Agreement will fairly present (subject, in the case of the unaudited statements, to recurring audit adjustments normal in nature and amount), the results of the consolidated operations and changes in stockholders' equity and consolidated financial position of Buyer and its Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth; each of such statements (including the related notes, where applicable) complies, and the financial statements to be filed by Buyer with the SEC after the date of this Agreement will comply, with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto; and each of such statements (including the related notes, where applicable) has been, and the financial statements to be filed by Buyer with the SEC after the date of this Agreement will be, prepared in accordance with GAAP consistently applied during the periods involved, except as indicated in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q. The books and records of Buyer and its Subsidiaries have been, and are being, maintained in accordance with GAAP and any other applicable legal and accounting requirements and reflect only actual transactions. Section 5.7 Broker's Fees. Neither Buyer nor any Subsidiary of Buyer, nor any of their respective officers or directors, has employed any broker or finder or incurred any liability for any broker's fees, commissions or finder's fees in connection with any of the transactions contemplated by this Agreement or the Option Agreement, except that Buyer has engaged, and will pay a fee or commission to, Donaldson, Lufkin & Jenrette Securities Corporation. Section 5.8 Absence of Certain Changes or Events. (a) Except as may be set forth in Section 5.8(a) of the Buyer Disclosure Schedule or as disclosed in any Buyer Report filed with the SEC prior to the date of this Agreement, since December 31, 1998, (i) neither Buyer nor any of its Subsidiaries has incurred any liability, except in the ordinary course of their business consistent with their past practices, and (ii) there has been no change or development or combination of changes or developments which has had, or is reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on Buyer. (b) Except as disclosed in any Buyer Report filed with the SEC prior to the date of this Agreement, since December 31, 1998, the Buyer and its Subsidiaries have carried on their respective businesses in the ordinary course consistent with prudent banking practices. (c) Since December 31, 1998, neither the Buyer nor any of its Subsidiaries has (i)suffered any strike, work stoppage, slow-down, or other labor disturbance, (ii) been a party to a collective bargaining agreement, contract or other agreement or understanding with a labor union or organization, or (iii) had any union organizing activities. Section 5.9 Legal Proceedings. (a) Except as set forth in Section 5.9 of the Buyer Disclosure Schedule, neither Buyer nor any of its Subsidiaries is a party to any and there are no pending or, to Buyer's knowledge, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against Buyer or any of its Subsidiaries or challenging the validity or propriety of the transactions contemplated by this Agreement. (b) There is no injunction, order, judgment, decree, or regulatory restriction imposed upon Buyer, any of its Subsidiaries or the assets of Buyer or any of its Subsidiaries. Section 5.10 Taxes. Except as set forth in Section 5.10 of the Buyer Disclosure Schedule, each of Buyer and its Subsidiaries has (i) duly and timely filed (including applicable extensions granted without penalty) all Tax Returns required to be filed at or prior to the Effective Time, and such Tax Returns are true and correct, and (ii) paid in full or made adequate provision in the financial statements of Buyer (in accordance with GAAP) for all Taxes. No deficiencies for any Taxes have been proposed, asserted, assessed or, to the best knowledge of Buyer, threatened against or with respect to Buyer or any of its Subsidiaries. Except as set forth in Section 5.10 of the Buyer Disclosure Schedule, (i) there are no liens for Taxes upon the assets of either Buyer or its Subsidiaries except for statutory liens for current Taxes not yet due, (ii) neither Buyer nor any of its Subsidiaries has requested any extension of time within which to file any Tax Returns in respect of any fiscal year which have not since been filed and no request for waivers of the time to assess any Taxes are pending or outstanding, (iii) with respect to each taxable period of Buyer and its Subsidiaries, the federal and state income Tax Returns of Buyer and its Subsidiaries have been audited by the Internal Revenue Service or appropriate state tax authorities or the time for assessing and collecting income Tax with respect to such taxable period has closed and such taxable period is not subject to review, (iv) neither Buyer nor any of its Subsidiaries has filed or been included in a combined, consolidated or unitary income Tax Return other than one in which Buyer was the parent of the group filing such Tax Return, (v) neither Buyer nor any of its Subsidiaries is a party to any agreement providing for the allocation or sharing of Taxes (other than the allocation of federal income taxes as provided by Regulation 1.1552-1(a)(1) under the Code), (vi) neither Buyer nor any of its Subsidiaries is required to include in income any adjustment pursuant to Section 481(a) of the Code (or any similar or corresponding provision or requirement of state, local or foreign income Tax law), by reason of the voluntary change in accounting method (nor has any taxing authority proposed in writing any such adjustment or change of accounting method), and (vii) neither Buyer nor any of its Subsidiaries has filed a consent pursuant to Section 341(f) of the Code. Section 5.11 Employees. (a) Section 5.11(a) of the Buyer Disclosure Schedule sets forth a true and correct list of each deferred compensation plan, incentive compensation plan, equity compensation plan, "welfare" plan, fund or program (within the meaning of section 3(1) of the ERISA); "pension" plan, fund or program (within the meaning of section 3(2) of ERISA); each employment, termination or severance agreement; and each other employee benefit plan, fund, program, agreement or arrangement, in each case, that is sponsored, maintained or contributed to or required to be contributed to as of the date of this Agreement (the "Buyer Plans") by Buyer, any of its Subsidiaries or by any trade or business, whether or not incorporated (a "Buyer ERISA Affiliate"), all of which together with Buyer would be deemed a "single employer" within the meaning of Section 4001 of ERISA, for the benefit of any employee or former employee of Buyer, any Subsidiary or any Buyer ERISA Affiliate. (b) Except as set forth in Section 5.11(b) of the Buyer Disclosure Schedule, (i) each of the Buyer Plans has been operated and administered in accordance with its terms and applicable law, including but not limited to ERISA and the Code, (ii) each of the Buyer Plans intended to be "qualified" within the meaning of Section 401(a) of the Code has either (1) received a favorable determination letter from the IRS, or (2) is or will be the subject of an application for a favorable determination letter, and Buyer is not aware of any circumstances likely to result in the revocation or denial of any such favorable determination letter, (iii) with respect to each Buyer Plan which is subject to Title IV of ERISA, the present value of accrued benefits under such Buyer Plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such Buyer Plan's actuary with respect to such Buyer Plan, did not, as of its latest valuation date, exceed the then current value of the assets of such Buyer Plan allocable to such accrued benefits, (iv) no Plan provides benefits, including without limitation death or medical benefits (whether or not insured), with respect to current or former employees of Buyer, its Subsidiaries or any Buyer ERISA Affiliate beyond their retirement or other termination of service, other than (w) coverage mandated by applicable law, (x) death benefits or retirement benefits under any "employee pension plan," as that term is defined in Section 3(2) of ERISA, (y) deferred compensation benefits accrued as liabilities on the books of Buyer, its Subsidiaries or the ERISA Affiliates or (z) benefits the full cost of which is borne by the current or former employee (or his beneficiary), (v) no liability under Title IV of ERISA has been incurred by Buyer, its Subsidiaries or any Buyer ERISA Affiliate that has not been satisfied in full and no condition exists that presents a material risk to the Buyer, its Subsidiaries or an ERISA Affiliate of incurring a material liability thereunder, (vi) no Buyer Plan is a "multiemployer pension plan," as such term is defined in Section 3(37) of ERISA, (vii) all contributions or other amounts payable by Buyer, its Subsidiaries or any ERISA Affiliate as of the Effective Time with respect to each Plan in respect of current or prior plan years have been paid or accrued in accordance with generally accepted accounting practices and Section 412 of the Code, (viii) neither Buyer, its Subsidiaries nor any Buyer ERISA Affiliate has engaged in a transaction in connection with which Buyer, its Subsidiaries or any Buyer ERISA Affiliate could be subject to either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section 4975 or 4976 of the Code, (ix) there are no pending, or, to the best knowledge of Buyer, threatened or anticipated claims or proceedings (other than routine claims for benefits) by, on behalf of or against any of the Buyer Plans or any trusts related thereto and (x) the consummation of the transactions contemplated by this Agreement will not (y) entitle any current or former employee or officer of Buyer or any Buyer ERISA Affiliate to severance pay, termination pay or any other payment or benefit, except as expressly provided in this Agreement or (z) accelerate the time of payment or vesting or increase in the amount or value of compensation or benefits due any such employee or officer. Section 5.12 SEC Reports. Buyer has previously made available to the Company a true and correct copy of each (a) final registration statement, prospectus, report, schedule and definitive proxy statement filed since January 1, 1997 by Buyer with the SEC pursuant to the Securities Act or the Exchange Act (the "Buyer Reports") and (b) communication mailed by Buyer to its stockholders since January 1, 1997, and no such registration statement, prospectus, report, schedule, proxy statement or communication contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading. Buyer has timely filed all Buyer Reports and other documents required to be filed by it under the Securities Act and the Exchange Act, and, as of their respective dates, all Buyer Reports complied with the published rules and regulations of the SEC with respect thereto. Section 5.13 Buyer Information. The information relating to Buyer and its Subsidiaries to be contained in the Proxy Statement and the S-4, or in any other document filed with any other regulatory agency in connection herewith, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. The S-4 will comply with the provisions of the Securities Act and the rules and regulations thereunder. Section 5.14 Compliance with Applicable Law. Buyer and each of its Subsidiaries hold, and have at all times held, all licenses, franchises, permits and authorizations necessary for the lawful conduct of their respective businesses under and pursuant to all, and have complied with and are not in default in any respect under any, applicable law, statute, order, rule, regulation, policy and/or guideline of any Governmental Entity relating to Buyer or any of its Subsidiaries, and neither Buyer nor any of its Subsidiaries knows of, or has received notice of violation of, any violations of any of the above. Section 5.15 Ownership of Company Common Stock. (a) Except for the Option Agreement and 55,000 shares of Company Common Stock beneficially owned by Buyer, neither Buyer nor any of its affiliates or associates (as such terms are defined under the Exchange Act), (i) beneficially owns, directly or indirectly, or (ii) is a party to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of, in each case, any shares of capital stock of the Company (other than Trust Account Shares and DPC Shares). (b) Neither Buyer nor any of its Subsidiaries is an "affiliate" (as such term is defined in DGCL ss. 203(c)(1)) or an "associate" (within the meaning of DGCL ss. 203(c)(2)) of the Company or an "Interested Stockholder" (as such term is defined in Article VIII of the Company's Certificate of Incorporation). Section 5.16 Agreements with Regulatory Agencies. Neither Buyer nor any of its Subsidiaries is subject to any cease-and-desist or other order issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or is a recipient of any extraordinary supervisory letter from, or has adopted any board resolutions at the request of (each, whether or not set forth in Section 5.16 of the Buyer Disclosure Schedule, a "Buyer Regulatory Agreement"), any Regulatory Agency or other Governmental Entity that restricts the conduct of its business or that in any manner relates to its capital adequacy, its credit policies, its management or its business, nor has Buyer or any of its Subsidiaries been advised by any Regulatory Agency or other Governmental Entity that it is considering issuing or requesting any Regulatory Agreement. Section 5.17 Approvals. As of the date of this Agreement, Buyer knows of no reason why all regulatory approvals required for the consummation of the transactions contemplated hereby should not be obtained. Section 5.18 Tax Treatment for the Merger; Reorganization. As of the date of this Agreement, Buyer has no reason to believe that the Merger will fail to qualify as a reorganization under Section 368(a) of the Code. Section 5.19 Environmental Matters. Except as set forth in Section 5.19 of the Buyer Disclosure Schedule: (a) Each of Buyer and its Subsidiaries and, to the knowledge of the Buyer, each of the Participation Facilities and the Loan Properties (each as hereinafter defined) are and have been in compliance with all Environmental Laws; (b) There is no suit, claim, action or proceeding, pending or, to the knowledge of Buyer, threatened, before any Governmental Entity or other forum in which Buyer, any of its Subsidiaries, any Participation Facility or any Loan Property, has been or, with respect to threatened proceedings, may be, named as a defendant (x) for alleged noncompliance (including by any predecessor) with any Environmental Laws, or (y) relating to the release, threatened release or exposure to any Hazardous Material whether or not occurring at or on a site owned, leased or operated by Buyer or any of its Subsidiaries, any Participation Facility or any Loan Property; (c) During the period of (x) Buyer's or any of its Subsidiaries' ownership or operation of any of their respective current or former properties, (y) Buyer's or any of its Subsidiaries' participation in the management of any Participation Facility, or (z) to the knowledge of the Buyer, Buyer's or any of its Subsidiaries' interest in a Loan Property, there has been no release of Hazardous Materials in, on, under or affecting any such property. To the knowledge of the Buyer, prior to the period of (x) Buyer's or any of its Subsidiaries' ownership or operation of any of their respective current or former properties, (y) Buyer's or any of its Subsidiaries' participation in the management of any Participation Facility, or (z) Buyer's or any of its Subsidiaries' interest in a Loan Property, there was no release of Hazardous Materials in, on, under or affecting any such property, Participation Facility or Loan Property; and (d) The following definitions apply for purposes of this Section 5.19: (x) "Loan Property" means any property in which Buyer or any of its Subsidiaries holds a security interest, and, where required by the context, said term means the owner or operator of such property; (y) "Participation Facility" means any facility in which Buyer or any of its Subsidiaries participates in the management and, where required by the context, said term means the owner or operator of such property; and (z) "Hazardous Materials" means any chemicals, pollutants, contaminants, wastes, toxic substances, petroleum or other regulated substances or materials. Section 5.20 Loan Portfolio. Section 5.20 of the Buyer Disclosure Schedule sets forth, by category, the aggregate book value amount of (i) all of the Loans in original principal amount in excess of $100,000 of the Buyer or any of its Subsidiaries that as of July 31, 1999, were classified by any bank examiner (whether regulatory or internal) as "Other Loans Specially Mentioned", "Special Mention", "Substandard", "Doubtful", "Loss", "Classified", "Criticized", "Credit Risk Assets", "Concerned Loans", "Watch List" or words of similar import, together with the principal amount of and accrued and unpaid interest on each such Loan and the identity of the borrower thereunder and (ii) all assets of the Buyer that as of June 30, 1999, were classified as "Other Real Estate Owned". (b) Each Loan in original principal amount in excess of $250,000 (i) is evidenced by notes, agreements or other evidences of indebtedness which are true, genuine and what they purport to be, (ii) to the extent secured, has been secured by valid liens and security interests which have been perfected and (iii) is the legal, valid and binding obligation of the obligor named therein, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. Section 5.21 Property. Each of the Buyer and its Subsidiaries has good and marketable title free and clear of all liens, encumbrances, mortgages, pledges, charges, defaults or equitable interests to all of the properties and assets, real and personal, tangible or intangible, which are reflected on the consolidated statement of financial condition of the Buyer as of June 30, 1999 or acquired after such date, except (i) liens for taxes not yet due and payable or contested in good faith by appropriate proceedings, (ii) pledges to secure deposits and other liens incurred in the ordinary course of business, (iii) such imperfections of title, easements and encumbrances, if any, as do not interfere with the use of the property as such property is used on the date of this Agreement, (iv) for dispositions and encumbrances of, or on, such properties or assets in the ordinary course of business or (v) mechanics', materialmen's, workmen's, repairmen's, warehousemen's, carrier's and other similar liens and encumbrances arising in the ordinary course of business. All leases pursuant to which the Buyer or any Subsidiary of the Buyer, as lessee, leases real or personal property are valid and enforceable in accordance with their respective terms and neither the Buyer nor any of its Subsidiaries nor, to the knowledge of the Buyer, any other party thereto is in default thereunder. Section 5.22 Derivative Transactions. Except as set forth in Section 5.22 of the Buyer Disclosure Schedule, since December 31, 1998, neither Buyer nor any of its Subsidiaries has engaged in transactions in or involving forwards, futures, options on futures, swaps or other derivative instruments except (i) as agent on the order and for the account of others, or (ii) as principal for purposes of hedging interest rate risk on U.S. dollar-denominated securities and other financial instruments. None of the counterparties to any contract or agreement with respect to any such instrument is in default with respect to such contract or agreement and no such contract or agreement, were it to be a Loan (as defined below) held by the Buyer or any of its Subsidiaries, would be classified as "Other Loans Specially Mentioned", "Special Mention", "Substandard", "Doubtful", "Loss", "Classified", "Criticized", "Credit Risk Assets", "Concerned Loans" or words of similar import. The financial position of Buyer and its Subsidiaries on a consolidated basis under or with respect to each such instrument has been reflected in the books and records of Buyer and such Subsidiaries in accordance with GAAP consistently applied, and no open exposure of Buyer or any of its Subsidiaries with respect to any such instrument (or with respect to multiple instruments with respect to any single counterparty) exceeds $250,000. Section 5.23 Year 2000 Matters. Section 5.23 of the Buyer Disclosure Schedule contains a true and correct copy of the Buyer's plan for addressing year 2000 computer issues (the "Year 2000 Plan"). The Buyer is in material compliance with the Buyer's Year 2000 Plan. Section 5.24 Insurance. The Buyer and its Subsidiaries are presently insured, and since December 31, 1998, have been insured, for reasonable amounts with financially sound and reputable insurance companies, against such risks as companies engaged in a similar business would, in accordance with good business practice, customarily be insured. All of the insurance policies and bonds maintained by the Buyer and its Subsidiaries are in full force and effect, the Buyer and its Subsidiaries are not in default thereunder and all material claims thereunder have been filed in due and timely fashion. ARTICLE ARTICLE VI COVENANTS RELATING TO CONDUCT OF BUSINESS Section 6.1 Covenants of the Company. During the period from the date of this Agreement and continuing until the Effective Time, except as expressly contemplated or permitted by this Agreement or the Option Agreement or with the prior written consent of Buyer, the Company and its Subsidiaries shall carry on their respective businesses in the ordinary course consistent with past practice and consistent with prudent banking practice. The Company will use its best efforts to (x) preserve its business organization and that of its Subsidiaries intact, (y) keep available to itself and Buyer the present services of the employees of the Company and its Subsidiaries and (z) preserve for itself and Buyer the goodwill of the customers of the Company and its Subsidiaries and others with whom business relationships exist. Without limiting the generality of the foregoing, and except as set forth in Section 6.1 of the Company Disclosure Schedule or as otherwise contemplated by this Agreement or consented to in writing by Buyer, the Company shall not, and shall not permit any of its Subsidiaries to: (a) solely in the case of the Company, declare or pay any dividends on, or make other distributions in respect of, any of its capital stock, other than normal quarterly dividends not in excess of $0.21 per share of Company Common Stock; (b) (i) split, combine or reclassify any shares of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, (ii) repurchase, redeem or otherwise acquire (except for the acquisition of Trust Account Shares and DPC Shares, as such terms are defined in Section 1.4(b) hereof) any shares of the capital stock of the Company or any Subsidiary of the Company, or any securities convertible into or exercisable for any shares of the capital stock of the Company or any Subsidiary of the Company; or (iii) issue, deliver or sell, or authorize or propose the issuance, delivery or sale of, any shares of its capital stock or any securities convertible into or exercisable for, or any rights, warrants or options to acquire, any such shares, or enter into any agreement with respect to any of the foregoing, except, in the case of clauses (i) and (iii), for the issuance of Company Common Stock upon the exercise or fulfillment of rights or options issued or existing pursuant to employee benefit plans, programs or arrangements, all to the extent outstanding and in existence on the date of this Agreement and in accordance with their present terms; (c) amend its Certificate of Incorporation, By-laws or other similar governing documents; (d) authorize any of its officers, directors, or agents to directly or indirectly solicit, initiate or encourage any inquiries relating to, or the making of any proposal which constitutes, a "takeover proposal" (as defined below), or recommend or endorse any takeover proposal, or participate in any discussions or negotiations, or provide third parties with any nonpublic information, relating to any such inquiry or proposal or otherwise facilitate any effort or attempt to make or implement a takeover proposal; provided, however, that the Company may communicate information about any such takeover proposal to its stockholders if, in the judgment of the Company's Board of Directors, based upon the advice of outside counsel, such communication is required under applicable law; provided further, however, that nothing contained in this Section 6.1(d) shall prohibit the Company from furnishing information to, or entering into discussions or negotiations with, any person or entity that makes an unsolicited, bona fide takeover proposal that constitutes a Superior Proposal (as defined below) in each case if, and only to the extent that (A) such actions occur at a time prior to approval of the Merger Agreement by the Company's stockholders, (B) the Board of Directors of the Company concludes in good faith, after consultation with and based upon the advice of outside counsel, that it is required to do so in order to comply with its fiduciary duties to the Company's stockholders under applicable law, and (C) prior to taking such action, the Company receives from such person or entity an executed confidentiality agreement and an executed standstill agreement, each in reasonably customary form (provided that such agreements shall contain terms that are no less restrictive than the terms of any such agreement between Buyer and the Company). For purposes of this Agreement, "Superior Proposal" means any bona fide written takeover proposal for or in respect of all of the outstanding shares of Company Common Stock, (i) on terms that the Board of Directors of the Company determines in its good faith judgment (after consultation with a financial advisor of nationally recognized reputation and taking into account all the terms and conditions of the takeover proposal deemed relevant by such Board of Directors, including the consideration to be paid pursuant thereto, any break-up fees, expense reimbursement provisions, conditions to consummation, and the ability of the party making such proposal to obtain financing therefor) are more favorable from a financial point of view to its stockholders than the Merger, and (ii) that constitutes a transaction that, in such Board of Directors' good faith judgment, is reasonably likely to be consummated on the terms set forth, taking into account all legal, financial, regulatory and other aspects of such proposal. The Company will immediately cease and cause to be terminated any existing activities, discussions or negotiations previously conducted with any parties other than Buyer with respect to any of the foregoing. The Company will take all actions necessary or advisable to inform the appropriate individuals or entities referred to in the first sentence hereof of the obligations undertaken in this Section 6.1(d). The Company will notify Buyer immediately if any such inquiries or takeover proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with, the Company, and the Company will promptly inform Buyer in writing of all of the relevant details with respect to the foregoing. As used in this Agreement, "takeover proposal" shall mean any tender or exchange offer, proposal for a merger, consolidation or other business combination involving the Company or any Subsidiary of the Company or any proposal or offer to acquire in any manner a substantial equity interest in, or a substantial portion of the assets of, the Company or any Subsidiary of the Company other than the transactions contemplated or permitted by this Agreement and the Option Agreement; (e) make any capital expenditures other than those which (i) are made in the ordinary course of business or are necessary to maintain existing assets in good repair and (ii) in any event are in an amount of no more than $500,000 in the aggregate; (f) enter into any new line of business; (g) acquire or agree to acquire, by merging or consolidating with, or by purchasing a substantial equity interest in or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire any assets, which would be material, individually or in the aggregate, to the Company, other than in connection with foreclosures, settlements in lieu of foreclosure or troubled loan or debt restructurings in the ordinary course of business consistent with prudent banking practices; (h) take any action that is intended or may reasonably be expected to result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect, or in any of the conditions to the Merger set forth in Article VIII not being satisfied; (i) change its methods of accounting in effect at June 30, 1998 except as required by changes in GAAP or regulatory accounting principles as concurred to by the Company's independent auditors; (j) (i) except as required by applicable law or as required to maintain qualification pursuant to the Code, adopt, amend, renew or terminate any employee benefit plan (including, without limitation, any Plan) or any agreement, arrangement, plan or policy between the Company or any Subsidiary of the Company and one or more of its current or former directors, officers or employees or (ii) except for normal increases in the ordinary course of business consistent with past practice or except as required by applicable law, increase in any manner the compensation or fringe benefits of any director, officer or employee or pay any benefit not required by any Plan or agreement as in effect as of the date hereof (including, without limitation, the granting of stock options, stock appreciation rights, restricted stock, restricted stock units or performance units or shares); (k) take or cause to be taken any action which would disqualify the Merger as a tax free reorganization under Section 368(a) of the Code; (l) other than activities in the ordinary course of business consistent with past practice, sell, lease, encumber, assign or otherwise dispose of, or agree to sell, lease, encumber, assign or otherwise dispose of, any of its material assets, properties or other rights or agreements; (m) other than in the ordinary course of business consistent with past practice, incur any indebtedness for borrowed money or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other individual, corporation or other entity; (n) file any application to relocate or terminate the operations of any banking office of it or any of its Subsidiaries; (o) make any equity investment or commitment to make such an investment in real estate or in any real estate development project, other than in connection with foreclosures, settlements in lieu of foreclosure or troubled loan or debt restructurings in the ordinary course of business consistent with prudent banking practices; (p) create, renew, amend or terminate or give notice of a proposed renewal, amendment or termination of, any material contract, agreement or lease for goods, services or office space to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or their respective properties is bound; (q) other than in prior consultation with Buyer, restructure or materially change its investment securities portfolio, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported; or (r) agree to do any of the foregoing. Section 6.2 Covenants of Buyer. During the period from the date of this Agreement and continuing until the Effective Time, except as expressly contemplated or permitted by this Agreement or the Option Agreement or with the prior written consent of the Company, Buyer and its Subsidiaries shall carry on their respective businesses in the ordinary course consistent with prudent banking practice. Except as set forth in Section 6.2 of the Buyer Disclosure Schedule or as otherwise contemplated by this Agreement or consented to in writing by the Company, Buyer shall not, and shall not permit any of its Subsidiaries to: (a) solely in the case of Buyer, declare or pay any extraordinary or special dividends on or make any other extraordinary or special distributions in respect of any of its capital stock; provided, however, that nothing contained herein shall prohibit Buyer from increasing the quarterly cash dividend on the Buyer Common Stock; (b) take any action that is intended or may reasonably be expected to result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect, or in any of the conditions to the Merger set forth in Article VIII not being satisfied; (c) change its methods of accounting in effect at December 31, 1998, except in accordance with changes in GAAP or regulatory accounting principles as concurred to by Buyer's independent auditors; (d) take or cause to be taken any action which would disqualify the Merger as a tax free reorganization under Section 368(a) of the Code; or (e) change any provisions of the Certificate of Incorporation of the Buyer, other than as disclosed in Section 6.2(e) of the Buyer Disclosure Schedule; (f) agree to do any of the foregoing. ARTICLE ARTICLE VII ADDITIONAL AGREEMENTS Section 7.1 Regulatory Matters. (a) The Company shall promptly prepare and file with the SEC the Proxy Statement and Buyer shall promptly prepare and file with the SEC the S-4, in which the Proxy Statement will be included as a prospectus. Each of the Company and Buyer shall use all reasonable efforts to have the S-4 declared effective under the Securities Act as promptly as practicable after such filing, and the Company shall thereafter mail the Proxy Statement to its stockholders. Buyer shall also use all reasonable efforts to obtain all necessary state securities law or "Blue Sky" permits and approvals required to carry out the transactions contemplated by this Agreement, and the Company shall furnish all information concerning the Company and the holders of Company Common Stock as may be reasonably requested in connection with any such action. (b) The parties hereto shall cooperate with each other and use their reasonable best efforts to promptly prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, and to obtain as promptly as practicable all permits, consents, approvals and authorizations of all third parties and Governmental Entities which are necessary or advisable to consummate the transactions contemplated by this Agreement. The Company and Buyer shall have the right to review in advance, and to the extent practicable each will consult the other on, in each case subject to applicable laws relating to the exchange of information, all the information relating to the Company or Buyer, as the case may be, and any of their respective Subsidiaries, which appears in any filing made with, or written materials submitted to, any third party or any Governmental Entity in connection with the transactions contemplated by this Agreement. In exercising the foregoing right, each of the parties hereto shall act reasonably and as promptly as practicable. The parties hereto agree that they will consult with each other with respect to the obtaining of all permits, consents, approvals and authorizations of all third parties and Governmental Entities necessary or advisable to consummate the transactions contemplated by this Agreement and each party will keep the other apprised of the status of matters relating to completion of the transactions contemplated herein. (c) Buyer and the Company shall, upon request, furnish each other with all information concerning themselves, their Subsidiaries, directors, officers and stockholders and such other matters as may be reasonably necessary or advisable in connection with the Proxy Statement, the S-4 or any other statement, filing, notice or application made by or on behalf of Buyer, the Company or any of their respective Subsidiaries to any Governmental Entity in connection with the Merger and the other transactions contemplated by this Agreement. (d) Buyer and the Company shall promptly furnish each other with copies of written communications received by Buyer or the Company, as the case may be, or any of their respective Subsidiaries, Affiliates or Associates (as such terms are defined in Rule 12b-2 under the Exchange Act as in effect on the date of this Agreement) from, or delivered by any of the foregoing to, any Governmental Entity in respect of the transactions contemplated hereby. Section 7.2 Access to Information. (a) Upon reasonable notice and subject to applicable laws relating to the exchange of information, the Company shall, and shall cause each of its Subsidiaries to, afford to the officers, employees, accountants, counsel and other representatives of Buyer, access, during normal business hours during the period prior to the Effective Time, to all its properties, books, contracts, commitments, records, officers, employees, accountants, counsel and other representatives and, during such period, the Company shall, and shall cause its Subsidiaries to, make available to Buyer (i) a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of Federal securities laws or Federal or state banking laws (other than reports or documents which the Company is not permitted to disclose under applicable law) and (ii) all other information concerning its business, properties and personnel as Buyer may reasonably request. Neither the Company nor any of its Subsidiaries shall be required to provide access to or to disclose information where such access or disclosure would violate or prejudice the rights of the Company's customers, jeopardize any attorney-client privilege or contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or binding agreement entered into prior to the date of this Agreement. The parties hereto will make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply. (b) Upon reasonable notice and subject to applicable laws relating to the exchange of information, Buyer shall, and shall cause its Subsidiaries to, afford to the officers, employees, accountants, counsel and other representatives of the Company, access, during normal business hours during the period prior to the Effective Time, to such information regarding Buyer and its Subsidiaries as shall be reasonably necessary for the Company to fulfill its obligations pursuant to this Agreement to assist in the preparation of the Proxy Statement or which may be reasonably necessary for the Company to confirm that the representations and warranties of Buyer contained herein are true and correct and that the covenants of Buyer contained herein have been performed in all material respects. Neither Buyer nor any of its Subsidiaries shall be required to provide access to or to disclose information where such access or disclosure would violate or prejudice the rights of Buyer's customers, jeopardize any attorney-client privilege or contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or binding agreement entered into prior to the date of this Agreement. The parties hereto will make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply. (c) All information furnished by either party to the other party or its representatives pursuant hereto shall be treated as the sole property of the delivery party and, if the Merger shall not occur, the receiving party and its representatives shall return to the delivering party all of such written information and all documents, notes, summaries or other materials containing, reflecting or referring to, or derived from, such information. The receiving party shall, and shall use its best efforts to cause its representatives to, keep confidential all such information, and shall not directly or indirectly use such information for any competitive or other commercial purpose. The obligation to keep such information confidential shall continue for ten years from the date the proposed Merger is abandoned and shall not apply to (i) any information which (x) was already in the receiving party's possession prior to the disclosure thereof by the delivering party; (y) was then generally known to the public; or (z) was disclosed to the receiving party by a third party not bound by an obligation of confidentiality or (ii) disclosures made as required by law. It is further agreed that, if in the absence of a protective order or the receipt of a waiver hereunder the receiving party is nonetheless, in the opinion of its counsel, compelled to disclose information concerning delivering party to any tribunal or governmental body or agency or else stand liable for contempt or suffer other censure or penalty, the receiving party may disclose such information to such tribunal or governmental body or agency without liability hereunder. (d) No investigation by either of the parties or their respective representatives shall affect the representations, warranties, covenants or agreements of the other set forth herein. Section 7.3 Stockholder Meetings. The Company shall take all steps necessary to duly call, give notice of, convene and hold a meeting of its stockholders to be held as soon as is reasonably practicable after the date on which the S-4 becomes effective for the purpose of voting upon the approval of this Agreement and the consummation of the transactions contemplated hereby. The Company will, through its Board of Directors, recommend to its stockholders approval of this Agreement and the transactions contemplated hereby and such other matters as may be submitted to its stockholders in connection with this Agreement; provided, however, that nothing shall prohibit the Board of Directors of the Company from withdrawing or modifying in a manner adverse to Buyer such recommendation to the Company's stockholders if (a) the Company is not in breach of, and has not breached, any of the provisions of Section 6.1(d), (b) the Company receives an unsolicited, bona fide written takeover proposal which constitutes a Superior Proposal (each as defined in Section 6.1(d)), and (c) the Board of Directors of the Company determines in good faith that it is required to take such action, but only after consultation with outside counsel and only if such outside counsel concludes and advises the Board that the failure to take such action would result in a violation of its fiduciary duties under applicable law. Section 7.4 Legal Conditions to Merger. Each of Buyer and the Company shall, and shall cause its Subsidiaries to, use their reasonable best efforts (a) to take, or cause to be taken, all actions necessary, proper or advisable to comply promptly with all legal requirements which may be imposed on such party or its Subsidiaries with respect to the Merger and, subject to the conditions set forth in Article VIII hereof, to consummate the transactions contemplated by this Agreement and (b) to obtain (and to cooperate with the other party to obtain) any consent, authorization, order or approval of, or any exemption by, any Governmental Entity and any other third party which is required to be obtained by the Company or Buyer or any of their respective Subsidiaries in connection with the Merger and the other transactions contemplated by this Agreement, and to comply with the terms and conditions of such consent, authorization, order or approval. Section 7.5 Affiliates. The Company shall use its reasonable best efforts to cause each director, executive officer and other person who is an "affiliate" (for purposes of Rule 145 under the Securities Act) of the Company to deliver to Buyer, as soon as practicable after the date of this Agreement, a written agreement, in the form of Exhibit 7.5 hereto. Section 7.6 Stock Exchange Listing. Buyer shall use all reasonable efforts to cause the shares of Buyer Common Stock to be issued in the Merger to be approved for listing on the NYSE, subject to official notice of issuance, as of the Effective Time. Section 7.7 Employee Benefit Plans; Existing Agreements. (a) As soon as practicable following the Effective Time, the employees of the Company and its Subsidiaries (the "Company Employees") shall be eligible to participate in Buyer's employee benefit plans in which similarly situated employees of Buyer or Buyer Bank participate, to the same extent as similarly-situated employees of Buyer or Buyer Bank (it being understood that inclusion of Company Employees in Buyer's employee benefit plans may occur at different times with respect to different plans); provided, however, that Buyer shall continue the comparable plans of Company and its Subsidiaries for the exclusive benefit of Company Employees until such time as Company Employees become eligible to participate in the plans of Buyer or Buyer Bank. Company's ESOP shall terminate as of the Effective Time and prior to such time Company shall make contributions to the ESOP sufficient to enable the trustee of the plan to repay in full all outstanding acquisition loans of the plan. If Company cannot make contributions sufficient to enable the trustee to repay such loans in full by reason of the operation of Section 415(c) of the Code then, in accordance with the terms of the ESOP, the trustee shall sell a number of shares sufficient to repay the remaining portion of the loan. All shares of stock and cash held by the plan as of the Effective Time shall be allocated to participants of the ESOP in accordance with its terms. (b) With respect to each Buyer Plan that is an "employee benefit plan," as defined in Section 3(3)of ERISA, for purposes of determining eligibility to participate, vesting, and entitlement to benefits, including for severance benefits and vacation entitlement (but not for accrual of pension benefits), service with the Company and its Subsidiaries shall be treated as service with Buyer; provided however, that such service shall not be recognized to the extent that such recognition would result in a duplication of benefits. Such service also shall apply for purposes of satisfying any waiting periods, evidence of insurability requirements, or the application of any preexisting condition limitations. Company Employees shall be given credit for amounts paid under a corresponding benefit plan during the same period for purposes of applying deductibles, copayments and out-of-pocket maximums as though such amounts had been paid in accordance with the terms and conditions of the Buyer Plan. (c) Buyer shall honor and shall cause the appropriate Subsidiaries of Buyer to honor, and the Company shall pay at the Closing Date, in accordance with their terms all employment, severance and other compensation agreements and arrangements existing prior to the execution of this Agreement which are between the Company or any of its Subsidiaries and any director, officer or employee thereof and which have been disclosed in the Company Disclosure Schedule and previously have been delivered to Buyer. All payments under employment and change in control agreements identified in Section 4.15(a) of the Company Disclosure Schedule between the Company or its Subsidiaries and individual officers and employees of the Company or its Subsidiaries shall be paid by the Company at the Closing Date regardless of whether or not such individual continues in employment with Buyer or its Subsidiaries. The Company Disclosure Schedule sets forth the reasonable, good faith estimates of amounts payable under employment and severance agreements between the Company or its Subsidiaries and certain individuals and the amounts shown and methodology used in preparing such estimates shall be followed in determining the actual amounts payable under such agreements. (d) Employees of the Company and its Subsidiaries shall be entitled to receive payment for accrued but unused vacation days and any accrued but unused vacation days of employees of the Company or its Subsidiaries as of the Closing Date shall, at the employee's option, either be paid immediately prior to the Closing Date or taken as vacation as soon as practicable following the Closing Date; provided, however, that the Company shall deliver to Buyer, not later than fifteen (15) business days after the date of this Agreement, a schedule of employees indicating their accrued but unused vacation days as of the most recent date practicable. (e) The Company or its Subsidiaries shall pay bonuses in accordance with its past practices through December 31, 1999, and the compensation with respect to which bonuses are paid for any individual shall be for the period of time that has elapsed since the payment of the last bonus. At the Closing Date each Company Employee shall be entitled to receive a bonus equal to the bonus received by such Company Employee for the period ended as of December 31, 1999, multiplied by a fraction, the numerator of which shall be the number of days from December 31 through the date on which the Closing Date occurs and the denominator of which is 366 (in the case of employees who were paid annual bonuses as of December 31) and 180 days (in the case of employees who received semi annual bonuses as of both June 30 and December 31), as the case may be. Section 7.8 Indemnification. (a) In the event of any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal or administrative, including, without limitation, any such claim, action, suit, proceeding or investigation in which any person who is now, or has been at any time prior to the date of this Agreement, or who becomes prior to the Effective Time, a director or officer of the Company or any of its Subsidiaries (the "Indemnified Parties") is, or is threatened to be, made a party based in whole or in part on, or arising in whole or in part out of, or pertaining to (i) the fact that he is or was a director or officer of the Company, any of the Subsidiaries of the Company or any of their respective predecessors or (ii) this Agreement or any of the transactions contemplated hereby, whether in any case asserted or arising before or after the Effective Time, the parties hereto agree to cooperate and use their best efforts to defend against and respond thereto. It is understood and agreed that after the Effective Time, Buyer shall indemnify and hold harmless, as and to the extent permitted by law, each such Indemnified Party against any losses, claims, damages, liabilities, costs, expenses (including reasonable attorney's fees and expenses in advance of the final disposition of any claim, suit, proceeding or investigation to each Indemnified Party to the fullest extent permitted by law upon receipt of any undertaking required by applicable law), judgments, fines and amounts paid in settlement in connection with any such threatened or actual claim, action, suit, proceeding or investigation, and in the event of any such threatened or actual claim, action, suit, proceeding or investigation (whether asserted or arising before or after the Effective Time), the Indemnified Parties may retain counsel reasonably satisfactory to them after consultation with Buyer; provided, however, that (1) Buyer shall have the right to assume the defense thereof with counsel reasonably acceptable to the Indemnified party and upon such assumption Buyer shall not be liable to any Indemnified Party for any legal expenses of other counsel or any other expenses subsequently incurred by any Indemnified Party in connection with the defense thereof, except that if Buyer elects not to assume such defense or counsel for the Indemnified Parties reasonably advises that there are issues which raise conflicts of interest between Buyer and the Indemnified Parties, the Indemnified Parties may retain counsel reasonably satisfactory to them after consultation with Buyer, and Buyer shall pay the reasonable fees and expenses of such counsel for the Indemnified Parties, (2) Buyer shall in all cases be obligated pursuant to this paragraph to pay for only one firm of counsel with respect to any claim, action or suit for all Indemnified Parties, (3) Buyer shall not be liable for any settlement effected without its prior written consent (which consent shall not be unreasonably withheld) and (4) Buyer shall have no obligation hereunder to any Indemnified Party when and if a court of competent jurisdiction shall ultimately determine, and such determination shall have become final and nonappealable, that indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by applicable law. Any Indemnified Party wishing to claim Indemnification under this Section 7.8, upon learning of any such claim, action, suit, proceeding or investigation, shall notify promptly Buyer thereof, provided that the failure to so notify shall not affect the obligations of Buyer under this Section 7.8 except to the extent such failure to notify prejudices Buyer. Buyer's obligations under this Section 7.8 shall continue in full force and effect for a period of six (6) years from the Effective Time; provided, however, that all rights to indemnification in respect of any claim (a "Claim") asserted or made within such period shall continue until the final disposition of such Claim. (b) Buyer shall cause the persons serving as officers and directors of the Company immediately prior to the Effective Time to be covered for a period of six (6) years from the Effective Time by the directors' and officers' liability insurance policy maintained by the Company (provided that Buyer may substitute therefor policies of at least the same coverage and amounts containing terms and conditions which are not less advantageous than such policy) with respect to acts or omissions occurring prior to the Effective Time which were committed by such officers and directors in their capacity as such; provided, however, that in no event shall Buyer be required to expend on an annual basis more than 175% of the current amount expended by the Company (the "Insurance Amount") to maintain or procure insurance coverage, and further provided that if Buyer is unable to maintain or obtain the insurance called for by this Section 7.8(b) Buyer shall use all reasonable efforts to obtain as much comparable insurance as is available for the Insurance Amount. (c) In the event Buyer or any of its successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns of Buyer assume the obligations set forth in this section. (d) The provisions of this Section 7.8 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party and his or her heirs and representatives. Section 7.9 Additional Agreements. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation with full title to all properties, assets, rights, approvals, immunities and franchises of any of the parties to the Merger, the proper officers and directors of each party to this Agreement and their respective Subsidiaries shall take all such necessary action as may be reasonably requested by Buyer. Section 7.10 Advice of Changes. Buyer and the Company shall promptly advise the other party of any change or event having a Material Adverse Effect on it or which it believes would or would be reasonably likely to cause or constitute a material breach of any of its representations, warranties or covenants contained herein. From time to time prior to the Effective Time (and on the date prior to the Closing Date), each party will supplement or amend its Disclosure Schedules delivered in connection with the execution of this Agreement to reflect any matter which, if existing, occurring or known at the date of this Agreement, would have been required to be set forth or described in such Disclosure Schedules or which is necessary to correct any information in such Disclosure Schedules which has been rendered inaccurate thereby. No supplement or amendment to such Disclosure Schedules shall have any effect for the purpose of determining satisfaction of the conditions set forth in Sections 8.2(a) or 8.3(a) hereof, as the case may be, or the compliance by the Company or Buyer, as the case may be, with the respective covenants and agreements of such parties contained herein. Section 7.11 Current Information. (a) During the period from the date of this Agreement to the Effective Time, the Company will cause one or more of its designated representatives to confer on a regular and frequent basis (not less than monthly) with representatives of Buyer and to report the general status of the ongoing operations of the Company and its Subsidiaries. The Company will promptly notify Buyer of any material change in the normal course of business or in the operation of the properties of the Company or any of its Subsidiaries and of any governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), or the institution or the threat of significant litigation involving the Company or any of its Subsidiaries, and will keep Buyer fully informed of such events. (b) During the period from the date of this Agreement to the Effective Time, Buyer shall inform the Company of any proposed acquisition or merger transaction involving Buyer. Section 7.12 Execution and Authorization of Bank Merger Agreement. As soon as reasonably practicable following a request made by Buyer, (a) Buyer shall (i) cause the Board of Directors of Buyer Bank to approve an Agreement and Plan of Merger providing for the merger of Company Bank into Buyer Bank (the "Bank Merger Agreement"), (ii) cause Buyer Bank to execute and deliver the Bank Merger Agreement, and (iii) approve the Bank Merger Agreement as the sole stockholder of Buyer Bank, and (b) the Company shall (i) cause the Board of Directors of the Company Bank to approve the Bank Merger Agreement, (ii) cause the Company Bank to execute and deliver the Bank Merger Agreement, and (iii) approve the Bank Merger Agreement as the sole stockholder of the Company Bank. The Bank Merger Agreement shall contain terms that are normal and customary in light of the transactions contemplated hereby and such additional terms as are necessary to carry out the purposes of this Agreement. Section 7.13 Coordination of Dividends. From the date of this Agreement to the Effective Time, each of Buyer and the Company shall coordinate with the other the declaration, record and payment dates with respect to dividends in respect of the Buyer Common Stock and the Company Common Stock and the record dates and payments dates relating thereto, it being the intention of the parties that the holders of Buyer Common Stock or Company Common Stock shall not receive more than one dividend, or fail to receive one dividend, for any single calendar quarter with respect to their shares of Buyer Common Stock and/or Company Common Stock and any shares of Buyer Common Stock any holder of Company Common Stock receives in exchange therefor in the Merger. Section 7.14 Directorship. Effective as of the Effective Time, Buyer shall cause its Board of Directors to be expanded by one member and shall appoint Raymond A. Nielsen to fill the vacancy on Buyer's Board of Directors created by such increase as of the Effective Time and shall cause Mr. Nielsen to be nominated for election to the Board of Directors for a period not less than three (3) years. Section 7.15 Accountants' Letter. The Company shall use its reasonable efforts to cause to be delivered to Buyer a letter of its independent public accountants dated (i) the date on which the S-4 shall become effective and (ii) a date shortly prior to the Effective Time, and addressed to Buyer, in form and substance customary for "comfort" letters delivered by independent accountants in accordance with Statement of Financial Accounting Standards No. 72. Section 7.16 Certain Revaluations, Changes and Adjustments. At or before the Effective Time, upon the request of Buyer, the Company shall, consistent with GAAP, modify and change its loan, litigation and real estate valuation policies and practices (including loan classifications and levels of reserves) so as to be applied consistently on a mutually satisfactory basis with those of Buyer and establish such accruals and reserves as shall be necessary to reflect Merger-related expenses and costs incurred by the Company, provided, however, that the Company shall not be required to take such action unless Parent acknowledges in writing that all conditions to closing set forth in Article VIII have been satisfied or waived (other than those conditions relating to delivery of documents on the Closing Date); provided further, however, that no accrual or reserve made by the Company or any Company Subsidiary pursuant to this Section 7.16 shall constitute or be deemed to be a breach, violation of or failure to satisfy any representation, warranty, covenant, condition or other provision of this Agreement or otherwise be considered in determining whether any such breach, violation or failure to satisfy shall have occurred. Section 7.17 Year 2000. Each of Buyer and the Company shall use its commercially reasonable efforts to implement its respective Y2K Plan. At the request of the other party, each of Buyer and the Company shall periodically update the other party regarding its process with respect to its Y2K Plan. Section 7.18 JSB Financial Merger. It is understood by the parties that the Merger shall be accounted for under the purchase method of accounting. Accordingly, the parties agree to use all reasonable efforts to cause the Effective Time to occur prior to the consummation of the merger between Buyer and JSB Financial, Inc. pursuant to the Agreement and Plan of Merger (as amended) between such parties dated as of August 16, 1999. Section 7.19 Advisory Board. Buyer shall, as of the Effective Time, invite Gerald M. Sauvigne and all of the members of the Company's Board of Directors as of the date of this Agreement, other than Mr. Nielsen, who are willing to serve to be appointed as members of Buyer's advisory board (the "Advisory Board"). The members of the Advisory Board who are willing to so serve shall be elected to a term of three (3) years beginning on the Closing Date and shall receive an annual retainer fee in the amount set forth in Section 7.19 of the Buyer Disclosure Schedule. ARTICLE ARTICLE VIII CONDITIONS PRECEDENT Section 8.1 Conditions to Each Party's Obligation To Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) Stockholder Approval. This Agreement shall have been approved and adopted by the requisite vote of the holders of the outstanding shares of Company Common Stock under applicable law. (b) NYSE Listing. The shares of Buyer Common Stock which shall be issued to the stockholders of the Company upon consummation of the Merger shall have been authorized for listing on the NYSE, subject to official notice of issuance. (c) Other Approvals. All regulatory approvals required to consummate the transactions contemplated hereby (including the Merger) shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired (all such approvals and the expiration of all such waiting periods being referred to herein as the "Requisite Regulatory Approvals"). (d) S-4. The S-4 shall have become effective under the Securities Act and no stop order suspending the effectiveness of the S-4 shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC. (e) No Injunctions or Restraints; Illegality. No order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition (an "Injunction") preventing the consummation of the Merger shall be in effect. No statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any Governmental Entity which prohibits, restricts or makes illegal consummation of the Merger. Section 8.2 Conditions to Obligations of Buyer. The obligation of Buyer to effect the Merger is also subject to the satisfaction or waiver by Buyer at or prior to the Effective Time of the following conditions: (a) Representations and Warranties. (i) Subject to Section 3.2, the representations and warranties of the Company set forth in this Agreement (other than those set forth in Sections 4.2, 4.3(a), 4.3(b)(i), 4.6, 4.7, 4.8(a)(ii), 4.8(b), 4.11(a), 4.12, 4.15(a), 4.18, 4.21, 4.26 and 4.27) shall be true and correct as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date; and (ii) the representations and warranties of the Company set forth in Sections 4.2, 4.3(a), 4.3(b)(i), 4.6, 4.7, 4.8(a)(ii), 4.8(b), 4.11(a), 4.12, 4.15(a), 4.18, 4.21, 4.26 and 4.27 of this Agreement shall be true and correct in all material respects (without giving effect to Section 3.2 of this Agreement) as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date. Buyer shall have received a certificate signed on behalf of the Company by the Chief Executive Officer and the Chief Financial Officer of the Company to the foregoing effect. (b) Performance of Obligations of the Company. The Company shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and Buyer shall have received a certificate signed on behalf of the Company by the Chief Executive Officer and the Chief Financial Officer of the Company to such effect. (c) Consents Under Agreements. The consent, approval or waiver of each person (other than the Governmental Entities referred to in Section 8.1(c)) whose consent or approval shall be required in order to permit the succession by the Surviving Corporation pursuant to the Merger to any obligation, right or interest of the Company or any Subsidiary of the Company under any loan or credit agreement, note, mortgage, indenture, lease, license or other agreement or instrument shall have been obtained, except where the failure to obtain such consent, approval or waiver would not have a Material Adverse Effect on the Company. (d) No Pending Governmental Actions. No proceeding initiated by any Governmental Entity seeking an Injunction shall be pending. (e) Federal Income Tax Opinion. Buyer shall have received an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Buyer ("Buyer's Counsel"), dated the Effective Date, in form and substance reasonably satisfactory to Buyer, substantially to the effect that, on the basis of facts, representations and assumptions set forth in such opinion which are consistent with the state of facts existing at the Effective Time, the Merger will be treated as a reorganization within the meaning of Section 368(a) of the Code. In rendering such opinion, Buyer's Counsel may require and rely upon representations and covenants, including those contained in certificates of officers of Buyer, the Company and others reasonably satisfactory in form and substance to such counsel. Section 8.3 Conditions to Obligations of the Company. The obligation of the Company to effect the Merger is also subject to the satisfaction or waiver by the Company at or prior to the Effective Time of the following conditions: (a) Representations and Warranties. (i) Subject to Section 3.2, the representations and warranties of Buyer (other than those set forth in Sections 5.2, 5.3(a), 5.3(b), 5.3(c)(i), 5.6, 5.7, 5.8(ii), 5.11(a), 5.12 and 5.15) set forth in this Agreement shall be true and correct as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date; and (ii) the representations and warranties of Buyer set forth in Sections 5.2, 5.3(a), 5.3(b), 5.3(c)(i), 5.6, 5.7, 5.8(ii), 5.11(a), 5.12 and 5.15 of this Agreement shall be true and correct in all material respects (without giving effect to Section 3.2 of this Agreement) as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date. The Company shall have received a certificate signed on behalf of Buyer by the Chief Executive Officer and the Chief Financial Officer of Buyer to the foregoing effect. (b) Performance of Obligations of Buyer. Buyer shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and the Company shall have received a certificate signed on behalf of Buyer by the Chief Executive Officer and the Chief Financial Officer of Buyer to such effect. (c) Consents Under Agreements. The consent, approval or waiver of each person (other than the Governmental Entities referred to in Section 8.1(c)) whose consent or approval shall be required in connection with the transactions contemplated hereby under any loan or credit agreement, note, mortgage, indenture, lease, license or other agreement or instrument to which Buyer or any of its Subsidiaries is a party or is otherwise bound shall have been obtained, except where failure to obtain such consents and approvals would not, individually or in the aggregate, have a Material Adverse Effect on Buyer and its Subsidiaries taken as a whole (after giving effect to the transactions contemplated hereby). (d) No Pending Governmental Actions. No proceeding initiated by any Governmental Entity seeking an Injunction shall be pending. (e) Federal Income Tax Opinion. The Company shall have received an opinion of Muldoon, Murphy & Faucette LLP (the "Company's Counsel"), in form and substance reasonably satisfactory to the Company, dated the Effective Date, substantially to the effect that, on the basis of facts, representations and assumptions set forth in such opinion which are consistent with the state of facts existing at the Effective Time, the Merger will be treated as a reorganization within the meaning of Section 368(a) of the Code. In rendering such opinion, the Company's Counsel may require and rely upon representations and covenants, including those contained in certificates of officers of Buyer, the Company and others, reasonably satisfactory in form and substance to such counsel. ARTICLE ARTICLE IX TERMINATION AND AMENDMENT Section 9.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of the matters presented in connection with the Merger by the stockholders of the Company: (a) by mutual consent of the Company and Buyer in a written instrument, if the Board of Directors of each so determines by a vote of a majority of the members of its entire Board; (b) by either Buyer or the Company upon written notice to the other party (i) 60 days after the date on which any request or application for a Requisite Regulatory Approval shall have been denied or withdrawn at the request or recommendation of the Governmental Entity which must grant such Requisite Regulatory Approval, unless within the 60-day period following such denial or withdrawal a petition for rehearing or an amended application has been filed with the applicable Governmental Entity, provided, however, that no party shall have the right to terminate this Agreement pursuant to this Section 9.1(b)(i) if such denial or request or recommendation for withdrawal shall be due to the failure of the party seeking to terminate this Agreement to perform or observe the covenants and agreements of such party set forth herein or (ii) if any Governmental Entity of competent jurisdiction shall have issued a final nonappealable order enjoining or otherwise prohibiting the Merger; (c) by either Buyer or the Company if the Merger shall not have been consummated on or before June 30, 2000, unless the failure of the Closing to occur by such date shall be due to the failure of the party seeking to terminate this Agreement to perform or observe the covenants and agreements of such party set forth herein; (d) by either Buyer or the Company (provided that the terminating party shall not be in material breach of any of its obligations under Section 7.3) if any approval of the stockholders of the Company required for the consummation of the Merger shall not have been obtained by reason of the failure to obtain the required vote at a duly held meeting of such stockholders or at any adjournment or postponement thereof; (e) by either Buyer or the Company (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein) if there shall have been a material breach of any of the representations or warranties set forth in this Agreement on the part of the other party, which breach is not cured within thirty days following written notice to the party committing such breach, or which breach, by its nature, cannot be cured prior to the Closing; provided, however, that neither party shall have the right to terminate this Agreement pursuant to this Section 9.1(e) unless the breach of representation or warranty, together with all other such breaches, would entitle the party receiving such representation not to consummate the transactions contemplated hereby under Section 8.2(a) (in the case of a breach of representation or warranty by the Company) or Section 8.3(a) (in the case of a breach of representation or warranty by Buyer); (f) by either Buyer or the Company (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein) if there shall have been a material breach of any of the covenants or agreements set forth in this Agreement on the part of the other party, which breach shall not have been cured within thirty days following receipt by the breaching party of written notice of such breach from the other party hereto, or which breach, by its nature, cannot be cured prior to the Closing; (g) by Buyer, if the Board of Directors of the Company does not publicly recommend in the Proxy Statement that the Company's stockholders approve and adopt this Agreement or if, after recommending in the Proxy Statement that stockholders approve and adopt this Agreement, the Board of Directors of the Company shall have withdrawn, modified or amended such recommendation in any manner adverse to Buyer; or (h) by the Company at any time during the five business-day period commencing on the first business day after the Determination Date (as defined below), if both of the following conditions are satisfied: (1) the Average Closing Price (as defined below) shall be less than $16.20 and (2) (i) the number obtained by dividing the Average Closing Price by the Starting Price (such number being referred to herein as the "Buyer Ratio") shall be less than (ii) the number obtained by dividing the Final Index Price by the Initial Index Price and subtracting 0.15 from such quotient (such number being referred to herein as the "Index Ratio"), subject to the following provisions. If the Company elects to exercise its termination right pursuant to the immediately preceding sentence, it shall give prompt written notice to Buyer; provided that such notice of election to terminate may be withdrawn at any time within the aforementioned five business-day period. During the five business-day period commencing with its receipt of such notice, Buyer shall have the option of adjusting the Exchange Ratio to equal the lesser of (i) a number equal to a quotient (rounded to the nearest one-ten-thousandth), the numerator of which is the product of 0.85, the Starting Price and the Exchange Ratio (as then in effect) and the denominator of which is the Average Closing Price, and (ii) a number equal to a quotient (rounded to the nearest one-ten-thousandth), the numerator of which is the Index Ratio multiplied by the Exchange Ratio (as then in effect) and the denominator of which is the Buyer Ratio. If Buyer makes the election contemplated by the preceding sentence, within such five business-day period, it shall give prompt written notice to the Company of such election and the revised Exchange Ratio, whereupon no termination shall have occurred pursuant to this Section 9.1(h) and this Agreement shall remain in effect in accordance with its terms (except as the Exchange Ratio shall have been so modified), and any references in this Agreement to "Exchange Ratio" shall thereafter be deemed to refer to the Exchange Ratio as adjusted pursuant to this Section 9.1(h). For purposes of this Section 9.1(h), the following terms shall have the meanings indicated: "Average Closing Price" means the average of the last reported sale prices per share of Buyer Common Stock as reported on NYSE (as reported in The Wall Street Journal or, if not reported therein, in another mutually agreed upon authoritative source) for the 20 consecutive trading days on the NYSE ending at the close of trading on the Determination Date. "Determination Date" means the business day prior to the date on which the last of the Requisite Regulatory Approvals shall have been received, without regard to any requisite waiting periods in respect thereof. "Final Index Price" means the sum of the Final Prices for each company comprising the Index Group. "Final Price", with respect to any company belonging to the Index Group, means the product of (x) the average of the daily closing sales prices of a share of common stock of such company (and if there is no closing sales price on any such day, then the mean between the closing bid and the closing asked prices on that day), as reported on the consolidated transaction reporting system for the market or exchange on which such common stock is principally traded, for the 20 consecutive trading days ending at the close of trading on the Determination Date, and (y) the weighting set forth opposite such company's name in the definition of "Index Group" below. "Index Group" means the group of each of the twenty (20) bank holding companies listed below, the common stock of each of which shall be publicly traded and as to which there shall not have been, since the Starting Date and before the Determination Date, an announcement of a proposal (i) for such company to be acquired or (ii) for such company to acquire another company or companies in transactions with a value exceeding 25% of the acquiror's market capitalization as of the Starting Date. In the event that, on or prior to the date immediately preceding the Determination Date, the common stock of any such company ceases to be publicly traded or any such announcement is made with respect to any such company, such company will be removed from the Index Group, and the weights (which have been determined based on the number of outstanding shares of common stock) redistributed proportionately for purposes of determining the Index Price. The twenty (20) bank holding companies and the weights attributed to them are as follows: Company Symbol Weighting - ------- ------ --------- Astoria Financial Corporation ASFC 4.76% CCB Financial Corporation CCB 3.45% Charter One Financial, Inc. COFI 14.35% Chittenden Corporation CHZ 2.45% Commerce Bancorp, Inc./NJ CBH 2.41% First Commonwealth Financial Corporation FCF 2.69% FirstMerit Corporation FMER 7.86% Fulton Financial Corporation FULT 6.00% GreenPoint Financial Corp. GPT 9.50% Independence Community Bank Corp. ICBC 5.91% Keystone Financial, Inc. KSTN 4.21% M & T Bank Corporation MTB 0.68% Peoples Heritage Financial Group, Inc. PHBK 9.10% Queens County Bancorp, Inc. QCSB 1.86% Richmond County Financial Corp. RCBK 2.79% Roslyn Bancorp, Inc. RSLN 6.68% Staten Island Bancorp, Inc. SIB 3.54% Susquehanna Bancshares, Inc. SUSQ 3.21% Valley National Bancorp VLY 5.25% Webster Financial Corporation WBST 3.31% ----- 100.00% "Initial Index Price" means the sum of the Initial Prices for each company comprising the Index Group. The "Initial Price," with respect to any company belonging to the Index Group, means the product of (x) the per share closing sales price of the common stock of such company, as such price was reported on the consolidated transaction reporting system for the market or exchange on which such common stock was principally traded on August 27, 1999, multiplied by (y) the weighting set forth opposite such company's name above. "Starting Date" means August 27, 1999. "Starting Price" means $19.0625. If Buyer of any company belonging to the Index Group declares or effects a stock dividend, reclassification, recapitalization, split-up, combination, exchange of shares or similar transaction between the Starting Date and the Determination Date, the weighting and/or the prices for the common stock of such company or Buyer shall be appropriately adjusted for the purposes of applying this Section 9.1(h). Section 9.2 Effect of Termination; Expenses. In the event of termination of this Agreement by either Buyer or the Company as provided in Section 9.1, this Agreement shall forthwith become void and have no effect except that (i) Sections 7.2(c), 9.2 and 10.4 shall survive any termination of this Agreement, and (ii) notwithstanding anything to the contrary contained in this Agreement, no party shall be relieved or released from any liabilities or damages arising out of its willful breach of any provision of this Agreement. Section 9.3 Amendment. Subject to compliance with applicable law, this Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time before or after approval of the matters presented in connection with the Merger by the stockholders of the Company; provided, however, that after any approval of the transactions contemplated by this Agreement by the Company's stockholders, there may not be, without further approval of such stockholders, any amendment of this Agreement which reduces the amount or changes the form of the consideration to be delivered to the Company stockholders hereunder other than as contemplated by this Agreement. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Section 9.4 Extension; Waiver. At any time prior to the Effective Time, each of the parties hereto, by action taken or authorized by its Board of Directors, may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other party hereto, (b) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered pursuant hereto and (c) waive compliance by the other party with any of its agreements contained herein, or waive compliance with any of the conditions to its obligations hereunder. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party, but such extension or waiver or failure to insist on strict compliance with an obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. ARTICLE ARTICLE X GENERAL PROVISIONS Section 10.1 Closing. Subject to the terms and conditions of this Agreement, the closing of the Merger (the "Closing") will take place at 10:00 a.m. on the first day which is (a) the last business day of a month and (b) at least two business days after the satisfaction or waiver (subject to applicable law) of the latest to occur of the conditions set forth in Article VIII hereof (other than those conditions which relate to actions to be taken at the Closing)(the "Closing Date"), at the offices of Buyer's Counsel unless another time, date or place is agreed to in writing by the parties hereto. Section 10.2 Alternative Structure. Notwithstanding anything to the contrary contained in this Agreement, prior to the Effective Time, Buyer shall be entitled to revise the structure of the Merger and the related transactions contemplated hereby (including, without limitation, (x) substituting a subsidiary of Buyer as a Constituent Corporation in the Merger, (y) providing that a different entity shall be the Surviving Corporation in the Merger, and (z) providing for the merger of Company Bank into Buyer Bank in accordance with a Bank Merger Agreement), provided that each of the transactions comprising such revised structure shall (i) fully qualify as, or fully be treated as part of, one or more tax-free reorganizations within the meaning of Section 368(a) of the Code, (ii) not change the amount of consideration to be received by the stockholders of the Company, and (iii) be capable of consummation in as timely a manner as the structure contemplated herein. This Agreement and any related documents shall be appropriately amended in order to reflect any such revised structure. Section 10.3 Nonsurvival of Representations, Warranties and Agreements. None of the representations, warranties, covenants and agreements in this Agreement or in any instrument delivered pursuant to this Agreement (other than pursuant to the Option Agreement which shall terminate in accordance with its terms) shall survive the Effective Time, except for those covenants and agreements contained herein and therein which by their terms apply in whole or in part after the Effective Time. Section 10.4 Expenses. All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense, provided, however, that the costs and expenses of printing and mailing the Proxy Statement to the stockholders of the Company and Buyer, and all filing and other fees paid to the SEC or any other Governmental Entity in connection with the Merger and the other transactions contemplated hereby, shall be borne equally by Buyer and the Company, provided further, however, that nothing contained herein shall limit either party's rights to recover any liabilities or damages arising out of the other party's willful breach of any provision of this Agreement. Section 10.5 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (with confirmation), mailed by registered or certified mail (return receipt requested) or delivered by an express courier (with confirmation) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Buyer, to: North Fork Bancorporation, Inc. 275 Broad Hollow Road Melville, New York 11747 Facsimile: (516) 844-1471 Attention: Mr. John Adam Kanas Chairman, President and Chief Executive Officer with a copy to: William S. Rubenstein, Esq. Skadden, Arps Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022 Facsimile: (212) 735-2000 and (b) if to the Company, to: Reliance Bancorp, Inc. 585 Stewart Avenue Garden City, New York 11530 Facsimile: (516) 222-1805 Attention: Mr. Raymond A. Nielsen President and Chief Executive Officer with a copy to: Lawrence M.F. Spaccasi Muldoon, Murphy & Faucette 5101 Wisconsin Avenue, N.W. Washington, D.C. 20016 Facsimile: (202) 966-9409 Section 10.6 Interpretation. When a reference is made in this Agreement to Sections, Exhibits or Schedules, such reference shall be to a Section of or Exhibit or Schedule to this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". The phrases "the date of this Agreement", "the date hereof" and terms of similar import, unless the context otherwise requires, shall be deemed to refer to August 30, 1999. Section 10.7 Counterparts. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. Section 10.8 Entire Agreement. This Agreement (including the documents and the instruments referred to herein), together with the Option Agreement, constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. Section 10.9 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York, without regard to any applicable conflicts of law. Section 10.10 Enforcement of Agreement. The parties hereto agree that irreparable damage would occur in the event that the provisions contained in and Section 7.2(c) of this Agreement were not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of Section 7.2(c) of this Agreement and to enforce specifically the terms and provisions thereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. Section 10.11 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. Section 10.12 Publicity. Except as otherwise required by law or by the rules of the NYSE or The NASDAQ Stock Market, so long as this Agreement is in effect, neither Buyer nor the Company shall, or shall permit any of its Subsidiaries to, issue or cause the publication of any press release or other public announcement with respect to, or otherwise make any public statement concerning, the transactions contemplated by this Agreement without the consent of the other party, which consent shall not be unreasonably withheld. Section 10.13 Assignment; No Third Party Beneficiaries. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. Except as otherwise expressly provided herein, this Agreement (including the documents and instruments referred to herein) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. IN WITNESS WHEREOF, Buyer and the Company have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. NORTH FORK BANCORPORATION, INC. By: /s/John Adam Kanas -------------------------------- John Adam Kanas Chairman of the Board, President and Chief Executive Officer RELIANCE BANCORP, INC. By: /s/Raymond A. Nielsen -------------------------------- Raymond A. Nielsen President and Chief Executive Officer EX-2 3 EXHIBIT 2.2 EXHIBIT 2.2 =============================================================================== AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated as of August 16, 1999 by and between NORTH FORK BANCORPORATION, INC. and JSB FINANCIAL, INC. =============================================================================== TABLE OF CONTENTS INTRODUCTORY STATEMENT ARTICLE I THE MERGER Section 1.1 Structure of the Merger.......................................2 Section 1.2 Effect on Outstanding Shares of JSB Common Stock..............2 Section 1.3 Exchange Procedures...........................................3 Section 1.4 Stock Options.................................................4 Section 1.5 Bank Merger...................................................5 Section 1.6 Directors of NFB after Effective Time.........................5 Section 1.7 Alternative Structure.........................................5 ARTICLE II REPRESENTATIONS AND WARRANTIES Section 2.1 Disclosure Letters............................................6 Section 2.2 Standards.....................................................6 Section 2.3 Representations and Warranties of JSB.........................7 Section 2.4 Representations and Warranties of NFB........................18 ARTICLE III CONDUCT PENDING THE MERGER Section 3.1 Conduct of JSB's Business Prior to the Effective Time........28 Section 3.2 Forbearance by JSB...........................................28 Section 3.3 Conduct of NFB's Business Prior to the Effective Time........30 Section 3.4 Forbearance by NFB...........................................30 ARTICLE IV COVENANTS Section 4.1 Acquisition Proposals........................................31 Section 4.2 Certain Policies of JSB......................................32 Section 4.3 Access and Information.......................................33 Section 4.4 Certain Filings, Consents and Arrangements...................34 Section 4.5 Antitakeover Provisions......................................34 Section 4.6 Additional Agreements........................................34 Section 4.7 Publicity....................................................34 Section 4.8 Stockholders Meetings........................................34 Section 4.9 Proxy Statements; Comfort Letters............................35 Section 4.10 Registration of NFB Common Stock.............................35 Section 4.11 Affiliate Letters............................................36 Section 4.12 Notification of Certain Matters..............................36 Section 4.13 Directors and Officers.......................................36 Section 4.14 Indemnification; Directors' and Officers' Insurance..........37 Section 4.15 Employees; Benefit Plans and Programs........................38 Section 4.16 Advisory Board...............................................41 ARTICLE V CONDITIONS TO CONSUMMATION Section 5.1 Conditions to Each Party's Obligations.......................41 Section 5.2 Conditions to the Obligations of NFB and NFB Bank............42 Section 5.3 Conditions to the Obligations of JSB and JSB Bank............43 ARTICLE VI TERMINATION Section 6.1 Termination..................................................44 Section 6.2 Effect of Termination........................................47 Section 6.3 Termination Fee..............................................47 ARTICLE VII CLOSING, EFFECTIVE DATE AND EFFECTIVE TIME Section 7.1 Effective Date and Effective Time............................49 Section 7.2 Deliveries at the Closing....................................49 ARTICLE VIII CERTAIN OTHER MATTERS Section 8.1 Certain Definitions; Interpretation..........................49 Section 8.2 Survival.....................................................49 Section 8.3 Waiver; Amendment............................................50 Section 8.4 Counterparts.................................................50 Section 8.5 Governing Law................................................50 Section 8.6 Expenses.....................................................50 Section 8.7 Notices......................................................50 Section 8.8 Entire Agreement; etc........................................51 Section 8.9 Assignment...................................................51 EXHIBITS AND SCHEDULES Exhibit A Plan of Bank Merger Exhibit B Form of Affiliate Letter for JSB Affiliates Exhibit C Form of Affiliate Letter for NFB Affiliates Schedule 4.13(d) Schedule 4.15(e) INDEX OF DEFINED TERMS Page Acquisition Proposal....................................................32 Acquisition Transaction.................................................31 Advisory Board..........................................................41 Agreement................................................................1 Bank Merger..............................................................1 Bank Regulator..........................................................10 BHCA....................................................................19 BIF......................................................................7 Closing.................................................................49 Closing Date............................................................49 Code.....................................................................1 Converted Options........................................................5 Costs...................................................................37 Covered Person..........................................................17 Date Data...............................................................18 Date-Sensitive System...................................................18 Derivatives Contract....................................................17 Disclosure Letter........................................................6 Effective Date..........................................................49 Effective Time..........................................................49 Environmental Law.......................................................14 ERISA...................................................................12 Exchange Act............................................................16 Exchange Agent...........................................................3 Exchange Ratio...........................................................2 Excluded Shares..........................................................2 FDIA.....................................................................7 FDIC.....................................................................7 FHLB....................................................................17 Final Index Price.......................................................45 Final Price.............................................................45 FRB......................................................................9 GAAP.....................................................................9 GATT....................................................................40 Governmental Entity.....................................................10 Hazardous Material......................................................15 HOLA.....................................................................7 Indemnified Party.......................................................37 Index Group.............................................................45 Index Ratio.............................................................45 Initial Index Price.....................................................47 Initial NFB Market Value................................................47 Initial Termination Date................................................44 IRS.....................................................................12 Joint Proxy Statement-Prospectus........................................18 JSB......................................................................1 JSB Bank.................................................................1 JSB Bank BRP............................................................40 JSB Bank ESOP...........................................................41 JSB Bank Outside Directors' Plan........................................36 JSB Certificate..........................................................3 JSB Common Stock.........................................................1 JSB Employee............................................................38 JSB Employee Plans......................................................12 JSB ERISA Affiliate.....................................................12 JSB Option...............................................................4 JSB Option Agreement.....................................................1 JSB Option Plans.........................................................4 JSB Pension Plan........................................................12 JSB Preferred Stock......................................................7 JSB Qualified Plan......................................................12 JSB Y2K Plan............................................................18 JSB's Reports............................................................9 Letter of Transmittal....................................................3 Loan....................................................................15 Loan Property...........................................................14 Material Adverse Effect..................................................6 Maximum Agreement.......................................................38 Merger...................................................................2 Merger Consideration.....................................................2 Named Individual........................................................13 New Compensation and Benefits Program...................................39 New NFB Director........................................................36 NFB......................................................................1 NFB Bank.................................................................1 NFB Common Stock.........................................................2 NFB Employee Plans......................................................23 NFB ERISA Affiliate.....................................................23 NFB Market Value.........................................................2 NFB Pension Plan........................................................23 NFB Preferred Stock.....................................................19 NFB Qualified Plan......................................................23 NFB Ratio...............................................................44 NFB Stock Plans.........................................................19 NFB Y2K Plan............................................................27 NFB's Reports...........................................................21 NYSBD....................................................................9 NYSE.....................................................................2 OREO....................................................................16 OTS......................................................................9 Participation Facility..................................................14 PBGC....................................................................12 Permitted Transaction...................................................47 Registration Statement..................................................18 Requisite Regulatory Approvals...........................................9 SEC......................................................................9 Securities Act..........................................................18 Skadden.................................................................42 Specified Compensation and Benefit Programs.............................13 SRO......................................................................9 Stock Adjustment........................................................2 Stockholder Meeting.....................................................34 Subsidiary...............................................................7 Superfund...............................................................15 Superlien...............................................................15 Thacher Proffitt........................................................43 Unsolicited Acquisition Proposal........................................32 Valuation Date...........................................................2 Voting Debt..............................................................8 Year 2000 Compliance....................................................18 AGREEMENT AND PLAN OF MERGER ---------------------------- This is an AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of the 16th day of August, 1999 ("Agreement"), by and between NORTH FORK BANCORPORATION, INC., a Delaware corporation ("NFB"), and JSB FINANCIAL, INC., a Delaware corporation ("JSB"). INTRODUCTORY STATEMENT The Board of Directors of NFB (i) has determined that this Agreement and the business combination and related transactions contemplated hereby are in the best interests of NFB and its stockholders, (ii) has determined that this Agreement and the transactions contemplated hereby are consistent with, and in furtherance of, its business strategy and (iii) has approved this Agreement. The Board of Directors of JSB (i) has determined that this Agreement and the business combination and related transactions contemplated hereby are in the best interests of JSB and in the best long-term interests of its stockholders, (ii) has determined that this Agreement and the transactions contemplated hereby are consistent with, and in furtherance of, its business strategy and (iii) has approved this Agreement. Concurrently with the execution and delivery of this Agreement, and as a condition and inducement to NFB's willingness to enter into this Agreement, NFB and JSB have entered into a stock option agreement ("JSB Option Agreement"), pursuant to which JSB has granted to NFB an option to purchase shares of JSB's common stock, par value $.01 per share ("JSB Common Stock"), upon the terms and conditions therein contained. Following the consummation of the Merger (as defined below), Jamaica Savings Bank, a wholly owned subsidiary of JSB Financial, Inc. ("JSB Bank"), may be merged with and into North Fork Bank, a wholly owned subsidiary of North Fork Bancorporation, Inc. ("NFB Bank"), with NFB Bank being the surviving entity ("Bank Merger"). The parties hereto intend that the Merger and the Bank Merger, if effected, each shall qualify as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended ("Code"), for federal income tax purposes, and that the Merger shall be accounted for as a pooling-of-interests for financial accounting purposes. NFB and JSB desire to make certain representations, warranties and agreements in connection with the business combination and related transactions provided for herein and to prescribe various conditions to such transactions. In consideration of their mutual promises and obligations hereunder, the parties hereto adopt and make this Agreement and prescribe the terms and conditions hereof and the manner and basis of carrying it into effect, which shall be as follows: ARTICLE I THE MERGER Section 1.1 Structure of the Merger. On the Effective Date (as defined in Section 7.1), JSB will merge with and into NFB ("Merger"), with NFB being the surviving entity, pursuant to the provisions of, and with the effect provided in, the Delaware General Corporation Law. Upon consummation of the Merger, the separate corporate existence of JSB shall cease. NFB shall continue to be governed by the laws of the State of Delaware and its name and separate corporate existence, with all of its rights, privileges, immunities, powers and franchises, shall continue unaffected by the Merger. Section 1.2 Effect on Outstanding Shares of JSB Common Stock. (a) By virtue of the Merger, automatically and without any action on the part of the holder thereof, each share of JSB Common Stock issued and outstanding at the Effective Time (as defined in Section 7.1), other than (i) shares held directly or indirectly by NFB (other than shares held in a fiduciary capacity or in satisfaction of a debt previously contracted) and (ii) shares held by JSB as treasury stock (such shares referred to in clauses (i) and (ii) being referred to herein as the "Excluded Shares"), shall become and be converted into the right to receive 3.0 shares (the "Exchange Ratio") of NFB's common stock, par value $2.50 per share ("NFB Common Stock"); provided, however, that, notwithstanding any other provision hereof, no fraction of a share of NFB Common Stock and no certificates or scrip therefor will be issued in the Merger; instead, NFB shall pay to each holder of JSB Common Stock who would otherwise be entitled to a fraction of a share of NFB Common Stock an amount in cash, rounded to the nearest cent, determined by multiplying such fraction by the NFB Market Value (as defined below). The shares of NFB Common Stock and any cash for fractional shares are collectively referred to in this Agreement as the "Merger Consideration." (b) As used herein, "NFB Market Value" shall be the average of the daily closing sales prices of a share of NFB Common Stock (and if there is no closing sales price on any such day, then the mean between the closing bid and the closing asked prices on that day), as reported on the New York Stock Exchange ("NYSE"), for the 15 consecutive trading days immediately preceding the Valuation Date. (c) As used herein, "Valuation Date" shall mean the date that is the latest of (i) the day of expiration of the last waiting period with respect to any of the Requisite Regulatory Approvals (as defined in Section 2.3(e)), (ii) the day on which the last of the Requisite Regulatory Approvals is obtained and (iii) the day on which the last of the required stockholder approvals have been obtained. (d) If, between the date of this Agreement and the Effective Time, the outstanding shares of NFB Common Stock shall have been changed into a different number of shares or into a different class by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares (each, a "Stock Adjustment"), the Exchange Ratio shall be adjusted correspondingly to the extent appropriate to reflect the Stock Adjustment. (e) As of the Effective Time, each Excluded Share shall be canceled and retired and shall cease to exist, and no exchange or payment shall be made with respect thereto. All shares of NFB Common Stock and NFB Preferred Stock (as defined in Section 2.4(b)) that are held by JSB, if any, other than shares held in a fiduciary capacity or in satisfaction of a debt previously contracted, shall become treasury stock of NFB. Section 1.3 Exchange Procedures. (a) Appropriate transmittal materials ("Letter of Transmittal") shall be mailed as soon as reasonably practicable after the Effective Time, and in no event later than 5 business days thereafter, to each holder of record of JSB Common Stock as of the Effective Time. A Letter of Transmittal will be deemed properly completed only if accompanied by certificates representing all shares of JSB Common Stock to be converted thereby. (b) At and after the Effective Time, each certificate ("JSB Certificate") previously representing shares of JSB Common Stock (except as specifically set forth in Section 1.2) shall represent only the right to receive the Merger Consideration. (c) Prior to the Effective Time, NFB shall deposit, or shall cause to be deposited, with such bank or trust company that is selected by NFB and is reasonably acceptable to JSB to act as exchange agent ("Exchange Agent"), for the benefit of the holders of shares of JSB Common Stock, for exchange in accordance with this Section 1.3, an estimated amount of cash sufficient to pay the aggregate amount of cash in lieu of fractional shares to be paid pursuant to Section 1.2, and NFB shall reserve for issuance with its transfer agent and registrar a sufficient number of shares of NFB Common Stock to provide for payment of the Merger Consideration. (d) The Letter of Transmittal shall (i) specify that delivery shall be effected, and risk of loss and title to the JSB Certificates shall pass, only upon delivery of the JSB Certificates to the Exchange Agent, (ii) be in a form and contain any other provisions as NFB may reasonably determine and (iii) include instructions for use in effecting the surrender of the JSB Certificates in exchange for the Merger Consideration. Upon the proper surrender of the JSB Certificates to the Exchange Agent, together with a properly completed and duly executed Letter of Transmittal, the holder of such JSB Certificates shall be entitled to receive in exchange therefor (m) a certificate representing that number of whole shares of NFB Common Stock that such holder has the right to receive pursuant to Section 1.2 and (n) a check in the amount equal to the cash in lieu of fractional shares, if any, that such holder has the right to receive pursuant to Section 1.2 and any dividends or other distributions to which such holder is entitled pursuant to this Section 1.3. JSB Certificates so surrendered shall forthwith be canceled. As soon as practicable, but no later than 10 business days following receipt of the properly completed Letter of Transmittal and any necessary accompanying documentation, the Exchange Agent shall distribute NFB Common Stock and cash as provided herein. The Exchange Agent shall not be entitled to vote or exercise any rights of ownership with respect to the shares of NFB Common Stock held by it from time to time hereunder, except that it shall receive and hold all dividends or other distributions paid or distributed with respect to such shares for the account of the persons entitled thereto. If there is a transfer of ownership of any shares of JSB Common Stock not registered in the transfer records of JSB, the Merger Consideration shall be issued to the transferee thereof if the JSB Certificates representing such JSB Common Stock are presented to the Exchange Agent, accompanied by all documents required, in the reasonable judgment of NFB and the Exchange Agent, (x) to evidence and effect such transfer and (y) to evidence that any applicable stock transfer taxes have been paid. (e) No dividends or other distributions declared or made after the Effective Time with respect to NFB Common Stock shall be remitted to any person entitled to receive shares of NFB Common Stock hereunder until such person surrenders his or her JSB Certificates in accordance with this Section 1.3. Upon the surrender of such person's JSB Certificates, such person shall be entitled to receive any dividends or other distributions, without interest thereon, which theretofore had become payable with respect to shares of NFB Common Stock represented by such person's JSB Certificates. (f) From and after the Effective Time there shall be no transfers on the stock transfer records of JSB of any shares of JSB Common Stock. If, after the Effective Time, JSB Certificates are presented to NFB, they shall be canceled and exchanged for the Merger Consideration deliverable in respect thereof pursuant to this Agreement in accordance with the procedures set forth in this Section 1.3. (g) Any portion of the aggregate amount of cash to be paid in lieu of fractional shares pursuant to Section 1.2, any dividends or other distributions to be paid pursuant to this Section 1.3 or any proceeds from any investments thereof that remain unclaimed by the stockholders of JSB for six months after the Effective Time shall be repaid by the Exchange Agent to NFB upon the written request of NFB. After such request is made, any stockholders of JSB who have not theretofore complied with this Section 1.3 shall look only to NFB for the Merger Consideration deliverable in respect of each share of JSB Common Stock such stockholder holds, as determined pursuant to Section 1.2 of this Agreement, without any interest thereon. If outstanding JSB Certificates are not surrendered prior to the date on which such payments would otherwise escheat to or become the property of any governmental unit or agency, the unclaimed items shall, to the extent permitted by any abandoned property, escheat or other applicable laws, become the property of NFB (and, to the extent not in its possession, shall be paid over to it), free and clear of all claims or interest of any person previously entitled to such claims. Notwithstanding the foregoing, none of NFB, NFB Bank, the Exchange Agent or any other person shall be liable to any former holder of JSB Common Stock for any amount delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. (h) NFB and the Exchange Agent shall be entitled to rely upon JSB's stock transfer books to establish the identity of those persons entitled to receive the Merger Consideration, which books shall be conclusive with respect thereto. In the event of a dispute with respect to ownership of stock represented by any JSB Certificate, NFB and the Exchange Agent shall be entitled to deposit any Merger Consideration represented thereby in escrow with an independent third party and thereafter be relieved with respect to any claims thereto. (i) If any JSB Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such JSB Certificate to be lost, stolen or destroyed and, if required by the Exchange Agent, the posting by such person of a bond in such amount as the Exchange Agent may direct as indemnity against any claim that may be made against it with respect to such JSB Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed JSB Certificate the Merger Consideration deliverable in respect thereof pursuant to Section 1.2. Section 1.4 Stock Options. (a) Each option to purchase shares of JSB Common Stock issued by JSB and outstanding at the Effective Time (a "JSB Option") pursuant to the JSB 1990 Incentive Stock Option Plan, the JSB 1990 Stock Option Plan for Outside Directors and the JSB 1996 Stock Option Plan (collectively, the "JSB Option Plans") shall be converted into an option to purchase shares of NFB Common Stock as follows: (i) the aggregate number of shares of NFB Common Stock issuable upon the exercise of the converted JSB Option after the Effective Time shall be equal to the product of the Exchange Ratio multiplied by the number of shares of JSB Common Stock issuable upon exercise of the JSB Option immediately prior to the Effective Time, such product to be rounded to the nearest whole share of NFB Common Stock; and (ii) the exercise price per share of each converted JSB Option shall be equal to the quotient of the exercise price of such JSB Option at the Effective Time divided by the Exchange Ratio, such quotient to be rounded to the nearest whole cent; provided, however, that, in the case of any JSB Option that is intended to qualify as an incentive stock option under Section 422 of the Code, the number of shares of NFB Common Stock issuable upon exercise of and the exercise price per share for such converted JSB Option determined in the manner provided above shall be further adjusted in such manner as NFB may determine to be necessary to conform to the requirements of Section 424(b) of the Code. Options to purchase shares of NFB Common Stock that arise from the operation of this Section 1.4 shall be referred to as the "Converted Options." All Converted Options shall be exercisable for the same period and otherwise have the same terms and conditions applicable to the JSB Options that they replace; provided, however, that such exercise period, terms and conditions shall be further modified if and to the extent necessary to enable the Merger to qualify for pooling-of-interests accounting treatment. Prior to the Effective Time, NFB shall take, or cause to be taken, all necessary action to effect the intent of the provisions set forth in this Section 1.4. (b) Prior to the date of the JSB stockholders meeting contemplated by Section 4.8, JSB shall take, or cause to be taken, appropriate action under the terms of any stock option plan, agreement or arrangement under which JSB Options have been granted to provide for the conversion of JSB Options outstanding at the Effective Time into Converted Options and to effect any other modifications contemplated by Section 1.4(a). (c) Concurrently with the reservation of shares of NFB Common Stock to provide for the payment of the Merger Consideration, NFB shall take all corporate action necessary to reserve for future issuance a sufficient additional number of shares of NFB Common Stock to provide for the satisfaction of its obligations with respect to the Converted Options. On or before the Effective Time, NFB shall file a registration statement on Form S-8 (or any successor or other appropriate form) and make any state filings or obtain state exemptions with respect to the NFB Common Stock issuable upon exercise of the Converted Options. Within 15 days after the Effective Time, NFB shall cause to be executed and delivered to each holder of a Converted Option an agreement, certificate or other instrument, in such form and of such substance as NFB may reasonably determine, evidencing such holder's rights with respect to the Converted Options. JSB shall use its best efforts to obtain from each person holding JSB Options, within 30 days after the date of this Agreement, a waiver of such person's limited stock appreciation rights for purposes of the Merger, in the form mutually agreed to by the parties. Section 1.5 Bank Merger. At the election of NFB, concurrently with or within 60 days after the execution and delivery of this Agreement, NFB Bank and JSB Bank shall enter into the Plan of Bank Merger, in the form attached hereto as Exhibit A, pursuant to which the Bank Merger will be effected. The parties hereto intend that, if the Plan of Bank Merger is entered into, the Bank Merger shall become effective promptly following consummation of the Merger. The Plan of Bank Merger shall provide that the directors of NFB Bank as the surviving entity of the Bank Merger shall be all of the directors of NFB Bank serving immediately prior to the Bank Merger and the additional person who shall become a director of NFB Bank in accordance with Section 4.13. Section 1.6 Directors of NFB after Effective Time. At and after the Effective Time, the directors of NFB shall consist of all of the directors of NFB serving immediately prior to the Effective Time and the additional person who shall become a director of NFB in accordance with Section 4.13. Section 1.7.Alternative Structure. Notwithstanding anything to the contrary contained in this Agreement, prior to the Effective Time, NFB may specify that the structure of the transactions contemplated hereby be revised and the parties shall enter into such alternative transactions as NFB may determine to effect the purposes of this Agreement; provided, however, that such revised structure shall not adversely affect the tax effects or economic benefits of the transactions contemplated hereby to the holders of JSB Common Stock, and, further, such revised structure shall not materially delay the Closing Date (as defined in Section 7.1). This Agreement and any related documents shall be appropriately amended in order to reflect any such revised structure. ARTICLE II REPRESENTATIONS AND WARRANTIES Section 2.1 Disclosure Letters. On or prior to the execution and delivery of this Agreement, JSB and NFB each shall have delivered to the other a letter (each, its "Disclosure Letter") setting forth, among other things, facts, circumstances and events the disclosure of which is required or appropriate in relation to any or all of their respective representations and warranties (and making specific reference to the Section of this Agreement to which they relate), other than Section 2.3(g) and Section 2.4(g); provided, that (a) no such fact, circumstance or event is required to be set forth in the Disclosure Letter as an exception to a representation or warranty if its absence is not reasonably likely to result in the related representation or warranty being deemed untrue or incorrect under the standards established by Section 2.2 and (b) the mere inclusion of a fact, circumstance or event in a Disclosure Letter shall not be deemed an admission by a party that such item represents a material exception or that such item is reasonably likely to result in a Material Adverse Effect (as defined in Section 2.2(b)). Section 2.2 Standards. (a) No representation or warranty of JSB or NFB contained in Sections 2.3 or 2.4, respectively, shall be deemed untrue or incorrect, and no party hereto shall be deemed to have breached a representation or warranty, on account of the existence of any fact, circumstance or event unless, as a direct or indirect consequence of such fact, circumstance or event, individually or taken together with all other facts, circumstances or events inconsistent with any paragraph of Sections 2.3 or 2.4, as applicable, there is reasonably likely to exist a Material Adverse Effect. JSB's representations, warranties and covenants contained in this Agreement shall not be deemed to be untrue or breached as a result of effects arising solely from actions taken in compliance with a written request of NFB. (b) As used in this Agreement, the term "Material Adverse Effect" means either: (i) an effect which is material and adverse to the business, financial condition or results of operations of JSB or NFB, as the context may dictate, and its Subsidiaries taken as a whole; provided, however, that any such effect resulting from any (A) changes in laws, rules or regulations or generally accepted accounting principles or interpretations thereof that apply to both NFB and NFB Bank and JSB and JSB Bank, as the case may be, or (B) changes in the general level of market interest rates shall not be considered in determining if a Material Adverse Effect has occurred; or (ii) the failure of (x) a representation or warranty contained in Section 2.3(a)(i) and (iv), Section 2.3(d), Section 2.3(g)(iii), Section 2.4(a)(i) and (iv), Section 2.4(d), Section 2.4(g)(ii) or Section 2.4(l) to be true and correct or (y) a representation or warranty contained in Section 2.3(b)(i), Section 2.3(c), clause (ii) of Section 2.3(e), the last sentence of Section 2.3(e), Section 2.3(f), Section 2.3(j), the first sentence of Section 2.3(m), Section 2.3(q), Section 2.3(u), Section 2.3(v), the first two sentences of Section 2.3(bb), Section 2.4(b)(i), Section 2.4(c), clause (ii) of Section 2.4(e), the last sentence of Section 2.4(e), Section 2.4(f), Section 2.4(j), the first sentence of Section 2.4(n), Section 2.4(q), Section 2.4(t) and the first two sentences of 2.4(w) to be true and correct in all material respects. (c) For purposes of this Agreement, "knowledge" shall mean, with respect to a party hereto, actual knowledge of the members of the Board of Directors of that party, its counsel, any officer of that party with the title ranking not less than senior vice president and, with respect to JSB, any Vice President of JSB whose name is listed in Section 4.13(d) hereof. Section 2.3 Representations and Warranties of JSB. Subject to Sections 2.1 and 2.2, JSB represents and warrants to NFB that, except as disclosed in JSB's Disclosure Letter: (a) Organization(i) JSB is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly registered as a savings and loan holding company under the Home Owners' Loan Act of 1933, as amended ("HOLA"). JSB Bank is a savings association duly organized, validly existing and in good standing under the laws of the United States of America and is a wholly owned Subsidiary (as defined below) of JSB. Each Subsidiary of JSB, other than JSB Bank, is a corporation, limited liability company or partnership duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization. Each of JSB and its Subsidiaries has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. As used in this Agreement, unless the context requires otherwise, the term "Subsidiary" when used with respect to any party means any corporation or other organization, whether incorporated or unincorporated, which is consolidated with such party for financial reporting purposes or which is controlled, directly or indirectly, by such party. (ii) JSB and each of its Subsidiaries has the requisite corporate power and authority, and is duly qualified and is in good standing, to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary. (iii) JSB's Disclosure Letter sets forth all of JSB's Subsidiaries and all entities (whether corporations, partnerships or similar organizations), including the corresponding percentage ownership, in which JSB owns, directly or indirectly, 5% or more of the ownership interests as of the date of this Agreement and indicates for each of JSB's Subsidiaries, as of such date, its jurisdiction of organization and the jurisdiction(s) wherein it is qualified to do business. All such Subsidiaries and ownership interests are in compliance with all applicable laws, rules and regulations relating to direct investments in equity ownership interests. JSB owns, either directly or indirectly, all of the outstanding capital stock of each of its Subsidiaries. No Subsidiary of JSB other than JSB Bank is an "insured depository institution" as defined in the Federal Deposit Insurance Act, as amended ("FDIA"), and the applicable regulations thereunder. All of the shares of capital stock of each of the Subsidiaries of JSB are duly authorized and validly issued, fully paid and nonassessable and not subject to any preemptive rights and are owned by JSB or a Subsidiary of JSB free and clear of any claims, liens, encumbrances or restrictions (other than those imposed by applicable federal and state securities laws), and there are no agreements or understandings with respect to the voting or disposition of any such shares. (iv) The deposits of JSB Bank are insured by the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC") to the extent provided in the FDIA. JSB Bank is a member of the Federal Home Loan Bank of New York. (b) Capital Structure.(i) The authorized capital stock of JSB consists of 65,000,000 shares of JSB Common Stock and 15,000,000 shares of preferred stock, par value $.01 per share ("JSB Preferred Stock"). As of the date of this Agreement: (A) 9,286,897 shares of JSB Common Stock were issued and outstanding, (B) no shares of JSB Preferred Stock were issued and outstanding, (C) no shares of JSB Common Stock were reserved for issuance, except that 952,676 shares of JSB Common Stock were reserved for issuance pursuant to the JSB Option Plans, which includes 810,676 shares reserved for issuance upon the exercise of options that have already been granted under the JSB Option Plans, plus 142,000 shares reserved for issuance upon the exercise of options that will be automatically granted pursuant to the terms of the JSB 1996 Option Plan as a result of the execution of this Agreement, (D) no shares of JSB Preferred Stock were reserved for issuance and (E) 6,713,103 shares of JSB Common Stock were held by JSB in its treasury or by its Subsidiaries. The authorized capital stock of JSB Bank consists of 40,000,000 shares of common stock, par value $1.00 per share, and 20,000,000 shares of preferred stock, par value $1.00 per share. As of the date of this Agreement, 1,000 shares of such common stock were outstanding, no shares of such preferred stock were outstanding and all outstanding shares of such common stock were, and as of the Effective Time will be, owned by JSB. All outstanding shares of capital stock of JSB and JSB Bank are duly authorized and validly issued, fully paid and nonassessable and not subject to any preemptive rights and, with respect to shares held by JSB in its treasury or by its Subsidiaries, are free and clear of all claims, liens, encumbrances or restrictions (other than those imposed by applicable federal or state securities laws) and there are no agreements or understandings with respect to the voting or disposition of any such shares. JSB's Disclosure Letter sets forth a complete and accurate list of all outstanding options to purchase JSB Common Stock that have been granted pursuant to the JSB Option Plans, including the dates of grant, exercise prices, dates of vesting, dates of termination and shares subject to each grant, and all options to purchase JSB Common Stock that will be automatically granted as a result of the execution of this Agreement. (ii) No bonds, debentures, notes or other indebtedness having the right to vote on any matters on which stockholders may vote ("Voting Debt") of JSB are issued or outstanding. (iii) As of the date of this Agreement, except for this Agreement, the JSB Option Agreement, the JSB Option Plans and as set forth in JSB's Disclosure Letter, neither JSB nor any of its Subsidiaries has or is bound by any outstanding options, warrants, calls, rights, convertible securities, commitments or agreements of any character obligating JSB or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, any additional shares of capital stock of JSB or any of its Subsidiaries or obligating JSB or any of its Subsidiaries to grant, extend or enter into any such option, warrant, call, right, convertible security, commitment or agreement. As of the date hereof, there are no outstanding contractual obligations of JSB or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of JSB or any of its Subsidiaries. (c) Authority. Each of JSB and JSB Bank has the requisite corporate power and authority to enter into this Agreement and the Plan of Bank Merger, respectively, and, subject to approval of this Agreement by the requisite vote of JSB's stockholders and receipt of all required regulatory or governmental approvals, as contemplated by Section 5.1(b) of this Agreement, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement, and, subject to the approval of this Agreement by JSB's stockholders, the consummation of the transactions contemplated hereby, have been duly authorized by all necessary corporate actions on the part of JSB and JSB Bank. This Agreement has been duly executed and delivered by JSB and constitutes a valid and binding obligation of JSB, enforceable in accordance with its terms subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity, whether applied in a court of law or a court of equity. (d) Stockholder Approval; Fairness Opinion. The affirmative vote of the holders of a majority of the outstanding shares of JSB Common Stock entitled to vote on this Agreement is the only vote of the stockholders of JSB required for approval of this Agreement by JSB and the consummation by JSB of the Merger and the related transactions contemplated hereby. JSB has received the written opinion of Northeast Capital & Advisory, Inc. to the effect that, as of the date hereof, the Exchange Ratio is fair, from a financial point of view, to JSB's stockholders. (e) No Violations. The execution, delivery and performance of this Agreement by JSB do not, and the consummation of the transactions contemplated hereby will not, constitute (i) assuming receipt of all Requisite Regulatory Approvals (as defined below) and requisite stockholder approvals, a breach or violation of, or a default under, any law, rule or regulation or any judgment, decree, order, governmental permit or license, or agreement, indenture or instrument of JSB or any of its Subsidiaries, or to which JSB or any of its Subsidiaries (or any of their respective properties) is subject, (ii) a breach or violation of, or a default under, the certificate of incorporation or bylaws of JSB or the similar organizational documents of any of its Subsidiaries or (iii) a breach or violation of, or a default under (or an event which, with due notice or lapse of time or both, would constitute a default under), or result in the termination of, accelerate the performance required by, or result in the creation of any lien, pledge, security interest, charge or other encumbrance upon any of the properties or assets of JSB or any of its Subsidiaries, under, any of the terms, conditions or provisions of any note, bond, indenture, deed of trust, loan agreement or other agreement, instrument or obligation to which JSB or any of its Subsidiaries is a party, or to which any of their respective properties or assets may be subject; and the consummation of the transactions (including the Bank Merger) contemplated hereby (exclusive of the effect of any changes effected pursuant to Section 1.7) will not require any approval, consent or waiver under any such law, rule, regulation, judgment, decree, order, governmental permit or license or the approval, consent or waiver of any other party to any such agreement, indenture or instrument, other than (x) the approval of the holders of a majority of the outstanding shares of JSB Common Stock and the approval of JSB as the sole stockholder of JSB Bank and (y) the provision of notice to or the approval of, if required, the Office of Thrift Supervision ("OTS") under HOLA, the approval, if required, of the Federal Deposit Insurance Corporation under Section 18(c) of the FDIA, the approval of the Board of Governors of the Federal Reserve System ("FRB") under the Bank Holding Company Act of 1956, as amended, and the approval of the New York State Banking Department ("NYSBD") under the Banking Law of the State of New York (collectively, the "Requisite Regulatory Approvals"), and (z) such approvals, consents or waivers as are required under the federal and state securities or "blue sky" laws in connection with the transactions contemplated by this Agreement. As of the date hereof, the executive officers of JSB know of no reason pertaining to JSB why any of the approvals referred to in this Section 2.3(e) should not be obtained. (f) Reports. (i) As of their respective dates, none of the reports or other statements filed by JSB or JSB Bank on or subsequent to December 31, 1997 with the Securities and Exchange Commission ("SEC") (collectively, "JSB's Reports"), contained, or will contain, any untrue statement of a material fact or omitted or will omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. Each of the financial statements of JSB included in JSB's Reports complied as to form, as of their respective dates of filing with the SEC, in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved ("GAAP") (except as may be indicated in the notes thereto or, in the case of unaudited financial statements, as permitted by Form 10-Q of the SEC). Each of the consolidated statements of condition, consolidated statements of operations, consolidated statements of cash flows and consolidated statements of changes in stockholders' equity contained or incorporated by reference in JSB's Reports (including in each case any related notes and schedules) fairly presented, or will fairly present, as the case may be, the financial position, results of operations, cash flows and stockholders' equity, as the case may be, of the entity or entities to which it relates for the periods set forth therein (subject, in the case of unaudited interim statements, to normal year-end audit adjustments that are not material in amount or effect), in each case in accordance with GAAP, except as may be noted therein. (ii) JSB and its Subsidiaries have each timely filed all material reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since December 31, 1996 with (A) the OTS, (B) the FDIC, (C) the SEC, (D) the NYSE and (E) any other self-regulatory organization ("SRO"), and have paid all fees and assessments due and payable in connection therewith. (g) Absence of Certain Changes or Events. Except as disclosed in JSB's Reports filed on or prior to the date of this Agreement, since December 31, 1998, (i) JSB and its Subsidiaries have not incurred any liability, except in the ordinary course of their businesses consistent with past practice, (ii) JSB and its Subsidiaries have conducted their respective businesses only in the ordinary and usual course of such businesses and (iii) there has not been any Material Adverse Effect with respect to JSB. (h) Absence of Claims. Except as disclosed in JSB's Disclosure Letter, no litigation, proceeding, controversy, claim or action before any court or any federal, state, local or foreign governmental or regulatory body (each, a "Governmental Entity") is pending against JSB or any of its Subsidiaries and, to the best of JSB's knowledge, no such litigation, proceeding, controversy, claim or action has been threatened. (i) Absence of Regulatory Actions. Neither JSB nor any of its Subsidiaries is a party to any cease and desist order, written agreement or memorandum of understanding with, or any commitment letter or similar written undertaking to, or is subject to any action, proceeding, order or directive by, or is a recipient of any extraordinary supervisory letter from any federal or state governmental authority charged with the supervision or regulation of depository institutions or depository institution holding companies or engaged in the insurance of bank and/or savings and loan deposits (each, a "Bank Regulator"), or has adopted any board resolutions at the request of any Bank Regulator, nor has it been advised by any Bank Regulator that it is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such action, proceeding, order, directive, written agreement, memorandum of understanding, extraordinary supervisory letter, commitment letter, board resolutions or similar written undertaking. (j) Taxes. All federal, state, local and foreign tax returns required to be filed by or on behalf of JSB or any of its Subsidiaries have been timely filed or requests for extensions have been timely filed and any such extension shall have been granted and not have expired, and all such filed returns are complete and accurate in all material respects. All taxes shown on such returns, all taxes required to be shown on returns for which extensions have been granted and all other taxes required to be paid by JSB or any of its Subsidiaries have been paid in full or adequate provision has been made for any such taxes on JSB's balance sheet (in accordance with GAAP). For purposes of this Section 2.3(j), the term "taxes" shall include all federal, state, local or foreign taxes, charges or other assessments, including, without limitation, income, franchise, gross receipts, real and personal property, real property transfer and gains, wage and employment taxes, and the term "tax return" shall mean any return or other report (including elections, declarations, disclosures, schedules, estimates and information returns) required to be filed with respect to any tax. Except as disclosed in JSB's Disclosure Letter, as of the date of this Agreement, there is no audit examination, deficiency assessment, tax investigation or refund litigation with respect to any taxes of JSB or any of its Subsidiaries, and no claim has been made by any authority in a jurisdiction where JSB or any of its Subsidiaries do not file tax returns that JSB or any such Subsidiary is subject to taxation in that jurisdiction. All taxes, interest, additions and penalties due with respect to completed and settled examinations or concluded litigation relating to JSB or any of its Subsidiaries have been paid in full or adequate provision has been made for any such taxes on JSB's balance sheet (in accordance with GAAP). JSB and its Subsidiaries have not executed an extension or waiver of any statute of limitations on the assessment or collection of any material tax due that is currently in effect. JSB and each of its Subsidiaries has withheld and paid all taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party, and JSB and each of its Subsidiaries has timely complied with all applicable information reporting requirements under Part III, Subchapter A of Chapter 61 of the Code and similar applicable state and local information reporting requirements. Neither JSB nor any of its Subsidiaries (i) has made an election under Section 341(f) of the Code, (ii) has issued or assumed any obligation under Section 279 of the Code, any high yield discount obligation as described in Section 163(i) of the Code or any registration-required obligation within the meaning of Section 163(f)(2) of the Code that is not in registered form or (iii) is or has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code. (k) Agreements. (i) Except for the JSB Option Agreement and arrangements made in the ordinary course of business, and except as disclosed in JSB's Disclosure Letter, JSB and its Subsidiaries are not bound by any material contract (as defined in Item 601(b)(10) of Regulation S-K) to be performed after the date hereof that has not been filed with or incorporated by reference in JSB's Reports. Except as disclosed in JSB's Reports filed prior to the date of this Agreement or as disclosed in JSB's Disclosure Letter, neither JSB nor any of its Subsidiaries is a party to an oral or written (A) consulting agreement (other than data processing, software programming and licensing contracts entered into in the ordinary course of business) not terminable on 60 days' or less notice, (B) agreement with any executive officer or other key employee of JSB or any of its Subsidiaries the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving JSB or any of its Subsidiaries of the nature contemplated by this Agreement or the JSB Option Agreement, (C) agreement with respect to any employee or director of JSB or any of its Subsidiaries providing any term of employment or compensation guarantee extending for a period longer than 60 days or for the payment of in excess of $50,000 per annum, (D) agreement or plan, including any stock option plan, phantom stock or stock appreciation rights plan, restricted stock plan or stock purchase plan, any of the benefits of which will be increased, or the vesting or payment of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the JSB Option Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement or the JSB Option Agreement or (E) agreement containing covenants that limit the ability of JSB or any of its Subsidiaries to compete in any line of business or with any person, or that involve any restriction on the geographic area in which, or method by which, JSB (including any successor thereof) or any of its Subsidiaries may carry on its business (other than as may be required by law or any regulatory agency). (ii) Neither JSB nor any of its Subsidiaries is in default under or in violation of any provision of any note, bond, indenture, mortgage, deed of trust, loan agreement, lease or other agreement to which it is a party or by which it is bound or to which any of its respective properties or assets is subject. (iii) JSB and each of its Subsidiaries owns or possesses valid and binding licenses and other rights to use without payment all patents, copyrights, trade secrets, trade names, servicemarks and trademarks used in its businesses, and neither JSB nor any of its Subsidiaries has received any notice of conflict with respect thereto that asserts the right of others. Each of JSB and its Subsidiaries has performed all the obligations required to be performed by it and are not in default under any contact, agreement, arrangement or commitment relating to any of the foregoing. (l) Labor Matters. Neither JSB nor any of its Subsidiaries is or has ever been a party to, or is or has ever been bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization with respect to its employees, nor is JSB or any of its Subsidiaries the subject of any proceeding asserting that it has committed an unfair labor practice or seeking to compel it to bargain with any labor organization as to wages and conditions of employment, nor is there any strike, other labor dispute or organizational effort involving JSB or any of its Subsidiaries pending or, to the best of JSB's knowledge, threatened. JSB and its Subsidiaries are in compliance with applicable laws regarding employment of employees and retention of independent contractors and are in compliance with applicable employment tax laws. (m) Employee Benefit Plans. JSB's Disclosure Letter contains a complete and accurate list of all pension, retirement, stock option, stock purchase, stock ownership, savings, stock appreciation right, profit sharing, deferred compensation, consulting, bonus, group insurance, severance and other benefit plans, contracts, agreements and arrangements, including, but not limited to, "employee benefit plans," as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), incentive and welfare policies, contracts, plans and arrangements and all trust agreements related thereto with respect to any present or former directors, officers or other employees of JSB or any of its Subsidiaries (hereinafter collectively referred to as the "JSB Employee Plans"). Except as disclosed in JSB's Disclosure Letter: (i) all of the JSB Employee Plans comply in all material respects with all applicable requirements of ERISA, the Code and other applicable laws; there has occurred no "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) which is likely to result in the imposition of any penalties or taxes under Section 502(i) of ERISA or Section 4975 of the Code upon JSB or any of its Subsidiaries. (ii) no liability to the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected by JSB or any of its Subsidiaries to be incurred with respect to any JSB Employee Plan which is subject to Title IV of ERISA ("JSB Pension Plan"), or with respect to any "single-employer plan" (as defined in Section 4001(a) of ERISA) currently or formerly maintained by JSB or any entity which is considered one employer with JSB under Section 4001(b)(1) of ERISA or Section 414 of the Code (a "JSB ERISA Affiliate"); (iii) no JSB Pension Plan had an "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, as of the last day of the end of the most recent plan year ending prior to the date hereof; the fair market value of the assets of each JSB Pension Plan exceeds the present value of the "benefit liabilities" (as defined in Section 4001(a)(16) of ERISA) under such JSB Pension Plan as of the end of the most recent plan year with respect to the respective JSB Pension Plan ending prior to the date hereof, calculated on the basis of the actuarial assumptions used in the most recent actuarial valuation for such JSB Pension Plan as of the date hereof; and no notice of a "reportable event" (as defined in Section 4043 of ERISA) for which the 30-day reporting requirement has not been waived has been required to be filed for any JSB Pension Plan within the 12-month period ending on the date hereof; (iv) neither JSB nor any of its Subsidiaries has provided, or is required to provide, security to any JSB Pension Plan or to any single-employer plan of a JSB ERISA Affiliate pursuant to Section 401(a)(29) of the Code; (v) neither JSB, its Subsidiaries, nor any JSB ERISA Affiliate has contributed to any "multiemployer plan," as defined in Section 3(37) of ERISA, on or after September 26, 1980; (vi) each JSB Employee Plan that is an "employee pension benefit plan" (as defined in Section 3(2) of ERISA) and which is intended to be qualified under Section 401(a) of the Code ("JSB Qualified Plan") has received a favorable determination letter from the Internal Revenue Service ("IRS"), and JSB and its Subsidiaries are not aware of any circumstances likely to result in revocation of any such favorable determination letter; (vii) there is no pending or, to JSB's knowledge, threatened litigation, administrative action or proceeding relating to any JSB Employee Plan; (viii)there has been no announcement or commitment by JSB or any of its Subsidiaries to create an additional JSB Employee Plan, or to amend any JSB Employee Plan, except for amendments required by applicable law which do not materially increase the cost of such JSB Employee Plan; and, except as specifically identified in JSB's Disclosure Letter, JSB and its Subsidiaries do not have any obligations for post-retirement or post-employment benefits under any JSB Employee Plan that cannot be amended or terminated upon 60 days' notice or less without incurring any liability thereunder, except for coverage required by Part 6 of Title I of ERISA or Section 4980B of the Code, or similar state laws, the cost of which is borne by the insured individuals; (ix) neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in any payment or series of payments by JSB or any of its Subsidiaries to any person which is an "excess parachute payment" (as defined in Section 280G of the Code), increase or secure (by way of a trust or other vehicle) any benefits payable under any JSB Employee Plan or accelerate the time of payment or vesting of any such benefit; and (x) with respect to each JSB Employee Plan, JSB has made available to NFB a true and correct copy of (A) the annual report on the applicable form of the Form 5500 series filed with the IRS for the most recent three plan years, if required to be filed, (B) such JSB Employee Plan, including amendments thereto, (C) each trust agreement, insurance contract or other funding arrangement relating to such JSB Employee Plan, including amendments thereto, (D) the most recent summary plan description and summary of material modifications thereto for such JSB Employee Plan, if the JSB Employee Plan is subject to Title I of ERISA, (E) the most recent actuarial report or valuation if such JSB Employee Plan is a JSB Pension Plan and any subsequent changes to the actuarial assumptions contained therein and (F) the most recent determination letter issued by the IRS if such JSB Employee Plan is a Qualified Plan. (n) Termination Benefits. JSB's Disclosure Letter contains a schedule identifying the types of benefits and other payments due under the Specified Compensation and Benefit Programs (as defined herein) for each Named Individual (as defined herein) individually and for all persons other than the Named Individuals as a group. For purposes hereof, "Specified Compensation and Benefit Programs" shall include all employment agreements, change in control agreements, severance or special termination agreements, severance plans, pension, retirement or deferred compensation plans for non-employee directors, supplemental executive retirement programs, tax indemnification agreements, outplacement programs, cash bonus programs, deferred compensation plans, all performance and/or bonus plans, stock appreciation right, phantom stock or stock unit plan, and health, life, disability and other insurance or welfare plans, but shall not include any tax-qualified pension, profit-sharing or employee stock ownership plan or any JSB Option Plans. For purposes hereof, "Named Individual" shall include each non-employee director of JSB or any of its Subsidiaries and each executive officer of JSB. (o) Title to Assets. JSB and each of its Subsidiaries has good and marketable title to its properties and assets (including any intellectual property asset such as any trademark, servicemark, trade name or copyright) and property acquired in a judicial foreclosure proceeding or by way of a deed in lieu of foreclosure or similar transfer, other than property as to which it is lessee, in which case the related lease is valid and in full force and effect. Each lease pursuant to which JSB or any of its Subsidiaries is lessor is valid and in full force and effect and no lessee under any such lease is in material default or violation of any provisions of any such lease. All material tangible properties of JSB and each of its Subsidiaries are in a good state of maintenance and repair, conform with all applicable ordinances, regulations and zoning laws and are considered by JSB to be adequate for the current business of JSB and its Subsidiaries. (p) Compliance with Laws. JSB and each of its Subsidiaries has all permits, licenses, certificates of authority, orders and approvals of, and has made all filings, applications and registrations with, all Governmental Entities that are required in order to permit it to carry on its business as it is presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect, and, to the best knowledge of JSB, no suspension or cancellation of any of them is threatened. Since the date of its incorporation, the corporate affairs of JSB have not been conducted in violation of any law, ordinance, regulation, order, writ, rule, decree or approval of any Governmental Entity. The businesses of JSB and its Subsidiaries are not being conducted in violation of any law, ordinance, regulation, order, writ, rule, decree or condition to approval of any Governmental Entity. (q) Fees. Other than financial advisory services performed for JSB by Northeast Capital & Advisory, Inc. pursuant to an agreement dated May 27, 1999, a true and complete copy of which has been previously delivered to NFB, neither JSB nor any of its Subsidiaries, nor any of their respective officers, directors, employees or agents, has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder's fees, and no broker or finder has acted directly or indirectly for JSB or any of its Subsidiaries in connection with this Agreement or the transactions contemplated hereby. (r) Environmental Matters (i) With respect to JSB and each of its Subsidiaries, except as disclosed in JSB's Disclosure Letter: (A) each of JSB and its Subsidiaries and, to JSB's knowledge, the Participation Facilities (as defined herein) and the Loan Properties (as defined herein) are, and have been, in substantial compliance with, and are not liable under, all Environmental Laws (as defined herein); (B) there is no suit, claim, action, demand, executive or administrative order, directive, investigation or proceeding pending or, to the best of JSB's knowledge, threatened, before any court, Governmental Entity or board or other forum against it or any of its Subsidiaries or any Participation Facility (x) for alleged noncompliance (including by any predecessor) with, or liability under, any Environmental Law or (y) relating to the presence of or release into the environment of any Hazardous Material (as defined herein), whether or not occurring at or on a site owned, leased or operated by it or any of its Subsidiaries or any Participation Facility; (C) to the best of JSB's knowledge, there is no suit, claim, action, demand, executive or administrative order, directive, investigation or proceeding pending or threatened before any court, Governmental Entity or board or other forum relating to or against any Loan Property (or JSB or any of its Subsidiaries in respect of such Loan Property) (x) relating to alleged noncompliance (including by any predecessor) with, or liability under, any Environmental Law or (y) relating to the presence of or release into the environment of any Hazardous Material, whether or not occurring at or on a site owned, leased or operated by a Loan Property; and (D) to the best of JSB's knowledge, during the period of (l) JSB's or any of its Subsidiaries' ownership or operation of any of their respective current properties or (m) JSB's or any of its Subsidiaries' participation in the management of any Participation Facility, there has been no contamination by or release of Hazardous Materials in, on, under or affecting such properties. (ii) The following definitions apply for purposes of this Section 2.3(r) and Section 2.4(r): (w) "Loan Property" means any property in which the applicable party (or any of its Subsidiaries) holds a security interest, and, where required by the context, includes the owner or operator of such property, but only with respect to such property; (x) "Participation Facility" means any facility in which the applicable party (or any of its Subsidiaries) participates in the management (including all property held as trustee or in any other fiduciary capacity) and, where required by the context, includes the owner or operator of such property, but only with respect to such property; (y) "Environmental Law" means (i) any federal, state or local law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, legal doctrine, order, directive, executive or administrative order, judgment, decree, injunction, legal requirement or agreement with any Governmental Entity relating to (A) the protection, preservation or restoration of the environment (which includes, without limitation, air, water vapor, surface water, groundwater, drinking water supply, structures, soil, surface land, subsurface land, plant and animal life or any other natural resource), or to human health or safety as it relates to Hazardous Materials, or (B) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of, Hazardous Materials, in each case as amended and as now in effect. The term Environmental Law includes all federal, state and local laws, rules, regulations or requirements relating to the protection of the environment or health and safety, including, without limitation, (i) the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Water Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976 (including, but not limited to, the Hazardous and Solid Waste Amendments thereto and Subtitle I relating to underground storage tanks), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act of 1970 as it relates to Hazardous Materials, the Federal Hazardous Substances Transportation Act, the Emergency Planning and Community Right-To-Know Act, the Safe Drinking Water Act, the Endangered Species Act, the National Environmental Policy Act, the Rivers and Harbors Appropriation Act or any so-called "Superfund" or "Superlien" law, each as amended and as now or hereafter in effect, and (ii) any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of or exposure to any Hazardous Material; and (z) "Hazardous Material" means any substance (whether solid, liquid or gas) which is or could be detrimental to human health or safety or to the environment, currently or hereafter listed, defined, designated or classified as hazardous, toxic, radioactive or dangerous, or otherwise regulated, under any Environmental Law, whether by type or by quantity, including any substance containing any such substance as a component. Hazardous Material includes, without limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste, industrial substance, oil or petroleum, or any derivative or by-product thereof, radon, radioactive material, asbestos, asbestos-containing material, urea formaldehyde foam insulation, lead and polychlorinated biphenyl. (s) Loan Portfolio; Allowance; Asset Quality. (i) With respect to each loan owned by JSB or its Subsidiaries in whole or in part (each, a "Loan"), to the best knowledge of JSB: (A) the note and the related security documents are each legal, valid and binding obligations of the maker or obligor thereof, enforceable against such maker or obligor in accordance with their terms; (B) neither JSB nor any of its Subsidiaries, nor any prior holder of a Loan, has modified the note or any of the related security documents in any material respect or satisfied, canceled or subordinated the note or any of the related security documents except as otherwise disclosed by documents in the applicable Loan file; (C) JSB or a Subsidiary is the sole holder of legal and beneficial title to each Loan (or JSB's applicable participation interest, as applicable), except as otherwise referenced on the books and records of JSB; (D) the note and the related security documents, copies of which are included in the Loan files, are true and correct copies of the documents they purport to be and have not been suspended, amended, modified, canceled or otherwise changed, except as otherwise disclosed by documents in the applicable Loan file; (E) there is no pending or threatened condemnation proceeding or similar proceeding affecting the property that serves as security for a Loan, except as otherwise referenced on the books and records of JSB; (F) there is no litigation or proceeding pending or threatened relating to the property that serves as security for a Loan that would have a material adverse effect upon the related Loan; and (G) with respect to a Loan held in the form of a participation, the participation documentation is legal, valid, binding and enforceable. (ii) The allowance for possible losses reflected in JSB's audited statement of condition at December 31, 1998 was, and the allowance for possible losses shown on the balance sheets in JSB's Reports for periods ending after December 31, 1998 will be, adequate, as of the dates thereof, under GAAP. (iii) JSB's Disclosure Letter sets forth by category the amounts of all loans, leases, advances, credit enhancements, other extensions of credit, commitments and interest-bearing assets of JSB and its Subsidiaries that have been classified by any bank examiner (whether regulatory or internal) as "Special Mention," "Substandard," "Doubtful," "Loss" or words of similar import, and JSB and its Subsidiaries shall promptly after the end of any month inform NFB of any such classification arrived at any time after the date hereof. The other real estate owned ("OREO") included in any non-performing assets of JSB or any of its Subsidiaries is carried net of reserves at the lower of cost or fair value, less estimated selling costs, based on current management appraisals or evaluations to the extent material; provided, however, that "current" shall mean within the past 12 months. JSB's Disclosure Letter sets forth a list of the unsold co-operative shares owned by JSB or its Subsidiaries. (t) Deposits. None of the deposits of JSB or any of its Subsidiaries is a "brokered" deposit. (u) Accounting Matters. Except as disclosed in JSB's Disclosure Letter, neither JSB nor any of its Subsidiaries or, to the best of its knowledge, any of its other affiliates has, through the date hereof, taken or agreed to take any action that would prevent NFB from accounting for the business combination to be effected by the Merger as a pooling-of-interests, and JSB has no knowledge of any fact or circumstance that would prevent such accounting treatment. (v) Antitakeover Provisions Inapplicable. JSB and its Subsidiaries have taken all actions required to exempt JSB, the Agreement, the Plan of Bank Merger, the Merger, the Bank Merger and the JSB Option Agreement from any provisions of an antitakeover nature in their organization certificates and bylaws, including Article Eighth of JSB's certificate of incorporation, and the provisions of any federal or state "antitakeover," "fair price," "moratorium," "control share acquisition" or similar laws or regulations. (w) Material Interests of Certain Persons. Except as disclosed in JSB's Proxy Statement for its 1999 Annual Meeting of Stockholders, no officer or director of JSB, or any "associate" (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended ("Exchange Act")) of any such officer or director, has any material interest in any material contract or property (real or personal), tangible or intangible, used in or pertaining to the business of JSB or any of its Subsidiaries. No such interest has been created or modified since the date of the last regulatory examination of JSB or its Subsidiaries. (x) Insurance. JSB and its Subsidiaries are presently insured, and since December 31, 1996, have been insured, for reasonable amounts with financially sound and reputable insurance companies, against such risks as companies engaged in a similar business would, in accordance with good business practice, customarily be insured. All of the insurance policies and bonds maintained by JSB and its Subsidiaries are in full force and effect, JSB and its Subsidiaries are not in default thereunder and all material claims thereunder have been filed in due and timely fashion. (y) Investment Securities; Borrowings. (i) Except for investments in Federal Home Loan Bank ("FHLB") stock and pledges to secure FHLB borrowings and reverse repurchase agreements entered into in arms-length transactions pursuant to normal commercial terms and conditions and entered into in the ordinary course of business and restrictions that exist for securities to be classified as "held to maturity," none of the investments reflected in the consolidated balance sheet of JSB included in JSB's Report on Form 10-K for the year ended December 31, 1998, and none of the investment securities held by it or any of its Subsidiaries since December 31, 1998, is subject to any restriction (contractual or statutory) that would materially impair the ability of the entity holding such investment freely to dispose of such investment at any time. (ii) Neither JSB nor any Subsidiary is a party to or has agreed to enter into an exchange-traded or over-the-counter equity, interest rate, foreign exchange or other swap, forward, future, option, cap, floor or collar or any other contract that is not included on the consolidated statements of condition and is a derivative contract (including various combinations thereof) (each, a "Derivatives Contract") or owns securities that (A) are referred to generically as "structured notes," "high risk mortgage derivatives," "capped floating rate notes" or "capped floating rate mortgage derivatives" or (B) are likely to have changes in value as a result of interest or exchange rate changes that significantly exceed normal changes in value attributable to interest or exchange rate changes, except for those Derivatives Contracts and other instruments legally purchased or entered into in the ordinary course of business, consistent with safe and sound banking practices and regulatory guidance, and listed (as of the date hereof) in JSB's Disclosure Letter or disclosed in JSB's Reports filed on or prior to the date hereof. (iii) Set forth in JSB's Disclosure Letter is a true and complete list of JSB's borrowed funds (excluding deposit accounts) as of the date hereof. (z) Indemnification. Except as provided in JSB's Disclosure Letter, JSB's Employment Agreements or the organization certificate or bylaws of JSB and its Subsidiaries, neither JSB nor any Subsidiary is a party to any indemnification agreement with any of its present or future directors, officers, employees, agents or other persons who serve or served in any other capacity with any other enterprise at the request of JSB (a "Covered Person"), and, except as disclosed in JSB's Disclosure Letter, to the best knowledge of JSB, there are no claims for which any Covered Person would be entitled to indemnification under the organization certificate or bylaws of JSB or any of its Subsidiaries, under any applicable law or regulation or under any indemnification agreement. (aa) Books and Records. The books and records of JSB and its Subsidiaries on a consolidated basis have been, and are being, maintained in accordance with applicable legal and accounting requirements and reflect in all material respects the substance of events and transactions that should be included therein. (bb) Corporate Documents. JSB has made available to NFB true and complete copies of its certificate of incorporation and bylaws and of JSB Bank's organization certificate and bylaws. The minute books of JSB and JSB Bank constitute a complete and correct record of all actions taken by their respective boards of directors (and each committee thereof) and their stockholders. The minute books of each of JSB's Subsidiaries constitutes a complete and correct record of all actions taken by the respective boards of directors (and each committee thereof) and the stockholders of each such Subsidiary. (cc) Liquidation Account. Neither the Merger nor the Bank Merger will result in any payment or distribution payable out of the liquidation account of JSB Bank established in connection with JSB Bank's conversion from mutual to stock form. (dd) Tax Treatment of the Merger. As of the date hereof, JSB has no knowledge of any fact or circumstance that would prevent the Merger or the Bank Merger, if effected, from qualifying as a reorganization under Section 368(a) of the Code. (ee) Beneficial Ownership of NFB Common Stock. As of the date hereof, JSB does not beneficially own any shares of NFB Common Stock and does not have any option, warrant or right of any kind to acquire the beneficial ownership of any shares of NFB Common Stock. (ff) Year 2000 Matters.(i) JSB's Disclosure Letter sets forth a true and complete copy of JSB's plan to cause all of the Date-Sensitive Systems owned, leased or used by JSB or any of its Subsidiaries intended and necessary for use after December 31, 1999, or licensed to JSB or any of its Subsidiaries for use by JSB or any of its Subsidiaries, and all of the Date Data of JSB or any of its Subsidiaries to be Year 2000 Compliant (the "JSB Y2K Plan"). JSB believes that the JSB Y2K Plan can be substantially achieved on or before September 30, 1999, with aggregate expenditures under the JSB Y2K Plan not materially in excess of $200,000. (ii) The following definitions apply for purposes of this Section 2.3(ff) and Section 2.4(z): (x) "Date Data" means any data of any type that includes date information or that is otherwise derived from, dependent on or related to date information; (y) "Date-Sensitive System" means, with respect to a particular entity, any software, microcode or hardware system or component, including any electronic or electronically controlled system or component, that processes any Date Data and that is installed in a development or on order by such entity or any Subsidiary of such entity for its internal use; and (z) "Year 2000 Compliance" means, (A) with respect to Date Data, that such data are in proper format for all dates in the twentieth and twenty-first centuries and (B) with respect to Date-Sensitive Systems, that such system accurately processes all Date Data, including for the twentieth and twenty-first centuries, without loss of any functionality or performance, including calculating, comparing, sequencing, storing and displaying such Date Data (including all leap-year considerations), when used as a stand-alone system or in combination with other software or hardware. (gg) Registration Statement. The information regarding JSB to be supplied by JSB for inclusion in (i) the Registration Statement on Form S-4 and/or such other form(s) as may be appropriate to be filed under the Securities Act of 1933, as amended ("Securities Act"), with the SEC by NFB for the purpose of, among other things, registering the NFB Common Stock to be issued to JSB's stockholders in the Merger (as amended or supplemented from time to time, the "Registration Statement"), or (ii) the joint proxy statement to be filed with the SEC by JSB and NFB under the Exchange Act and distributed in connection with JSB's and NFB's respective meeting of stockholders to vote upon this Agreement (together with the prospectus included in the Registration Statement, the "Joint Proxy Statement-Prospectus") will not, at the time such Registration Statement becomes effective, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. Section 2.4 Representations and Warranties of NFB. Subject to Sections 2.1 and 2.2, NFB represents and warrants to JSB that, except as disclosed in NFB's Disclosure Letter: (a) Organization (i) NFB is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly registered as a bank holding company under the Bank Holding Company Act of 1956, as amended ("BHCA"). NFB Bank is a bank duly organized, validly existing and in good standing under the laws of the State of New York and is a wholly owned Subsidiary of NFB. Each Subsidiary of NFB, other than NFB Bank, is a corporation, limited liability company or partnership duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization. Each of NFB and its Subsidiaries has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. (ii) NFB and each of its Subsidiaries has the requisite corporate power and authority, and is duly qualified and is in good standing, to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary. (iii) NFB's Disclosure Letter sets forth all of NFB's Subsidiaries and all entities (whether corporations, partnerships or similar organizations), including the corresponding percentage ownership, in which NFB owns, directly or indirectly, 5% or more of the ownership interests as of the date of this Agreement and indicates for each of NFB's Subsidiaries, as of such date, its jurisdiction of organization and the jurisdiction(s) wherein it is qualified to do business. All such Subsidiaries and ownership interests are in compliance with all applicable laws, rules and regulations relating to direct investments in equity ownership interests. NFB owns, either directly or indirectly, all of the outstanding capital stock of each of its Subsidiaries. No Subsidiary of NFB other than NFB Bank and Superior Savings of New England is an "insured depository institution" as defined in the FDIA and the applicable regulations thereunder. All of the shares of capital stock of each of the Subsidiaries of NFB are duly authorized and validly issued, fully paid and nonassessable and not subject to any preemptive rights and are owned by NFB or a Subsidiary of NFB free and clear of any claims, liens, encumbrances or restrictions (other than those imposed by applicable federal and state securities laws) and there are no agreements or understandings with respect to the voting or disposition of any such shares. (iv) The deposits of NFB Bank are insured by the BIF or the Savings Association Insurance Fund of the FDIC to the extent provided in the FDIA. (b) Capital Structure.(i) The authorized capital stock of NFB consists of 200,000,000 shares of NFB Common Stock and 10,000,000 shares of preferred stock, par value $1.00 per share ("NFB Preferred Stock"). As of the date of this Agreement, (A) 135,767,087 shares of NFB Common Stock were issued and outstanding, (B) no shares of NFB Preferred Stock were issued and outstanding, (C) no shares of NFB Common Stock were reserved for issuance, except that 2,000,000 shares of NFB Common Stock were reserved for issuance pursuant to the NFB Dividend Reinvestment and Stock Purchase Plan and 1,973,140 shares of NFB Common Stock were reserved for issuance pursuant to the NFB 1985 Incentive Stock Option Plan, the NFB 1987 Long-Term Incentive Plan, the NFB 1989 Executive Management and Compensation Plan, the NFB 1994 Key Employee Stock Plan, the NFB 1997 Non-Officer Stock Plan and the NFB 1998 Stock Compensation Plan (the "NFB Stock Plans"), (D) no shares of NFB Preferred Stock were reserved for issuance and (E) 9,359,435 shares of NFB Common Stock were held by NFB in its treasury or by its Subsidiaries. The authorized capital stock of NFB Bank consists of 5,500,000 shares of common stock, par value $1.00 per share, and no shares of preferred stock. As of the date of this Agreement, 5,500,000 shares of such common stock were outstanding, no shares of such preferred stock were outstanding and all outstanding shares of such common stock were, and as of the Effective Time will be, owned by NFB. All outstanding shares of capital stock of NFB and NFB Bank are duly authorized and validly issued, fully paid and nonassessable and not subject to any preemptive rights and, with respect to shares held by NFB in its treasury or by its Subsidiaries, are free and clear of all claims, liens, encumbrances or restrictions (other than those imposed by applicable federal or state securities laws) and there are no agreements or understandings with respect to the voting or disposition of any such shares. (ii) No Voting Debt of NFB is issued or outstanding. (iii) As of the date of this Agreement, except for this Agreement, the NFB Stock Plans and as set forth in NFB's Disclosure Letter, neither NFB nor any of its Subsidiaries has or is bound by any outstanding options, warrants, calls, rights, convertible securities, commitments or agreements of any character obligating NFB or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, any additional shares of capital stock of NFB or any of its Subsidiaries or obligating NFB or any of its Subsidiaries to grant, extend or enter into any such option, warrant, call, right, convertible security, commitment or agreement. As of the date hereof, there are no outstanding contractual obligations of NFB or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of NFB or any of its Subsidiaries. (c) Authority. Each of NFB and NFB Bank has the requisite corporate power and authority to enter into this Agreement and the Plan of Bank Merger, respectively and, subject to approval of this Agreement by the requisite vote of NFB's stockholders and receipt of all required regulatory or governmental approvals, as contemplated by Section 5.1(b) of this Agreement, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement, and, subject to the approval of this Agreement by NFB's stockholders, the consummation of the transactions contemplated hereby, have been duly authorized by all necessary corporate actions on the part of NFB and NFB Bank. This Agreement has been duly executed and delivered by NFB and constitutes a valid and binding obligation of NFB, enforceable in accordance with its terms subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity, whether applied in a court of law or a court of equity. (d) Stockholder Approval; Fairness Opinion. The affirmative vote of the holders of a majority of the outstanding shares of NFB Common Stock entitled to vote on this Agreement is the only vote of the stockholders of NFB required for approval of this Agreement by NFB and the consummation by NFB of the Merger and the related transactions contemplated hereby. NFB has received the written opinion of Donaldson, Lufkin & Jenrette Securities Corporation to the effect that, as of the date hereof, the Exchange Ratio is fair, from a financial point of view, to NFB's stockholders. (e) No Violations. The execution, delivery and performance of this Agreement by NFB do not, and the consummation of the transactions contemplated hereby will not, constitute (i) assuming receipt of all Requisite Regulatory Approvals and requisite stockholder approvals, a breach or violation of, or a default under, any law, rule or regulation or any judgment, decree, order, governmental permit or license, or agreement, indenture or instrument of NFB or any of its Subsidiaries, or to which NFB or any of its Subsidiaries (or any of their respective properties) is subject, (ii) a breach or violation of, or a default under, the certificate of incorporation or bylaws of NFB or the similar organizational documents of any of its Subsidiaries or (iii) a breach or violation of, or a default under (or an event which, with due notice or lapse of time or both, would constitute a default under), or result in the termination of, accelerate the performance required by, or result in the creation of any lien, pledge, security interest, charge or other encumbrance upon any of the properties or assets of NFB or any of its Subsidiaries, under, any of the terms, conditions or provisions of any note, bond, indenture, deed of trust, loan agreement or other agreement, instrument or obligation to which NFB or any of its Subsidiaries is a party, or to which any of their respective properties or assets may be subject; and the consummation of the transactions (including the Bank Merger) contemplated hereby (exclusive of the effect of any changes effected pursuant to Section 1.7) will not require any approval, consent or waiver under any such law, rule, regulation, judgment, decree, order, governmental permit or license or the approval, consent or waiver of any other party to any such agreement, indenture or instrument, other than (x) the approval of the holders of a majority of the outstanding shares of NFB Common Stock, (y) the Requisite Regulatory Approvals and (z) such approvals, consents or waivers as are required under the federal and state securities or "blue sky" laws in connection with the transactions contemplated by this Agreement. As of the date hereof, the executive officers of NFB know of no reason pertaining to NFB why any of the approvals referred to in this Section 2.4(e) should not be obtained. (f) Reports. (i) As of their respective dates, none of the reports or other statements filed by NFB or NFB Bank on or subsequent to December 31, 1997 with the SEC (collectively, "NFB's Reports"), contained, or will contain, any untrue statement of a material fact or omitted or will omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. Each of the financial statements of NFB included in NFB's Reports complied as to form, as of their respective dates of filing with the SEC, in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto and have been prepared in accordance with GAAP (except as may be indicated in the notes thereto or, in the case of unaudited financial statements, as permitted by Form 10-Q of the SEC). Each of the consolidated statements of condition, consolidated statements of operations, consolidated statements of cash flows and consolidated statements of changes in stockholders' equity contained or incorporated by reference in NFB's Reports (including in each case any related notes and schedules) fairly presented, or will fairly present, as the case may be, the financial position, results of operations, cash flows and stockholders' equity, as the case may be, of the entity or entities to which it relates for the periods set forth therein (subject, in the case of unaudited interim statements, to normal year-end audit adjustments that are not material in amount or effect), in each case in accordance with GAAP, except as may be noted therein. (ii) NFB and its Subsidiaries have each timely filed all material reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since December 31, 1996 with (A) the NYSBD, (B) FRB (C) the FDIC, (D) the SEC, (E) the NYSE and (F) any other SRO, and have paid all fees and assessments due and payable in connection therewith. (g) Absence of Certain Changes or Events. Except as disclosed in NFB's Reports filed on or prior to the date of this Agreement, since December 31, 1998, (i) NFB and its Subsidiaries have not incurred any liability, except in the ordinary course of their businesses consistent with past practice and (ii) there has not been any Material Adverse Effect with respect to NFB. (h) Absence of Claims. Except as disclosed in NFB's Disclosure Letter, no litigation, proceeding, controversy, claim or action before any court or Governmental Entity is pending against NFB or any of its Subsidiaries, and, to the best of NFB's knowledge, no such litigation, proceeding, controversy, claim or action has been threatened. (i) Absence of Regulatory Actions. Neither NFB nor any of its Subsidiaries is a party to any cease and desist order, written agreement or memorandum of understanding with, or any commitment letter or similar written undertaking to, or is subject to any action, proceeding, order or directive by, or is a recipient of any extraordinary supervisory letter from any Bank Regulator, or has adopted any board resolutions at the request of any Bank Regulator, nor has it been advised by any Bank Regulator that it is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such action, proceeding, order, directive, written agreement, memorandum of understanding, extraordinary supervisory letter, commitment letter, board resolutions or similar written undertaking. (j) Taxes. All federal, state, local and foreign tax returns required to be filed by or on behalf of NFB or any of its Subsidiaries have been timely filed or requests for extensions have been timely filed and any such extension shall have been granted and not have expired, and all such filed returns are complete and accurate in all material respects. All taxes shown on such returns, all taxes required to be shown on returns for which extensions have been granted and all other taxes required to be paid by NFB or any of its Subsidiaries have been paid in full or adequate provision has been made for any such taxes on NFB's balance sheet (in accordance with GAAP). For purposes of this Section 2.4(j), the terms "taxes" and "tax return" shall have the meanings assigned to such terms in Section 2.3(j) of this Agreement. Except as disclosed in NFB's Disclosure Letter, as of the date of this Agreement, there is no audit examination, deficiency assessment, tax investigation or refund litigation with respect to any taxes of NFB or any of its Subsidiaries, and no claim has been made by any authority in a jurisdiction where NFB or any of its Subsidiaries do not file tax returns that NFB or any such Subsidiary is subject to taxation in that jurisdiction. All taxes, interest, additions and penalties due with respect to completed and settled examinations or concluded litigation relating to NFB or any of its Subsidiaries have been paid in full or adequate provision has been made for any such taxes on NFB's balance sheet (in accordance with GAAP). NFB and its Subsidiaries have not executed an extension or waiver of any statute of limitations on the assessment or collection of any material tax due that is currently in effect. NFB and each of its Subsidiaries has withheld and paid all taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party, and NFB and each of its Subsidiaries has timely complied with all applicable information reporting requirements under Part III, Subchapter A of Chapter 61 of the Code and similar applicable state and local information reporting requirements. Neither NFB nor any of its Subsidiaries (i) has made an election under Section 341(f) of the Code, (ii) has issued or assumed any obligation under Section 279 of the Code, any high yield discount obligation as described in Section 163(i) of the Code or any registration-required obligation within the meaning of Section 163(f)(2) of the Code that is not in registered form or (iii) is or has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code. (k) Agreements. (i) Except for arrangements made in the ordinary course of business, and except as disclosed in NFB's Disclosure Letter, NFB and its Subsidiaries are not bound by any material contract (as defined in Item 601(b)(10) of Regulation S-K) to be performed after the date hereof that has not been filed with or incorporated by reference in NFB's Reports. Except as disclosed in NFB's Reports filed prior to the date of this Agreement or as disclosed in NFB's Disclosure Letter, neither NFB nor any of its Subsidiaries is a party to an oral or written agreement containing covenants that limit the ability of NFB or any of its Subsidiaries to compete in any line of business or with any person, or that involve any restriction on the geographic area in which, or method by which, NFB (including any successor thereof) or any of its Subsidiaries may carry on its business (other than as may be required by law or any regulatory agency). (ii) Neither NFB nor any of its Subsidiaries is in default under or in violation of any provision of any note, bond, indenture, mortgage, deed of trust, loan agreement, lease or other agreement to which it is a party or by which it is bound or to which any of its respective properties or assets is subject. (iii) NFB and each of its Subsidiaries owns or possesses valid and binding licenses and other rights to use without payment all patents, copyrights, trade secrets, trade names, servicemarks and trademarks used in its businesses, and neither NFB nor any of its Subsidiaries has received any notice of conflict with respect thereto that asserts the right of others. Each of NFB and its Subsidiaries has performed all the obligations required to be performed by it and are not in default under any contact, agreement, arrangement or commitment relating to any of the foregoing. (l) NFB Common Stock. The shares of NFB Common Stock to be issued pursuant to this Agreement, when issued in accordance with the terms of this Agreement, will be duly authorized and validly issued, fully paid and nonassessable and not subject to any preemptive rights. (m) Labor Matters. Neither NFB nor any of its Subsidiaries is or has ever been a party to, or is or has ever been bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization with respect to its employees, nor is NFB or any of its Subsidiaries the subject of any proceeding asserting that it has committed an unfair labor practice or seeking to compel it to bargain with any labor organization as to wages and conditions of employment, nor is there any strike, other labor dispute or organizational effort involving NFB or any of its Subsidiaries pending or, to the best of NFB's knowledge, threatened. NFB and its Subsidiaries are in compliance with applicable laws regarding employment of employees and retention of independent contractors and are in compliance with applicable employment tax laws. (n) Employee Benefit Plans. NFB's Disclosure Letter contains a complete and accurate list of all pension, retirement, stock option, stock purchase, stock ownership, savings, stock appreciation right, profit sharing, deferred compensation, consulting, bonus, group insurance, severance and other benefit plans, contracts, agreements and arrangements, including, but not limited to, "employee benefit plans," as defined in Section 3(3) of ERISA, incentive and welfare policies, contracts, plans and arrangements and all trust agreements related thereto with respect to any present or former directors, officers or other employees of NFB or any of its Subsidiaries (hereinafter collectively referred to as the "NFB Employee Plans"). Except as disclosed in NFB's Disclosure Letter: (i) all of the NFB Employee Plans comply in all material respects with all applicable requirements of ERISA, the Code and other applicable laws; there has occurred no "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) which is likely to result in the imposition of any penalties or taxes under Section 502(i) of ERISA or Section 4975 of the Code upon NFB or any of its Subsidiaries; (ii) no liability to the PBGC has been or is expected by NFB or any of its Subsidiaries to be incurred with respect to any NFB Employee Plan which is subject to Title IV of ERISA ("NFB Pension Plan"), or with respect to any "single-employer plan" (as defined in Section 4001(a) of ERISA) currently or formerly maintained by NFB or any entity which is considered one employer with NFB under Section 4001(b)(1) of ERISA or Section 414 of the Code (a "NFB ERISA Affiliate"); (iii) no NFB Pension Plan had an "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, as of the last day of the end of the most recent plan year ending prior to the date hereof; the fair market value of the assets of each NFB Pension Plan exceeds the present value of the "benefit liabilities" (as defined in Section 4001(a)(16) of ERISA) under such NFB Pension Plan as of the end of the most recent plan year with respect to the respective NFB Pension Plan ending prior to the date hereof, calculated on the basis of the actuarial assumptions used in the most recent actuarial valuation for such NFB Pension Plan as of the date hereof; and no notice of a "reportable event" (as defined in Section 4043 of ERISA) for which the 30-day reporting requirement has not been waived has been required to be filed for any NFB Pension Plan within the 12-month period ending on the date hereof; (iv) neither NFB nor any of its Subsidiaries has provided, or is required to provide, security to any NFB Pension Plan or to any single-employer plan of a NFB ERISA Affiliate pursuant to Section 401(a)(29) of the Code; (v) neither NFB, its Subsidiaries, nor any NFB ERISA Affiliate has contributed to any "multiemployer plan," as defined in Section 3(37) of ERISA, on or after September 26, 1980; (vi) each NFB Employee Plan that is an "employee pension benefit plan" (as defined in Section 3(2) of ERISA) and which is intended to be qualified under Section 401(a) of the Code ("NFB Qualified Plan") has received a favorable determination letter from the IRS, and NFB and its Subsidiaries are not aware of any circumstances likely to result in revocation of any such favorable determination letter; (vii) there is no pending or, to NFB's knowledge, threatened litigation, administrative action or proceeding relating to any NFB Employee Plan; (viii)there has been no announcement or commitment by NFB or any of its Subsidiaries to create an additional NFB Employee Plan, or to amend any NFB Employee Plan, except for amendments required by applicable law which do not materially increase the cost of such NFB Employee Plan; and, except as specifically identified in NFB's Disclosure Letter, NFB and its Subsidiaries do not have any obligations for post-retirement or post-employment benefits under any NFB Employee Plan that cannot be amended or terminated upon 60 days' notice or less without incurring any liability thereunder, except for coverage required by Part 6 of Title I of ERISA or Section 4980B of the Code, or similar state laws, the cost of which is borne by the insured individuals; (ix) neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in any payment or series of payments by NFB or any of its Subsidiaries to any person which is an "excess parachute payment" (as defined in Section 280G of the Code), increase or secure (by way of a trust or other vehicle) any benefits payable under any NFB Employee Plan or accelerate the time of payment or vesting of any such benefit; and (x) with respect to each NFB Employee Plan, NFB has made available to JSB a true and correct copy of (A) the annual report on the applicable form of the Form 5500 series filed with the IRS for the most recent three plan years, if required to be filed, (B) such NFB Employee Plan, including amendments thereto, (C) each trust agreement, insurance contract or other funding arrangement relating to such NFB Employee Plan, including amendments thereto, (D) the most recent summary plan description and summary of material modifications thereto for such NFB Employee Plan, if the NFB Employee Plan is subject to Title I of ERISA, (E) the most recent actuarial report or valuation if such NFB Employee Plan is an NFB Pension Plan and any subsequent changes to the actuarial assumptions contained therein and (F) the most recent determination letter issued by the IRS if such NFB Employee Plan is a Qualified Plan. (o) Title to Assets. NFB and each of its Subsidiaries has good and marketable title to its properties and assets (including any intellectual property asset such as any trademark, servicemark, trade name or copyright) and property acquired in a judicial foreclosure proceeding or by way of a deed in lieu of foreclosure or similar transfer, other than property as to which it is lessee, in which case the related lease is valid and in full force and effect. Each lease pursuant to which NFB or any of its Subsidiaries is lessor is valid and in full force and effect and no lessee under any such lease is in material default or violation of any provisions of any such lease. All material tangible properties of NFB and each of its Subsidiaries are in a good state of maintenance and repair, conform with all applicable ordinances, regulations and zoning laws and are considered by NFB to be adequate for the current business of NFB and its Subsidiaries. (p) Compliance with Laws. NFB and each of its Subsidiaries has all permits, licenses, certificates of authority, orders and approvals of, and has made all filings, applications and registrations with, all Governmental Entities that are required in order to permit it to carry on its business as it is presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect, and, to the best knowledge of NFB, no suspension or cancellation of any of them is threatened. Since the date of its incorporation, the corporate affairs of NFB have not been conducted in violation of any law, ordinance, regulation, order, writ, rule, decree or approval of any Governmental Entity. The businesses of NFB and its Subsidiaries are not being conducted in violation of any law, ordinance, regulation, order, writ, rule, decree or condition to approval of any Governmental Entity. (q) Fees. Other than financial advisory services performed for NFB by Donaldson, Lufkin & Jenrette Securities Corporation pursuant to an agreement dated July 29, 1999, a true and complete copy of which has been previously delivered to JSB, neither NFB nor any of its Subsidiaries, nor any of their respective officers, directors, employees or agents, has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder's fees, and no broker or finder has acted directly or indirectly for NFB or any of its Subsidiaries in connection with this Agreement or the transactions contemplated hereby. (r) Environmental Matters. With respect to NFB and each of its Subsidiaries, except as disclosed in NFB's Disclosure Letter: (i) each of NFB and its Subsidiaries and, to NFB's knowledge, the Participation Facilities and the Loan Properties are, and have been, in substantial compliance with, and are not liable under, all Environmental Laws; (ii) there is no suit, claim, action, demand, executive or administrative order, directive, investigation or proceeding pending or, to the best of NFB's knowledge, threatened, before any court, Governmental Entity or board or other forum against it or any of its Subsidiaries or any Participation Facility (x) for alleged noncompliance (including by any predecessor) with, or liability under, any Environmental Law or (y) relating to the presence of or release into the environment of any Hazardous Material, whether or not occurring at or on a site owned, leased or operated by it or any of its Subsidiaries or any Participation Facility; (iii) to the best of NFB's knowledge, there is no suit, claim, action, demand, executive or administrative order, directive, investigation or proceeding pending or threatened before any court, Governmental Entity or board or other forum relating to or against any Loan Property (or NFB or any of its Subsidiaries in respect of such Loan Property) (x) relating to alleged noncompliance (including by any predecessor) with, or liability under, any Environmental Law or (y) relating to the presence of or release into the environment of any Hazardous Material, whether or not occurring at or on a site owned, leased or operated by a Loan Property; and (iv) to the best of NFB's knowledge, during the period of (l) NFB's or any of its Subsidiaries' ownership or operation of any of their respective current properties or (m) NFB's or any of its Subsidiaries' participation in the management of any Participation Facility, there has been no contamination by or release of Hazardous Materials in, on, under or affecting such properties. (s) Loan Portfolio; Allowance; Asset Qua(i)y. With respect to each Loan owned by NFB or its Subsidiaries in whole or in part, to the best knowledge of NFB: (A) the note and the related security documents are each legal, valid and binding obligations of the maker or obligor thereof, enforceable against such maker or obligor in accordance with their terms; (B) neither NFB nor any of its Subsidiaries nor any prior holder of a Loan has modified the note or any of the related security documents in any material respect or satisfied, canceled or subordinated the note or any of the related security documents except as otherwise disclosed by documents in the applicable Loan file; (C) NFB or a Subsidiary is the sole holder of legal and beneficial title to each Loan (or NFB Bank's applicable participation interest, as applicable); except as otherwise referenced on the books and records of NFB; (D) the note and the related security documents, copies of which are included in the Loan files, are true and correct copies of the documents they purport to be and have not been suspended, amended, modified, canceled or otherwise changed, except as otherwise disclosed by documents in the applicable Loan file; (E) there is no pending or threatened condemnation proceeding or similar proceeding affecting the property that serves as security for a Loan, except as otherwise referenced on the books and records of NFB; (F) there is no litigation or proceeding pending or threatened, relating to the property that serves as security for a Loan that would have a material adverse effect upon the related Loan; and (G) with respect to a Loan held in the form of a participation, the participation documentation is legal, valid, binding and enforceable. (ii) The allowance for possible losses reflected in NFB's audited statement of condition at December 31, 1998 was, and the allowance for possible losses shown on the balance sheets in NFB's Reports for periods ending after December 31, 1998 will be, adequate, as of the dates thereof, under GAAP. (iii) NFB's Disclosure Letter sets forth by category the amounts of all loans, leases, advances, credit enhancements, other extensions of credit, commitments and interest-bearing assets of NFB and its Subsidiaries that have been classified by any bank examiner (whether regulatory or internal) as "Special Mention," "Substandard," "Doubtful," "Loss" or words of similar import, and NFB and its Subsidiaries shall promptly after the end of any month inform JSB of any such classification arrived at any time after the date hereof. The OREO included in any non-performing assets of NFB or any of its Subsidiaries is carried net of reserves at the lower of cost or fair value, less estimated selling costs, based on current independent appraisals or evaluations or current management appraisals or evaluations; provided, however, that "current" shall mean within the past 12 months. (t) Accounting Matters. Except as disclosed in NFB's Disclosure Letter, neither NFB nor any of its Subsidiaries or, to the best of its knowledge, any of its other affiliates has, through the date hereof, taken or agreed to take any action that would prevent NFB from accounting for the business combination to be effected by the Merger as a pooling-of-interests, and NFB has no knowledge of any fact or circumstance that would prevent such accounting treatment. (u) Insurance. NFB and its Subsidiaries are presently insured, and since December 31, 1996, have been insured, for reasonable amounts with financially sound and reputable insurance companies, against such risks as companies engaged in a similar business would, in accordance with good business practice, customarily be insured. All of the insurance policies and bonds maintained by NFB and its Subsidiaries are in full force and effect, NFB and its Subsidiaries are not in default thereunder and all material claims thereunder have been filed in due and timely fashion. (v) Investment Securities; Borrowings. (i) Except for investments in FHLB Stock and pledges to secure FHLB borrowings and reverse repurchase agreements entered into in arms-length transactions pursuant to normal commercial terms and conditions and entered into in the ordinary course of business and restrictions that exist for securities to be classified as "held to maturity," none of the investments reflected in the consolidated balance sheet of NFB included in NFB's Report on Form 10-K for the year ended December 31, 1998, and none of the investment securities held by it or any of its Subsidiaries since December 31, 1998 is subject to any restriction (contractual or statutory) that would materially impair the ability of the entity holding such investment freely to dispose of such investment at any time. (ii) Neither NFB nor any Subsidiary is a party to or has agreed to enter into any Derivatives Contract or owns securities that (A) are referred to generically as "structured notes," "high risk mortgage derivatives," "capped floating rate notes" or "capped floating rate mortgage derivatives" or (B) are likely to have changes in value as a result of interest or exchange rate changes that significantly exceed normal changes in value attributable to interest or exchange rate changes, except for those Derivatives Contracts and other instruments legally purchased or entered into in the ordinary course of business, consistent with safe and sound banking practices and regulatory guidance, and listed (as of the date hereof) in NFB's Disclosure Letter or disclosed in NFB's Reports filed on or prior to the date hereof. (iii) Set forth in NFB's Disclosure Letter is a true and complete list of NFB's borrowed funds (excluding deposit accounts) as of the date hereof. (w) Corporate Documents. NFB has made available to JSB true and complete copies of its certificate of incorporation and bylaws and of NFB Bank's organization certificate and bylaws. The minute books of NFB and NFB Bank constitute a complete and correct record of all actions taken by their respective boards of directors (and each committee thereof) and their stockholders. The minute books of each of NFB's Subsidiaries constitutes a complete and correct record of all actions taken by the respective boards of directors (and each committee thereof) and the stockholders of each such Subsidiary. (x) Tax Treatment of the Merger. As of the date hereof, NFB has no knowledge of any fact or circumstance that would prevent the Merger or the Bank Merger, if effected, from qualifying as a reorganization under Section 368(a) of the Code. (y) Beneficial Ownership of JSB Common Stock. As of the date hereof, NFB does not beneficially own any shares of JSB Common Stock and, other than as contemplated by the JSB Option Agreement, does not have any option, warrant or right of any kind to acquire the beneficial ownership of any shares of JSB Common Stock. (z) Year 2000 Matters. NFB's Disclosure Letter sets forth a true and complete copy of NFB's plan to cause all of the Date-Sensitive Systems owned, leased or used by NFB or any of its Subsidiaries intended and necessary for use after December 31, 1999, or licensed to NFB or any of its Subsidiaries for use by NFB or any of its Subsidiaries, and all of the Date Data of NFB or any of its Subsidiaries to be Year 2000 Compliant (the "NFB Y2K Plan"). NFB believes that the NFB Y2K Plan can be substantially achieved on or before September 30, 1999, with aggregate expenditures under the NFB Y2K Plan not materially in excess of $2 million. (aa) Registration Statement. The information to be supplied by NFB for inclusion in (i) the Registration Statement or (ii) the Joint Proxy Statement-Prospectus will not, at the time such Registration Statement becomes effective, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. ARTICLE III CONDUCT PENDING THE MERGER Section 3.1 Conduct of JSB's Business Prior to the Effective Time. Except as expressly provided in this Agreement, during the period from the date of this Agreement to the Effective Time, JSB shall, and shall cause its Subsidiaries to, use commercially reasonable efforts to (i) conduct its business in the regular, ordinary and usual course consistent with past practice; (ii) maintain and preserve intact its business organization, properties, leases, employees and advantageous business relationships and retain the services of its officers and key employees, (iii) take no action which would materially adversely affect or delay the ability of JSB or NFB to perform their respective covenants and agreements on a timely basis under this Agreement, (iv) take no action which would adversely affect or delay the ability of JSB, JSB Bank, NFB or NFB Bank to obtain any necessary approvals, consents or waivers of any governmental authority required for the transactions contemplated hereby or which would reasonably be expected to result in any such approvals, consents or waivers containing any material condition or restriction, and (v) take no action that results in or is reasonably likely to have a Material Adverse Effect on JSB or JSB Bank. Section 3.2 Forbearance by JSB. Without limiting the covenants set forth in Section 3.1 hereof, except as otherwise provided in this Agreement and except to the extent required by law or regulation or any Bank Regulators, during the period from the date of this Agreement to the Effective Time, JSB shall not, and shall not permit any of its Subsidiaries to, without the prior consent of NFB, which consent shall not be unreasonably withheld: (a) change any provisions of the certificate of incorporation or bylaws of JSB or the similar governing documents of its Subsidiaries; (b) issue any shares of capital stock or change the terms of any outstanding stock options or warrants or issue, grant or sell any option, warrant, call, commitment, stock appreciation right, right to purchase or agreement of any character relating to the authorized or issued capital stock of JSB, except pursuant to (i) the exercise of stock options or warrants outstanding as of the date of this Agreement, (ii) the automatic grant of 142,000 stock options under the JSB 1996 Stock Option Plan as a result of the execution of this Agreement or (iii) the JSB Option Agreement; adjust, split, combine or reclassify any capital stock; make, declare or pay any dividend (except for JSB's regular quarterly dividend, which shall not be increased by more than $.05 per share from the current level) or make any other distribution on, or directly or indirectly redeem, purchase or otherwise acquire, any shares of its capital stock or any securities or obligations convertible into or exchangeable for any shares of its capital stock. As promptly as practicable following the date of this Agreement, the Board of Directors of JSB shall cause its regular quarterly dividend record dates and payment dates to be the same as NFB's regular quarterly dividend record dates and payments dates for NFB Common Stock, and JSB shall not thereafter change its regular dividend payment dates and record dates. Nothing contained in this Section 3.2(b) or in any other Section of this Agreement shall be construed to permit holders of shares of JSB Common Stock to receive two dividends from either JSB or from JSB and NFB in any one quarter or to deny or prohibit such holders from receiving one dividend from either JSB or NFB in any quarter. Subject to applicable regulatory restrictions, if any, JSB Bank may pay a cash dividend that is, in the aggregate, sufficient to fund any dividend by JSB permitted hereunder and to allow JSB to make the payments required under Section 4.13(d) of this Agreement; (c) other than in the ordinary course of business consistent with past practice and pursuant to policies currently in effect, sell, transfer, mortgage, encumber or otherwise dispose of any of its material properties, leases or assets to any individual, corporation or other entity other than a direct or indirect wholly owned Subsidiary of JSB or cancel, release or assign any indebtedness of any such individual, corporation or other entity, except pursuant to contracts or agreements in force at the date of this Agreement and which have been disclosed to NFB and except for the sale of unsold cooperative shares owned by JSB or its Subsidiaries, as disclosed in JSB's Disclosure Letter; (d) except to the extent required by law or as disclosed in JSB's Disclosure Letter or specifically provided for elsewhere herein, (i) increase the compensation or fringe benefits of any of its employees or directors, other than general increases in compensation in the ordinary course of business consistent with past practice and, upon consultation with NFB, the payment of reasonable "stay in place" pay where necessary or appropriate to retain key employees in an amount not to exceed $500,000 in the aggregate; (ii) pay any pension or retirement allowance not required by any existing plan or agreement to any such employees or directors, or become a party to, amend or commit itself to fund or otherwise establish any trust or account related to any JSB Employee Plan (as defined in Section 2.3(m)) with or for the benefit of any employee or director; or (iii) voluntarily accelerate the vesting of any stock options or other compensation or benefit; (e) except as contemplated by Section 4.2, change its method of accounting as in effect at December 31, 1998, except as required by changes in GAAP as concurred in by JSB's independent auditors; (f) settle any claim, action or proceeding involving any liability of JSB or any of its Subsidiaries for money damages in excess of $500,000 or impose material restrictions upon the operations of JSB or any of its Subsidiaries; (g) acquire or agree to acquire, by merging or consolidating with, or by purchasing a substantial equity interest in or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets, in each case which are material, individually or in the aggregate, to JSB, except in satisfaction of debts previously contracted; (h) except pursuant to commitments existing at the date hereof which have previously been disclosed to NFB, make any real estate loans secured by undeveloped land or real estate located outside the States of New York, New Jersey or Connecticut (other than real estate secured by one-to-four family homes) or make any construction loan (other than construction loans secured by one-to-four family homes) outside the States of New York, New Jersey or Connecticut; (i) establish or commit to the establishment of any new branch or other office facilities other than those for which all regulatory approvals have been obtained; (j) take, fail to take, or cause to be taken or not taken any action that would prevent or impede the Merger from qualifying (A) for pooling-of-interests accounting treatment or (B) as a reorganization within the meaning of Section 368(a) of the Code; or (k) make any capital expenditures other than those which (i) are made in the ordinary course of business or are necessary to maintain existing assets in good repair and (ii) in any event are in an amount of no more than $500,000 in the aggregate; (l) enter into any new line of business; (m) take any action that is intended or may reasonably be expected to result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect, or any of the conditions to the Merger set forth in Article V not being satisfied; (n) other than in the ordinary course of business consistent with prudent banking practices, incur any indebtedness for borrowed money or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other individual, corporation or other entity; (o) make any equity investment or commitment to make such an investment in real estate or in any real estate development project, other than in connection with foreclosures, settlements in lieu of foreclosure or troubled loan or debt restructurings in the ordinary course of business consistent with prudent banking practices; (p) other than in prior consultation with NFB, restructure or materially change its investment securities portfolio, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported; or (q) agree or commit to take any action that is prohibited by this Section 3.2. In the event that NFB does not respond in writing to JSB within five business days of receipt by NFB of a written request for JSB to engage in any of the actions for which NFB's prior written consent is required pursuant to this Section 3.2, NFB shall be deemed to have consented to such action. Any request by JSB or response thereto by NFB shall be made in accordance with the notice provisions of Section 8.7, shall note that it is a request pursuant to this Section 3.2 and shall state that a failure to respond within five business days shall constitute consent. Section 3.3 Conduct of NFB's Business Prior to the Effective Time. Except as expressly provided in this Agreement, during the period from the date of this Agreement to the Effective Time, NFB shall, and shall cause its Subsidiaries to, use commercially reasonable efforts to (i) conduct its business in the regular, ordinary and usual course consistent with past practice; (ii) maintain and preserve intact its business organization, properties, leases, employees and advantageous business relationships and retain the services of its officers and key employees, (iii) take no action which would materially adversely affect or delay the ability of JSB or NFB to perform their respective covenants and agreements on a timely basis under this Agreement, (iv) take no action which would adversely affect or delay the ability of JSB, NFB, JSB Bank or NFB Bank to obtain any necessary approvals, consents or waivers of any Governmental Entity required for the transactions contemplated hereby and (v) take no action that results in or is reasonably likely to have a Material Adverse Effect on NFB. Section 3.4 Forbearance by NFB. Without limiting the covenants set forth in Section 3.3 hereof, except as otherwise provided in this Agreement and except to the extent required by law or regulation or any Bank Regulators, during the period from the date of this Agreement to the Effective Time, NFB shall not, and shall not permit any of its Subsidiaries to, without the prior consent of JSB, which consent shall not be unreasonably withheld: (a) change any provisions of the certificate of incorporation of NFB or the organization certificate of NFB Bank, other than to increase the authorized capital stock of NFB or to change the par value of NFB Common Stock; (b) issue any shares of capital stock or change the terms of any outstanding stock options or warrants or issue, grant or sell any option, warrant, call, commitment, stock appreciation right, right to purchase or agreement of any character relating to the authorized or issued capital stock of NFB except (i) in transactions permitted under Section 3.4(e), (ii) pursuant to the exercise of stock options or warrants outstanding as of the date of this Agreement or granted in accordance with this Section 3.4(b), (iii) for the grant of options under the NFB Stock Plans consistent with NFB's past practice or (iv) for the issuance of such number of shares of NFB Common Stock as is necessary to permit the Merger to be accounted for as a pooling-of-interests; adjust, split, combine or reclassify any capital stock; or, solely in the case of NFB, make, declare or pay any dividend (except for NFB's regular quarterly cash dividend) or make any other distribution on any shares of its capital stock or any securities or obligations convertible into or exchangeable for any shares of its capital stock; provided, however, that nothing contained herein shall prohibit NFB from increasing the quarterly cash dividend on NFB Common Stock; (c) make any acquisition or take any other action that individually or in the aggregate could materially adversely affect the ability of NFB to consummate the transactions contemplated hereby, or enter into any agreement providing for, or otherwise participate in, any merger, consolidation or other transaction in which NFB or any surviving corporation may be required not to consummate the Merger or any of the other transactions contemplated hereby in accordance with the terms of this Agreement; (d) take, fail to take, or cause to be taken or not taken any action that would prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code; provided, however, that nothing contained herein shall limit the ability of NFB to exercise its rights under the JSB Option Agreement; (e) enter into an agreement with respect to an Acquisition Transaction (as defined below) with a third party; provided, that the foregoing shall not prevent NFB or any of its Subsidiaries from entering into any agreement with respect to an Acquisition Transaction if such action is, in the reasonable judgment of NFB, desirable in the conduct of the business of NFB and its Subsidiaries and would not, in the reasonable judgment of NFB, likely delay the Effective Time to a date subsequent to the date set forth in Section 6.1(d) of this Agreement or adversely affect the Merger Consideration to be received by JSB's stockholders pursuant to this Agreement. For purposes of this Agreement, "Acquisition Transaction" shall mean (x) a merger or consolidation, or any similar transaction, involving NFB, (y) a purchase, lease or other acquisition of all or substantially all of the assets of NFB or (z) a purchase or other acquisition (including by way of merger, consolidation, share exchange or otherwise) of securities representing 10% or more of the voting power of NFB; provided, that the term "Acquisition Transaction" does not include (i) any internal merger or consolidation involving only NFB and its Subsidiaries or (ii) any acquisition or acquisitions by NFB subsequent to August 15, 1999 involving in the aggregate, for all such acquisitions, the issuance of up to the difference between (1) 10% of the shares of NFB Common Stock outstanding as of the date hereof and (2) the number of shares, if any, issued pursuant to Section 3.4(b)(iv), or cash consideration equal to such number of shares multiplied by $20.44 per share; (f) change its method of accounting as in effect at December 31, 1998, except as required by changes in GAAP as concurred in by JSB's independent auditors; (g) take any action that is intended or may reasonably be expected to result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect, or any of the conditions to the Merger set forth in Article V not being satisfied; or (h) agree or commit to take any action that is prohibited by this Section 3.4. ARTICLE IV COVENANTS Section 4.1 Acquisition Proposals. JSB agrees that neither it nor any of its Subsidiaries, nor any of the respective officers and directors of JSB or any of its Subsidiaries, shall, and JSB shall not authorize or permit any of its employees, agents or representatives (including, without limitation, any investment banker, attorney or accountant retained by it or any of its Subsidiaries) to, (a) initiate, solicit or encourage, directly or indirectly, any inquiries or the making of any proposal or offer (including, without limitation, any proposal or offer to JSB's stockholders) with respect to a merger, consolidation or similar transaction involving, or any purchase of all or any significant portion of the assets or any equity securities of, JSB or any of its material Subsidiaries (any such proposal or offer being hereinafter referred to as an "Acquisition Proposal") or (b) engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to an Acquisition Proposal, or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal; provided, however, that nothing contained in this Agreement shall prevent JSB or its Board of Directors from (i) complying with Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal or (ii) (A) providing information in response to a request therefor by a person who has made an unsolicited bona fide written Acquisition Proposal (an "Unsolicited Acquisition Proposal") if the Board of Directors receives from the person so requesting such information an executed confidentiality agreement on terms substantially equivalent to those contained in the confidentiality agreement between NFB and JSB, dated as of July 13, 1999; or (B) engaging in any negotiations or discussions with any person who has made an Unsolicited Acquisition Proposal, if and only to the extent that, in each such case referred to in clause (A) or (B) above, (x) the Board of Directors of JSB, after consultation with and based upon the written opinion of outside legal counsel, in good faith deems such action to be legally necessary for the proper discharge of its fiduciary duties under applicable law and (y) the Board of Directors of JSB, after consultation with its financial advisor, determines in good faith that such Unsolicited Acquisition Proposal, if accepted, is reasonably likely to be consummated, taking into account all legal, financial and regulatory aspects of the proposal and the person making the proposal and would, if consummated, result in a more favorable transaction than the transaction contemplated by this Agreement, taking into account the prospects and interests of JSB and its stockholders. JSB will notify NFB immediately orally (within one day) and in writing (within three days) if any such Unsolicited Acquisition Proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with JSB after the date hereof, the identity of the person making such inquiry, proposal or offer and the substance thereof and will keep NFB informed of any developments with respect thereto immediately upon the occurrence thereof. Subject to the foregoing, JSB will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. JSB will take the necessary steps to inform the appropriate individuals or entities referred to in the first sentence hereof of the obligations undertaken in this Section 4.1. JSB will promptly request each person (other than NFB) that has executed a confidentiality agreement prior to the date hereof in connection with its consideration of a business combination with JSB or any of its Subsidiaries to return or destroy all confidential information previously furnished to such person by or on behalf of JSB or any of its Subsidiaries. JSB shall take all steps necessary to enforce all such confidentiality agreements. Section 4.2 Certain Policies of JSB. (a) At the request of NFB, JSB shall cause JSB Bank to modify and change its loan, litigation and real estate valuation policies and practices (including loan classifications and levels of reserves) and investment and asset/liability management policies and practices after the date on which all Requisite Regulatory Approvals and stockholder approvals are received, and after receipt of written confirmation from NFB that it is not aware of any fact or circumstance that would prevent completion of the Merger, and prior to the Effective Time so as to be consistent on a mutually satisfactory basis with those of NFB Bank; provided, however, that JSB shall not be required to take such action more than 30 days prior to the Effective Date; and provided, further, that such policies and procedures are not prohibited by GAAP or any applicable laws and regulations. (b) JSB's representations, warranties and covenants contained in this Agreement shall not be deemed to be untrue or breached in any respect for any purpose as a consequence of any modifications or changes undertaken solely on account of this Section 4.2. NFB agrees to hold harmless, indemnify and defend JSB and its Subsidiaries, and their respective directors, officers and employees, for any loss, claim, liability or other damage caused by or resulting from compliance with this Section 4.2. Section 4.3 Access and Information. (a) Upon reasonable notice, JSB and NFB shall (and shall cause their respective Subsidiaries to) afford to the other and their respective representatives (including, without limitation, directors, officers and employees of such party and its affiliates and counsel, accountants and other professionals retained by such party) such reasonable access during normal business hours throughout the period prior to the Effective Time to the books, records (including, without limitation, tax returns and work papers of independent auditors), properties, personnel and to such other information as either party may reasonably request; provided, however, that no investigation pursuant to this Section 4.3 shall affect or be deemed to modify any representation or warranty made herein. In furtherance, and not in limitation of the foregoing, JSB shall make available to NFB all information necessary or appropriate for the preparation and filing of all real property and real estate transfer tax returns and reports required by reason of the Merger or the Bank Merger. NFB and JSB will not, and will cause their respective representatives not to, use any information obtained pursuant to this Section 4.3 for any purpose unrelated to the consummation of the transactions contemplated by this Agreement. Subject to the requirements of applicable law, each of NFB and JSB will keep confidential, and will cause their respective representatives to keep confidential, all information and documents obtained pursuant to this Section 4.3 unless such information (i) was already known to such party or an affiliate of such party, other than pursuant to a confidentiality agreement or other confidential relationship, (ii) becomes available to such party or an affiliate of such party from other sources not known by such party to be bound by a confidentiality agreement or other obligation of secrecy, (iii) is disclosed with the prior written approval of the other party or (iv) is or becomes readily ascertainable from published information or trade sources. In the event that this Agreement is terminated or the transactions contemplated by this Agreement shall otherwise fail to be consummated, each party shall promptly cause all copies of documents or extracts thereof containing information and data as to another party hereto (or an affiliate of any party hereto) to be returned to the party that furnished the same. (b) During the period of time beginning on the day application materials to obtain the Requisite Regulatory Approvals for the Merger are initially filed and continuing to the Effective Time, including weekends and holidays, JSB shall cause JSB Bank to provide NFB, NFB Bank and their authorized agents and representatives full access to JSB Bank's offices after normal business hours for the purpose of installing necessary wiring and equipment to be utilized by NFB Bank after the Effective Time; provided, that: (i) reasonable advance notice of each entry shall be given to JSB Bank and JSB Bank approves of each entry, which approval shall not be unreasonably withheld; (ii) JSB Bank shall have the right to have its employees or contractors present to inspect the work being done; (iii) to the extent practicable, such work shall be done in a manner that will not interfere with JSB Bank's business conducted at any affected branch offices; (iv) all such work shall be done in compliance with all applicable laws and government regulations, and NFB Bank shall be responsible for the procurement, at NFB Bank's expense, of all required governmental or administrative permits and approvals; (v) NFB Bank shall maintain appropriate insurance satisfactory to JSB Bank in connection with any work done by NFB Bank's agents and representatives pursuant to this Section 4.3; (vi) NFB Bank shall reimburse JSB Bank for any material out-of-pocket costs or expenses incurred by JSB Bank in connection with this undertaking; and (vii) in the event this Agreement is terminated in accordance with Article VI hereof, NFB Bank, within a reasonable time period and at its sole cost and expense, will restore such offices to their condition prior to the commencement of any such installation. Section 4.4 Certain Filings, Consents and Arrangements. NFB and JSB shall (a) as soon as practicable (and in any event within 45 days after the date hereof) make, or cause to be made, any filings and applications and provide any notices required to be filed or provided in order to obtain all approvals, consents and waivers of Governmental Entities and third parties necessary or appropriate for the consummation of the transactions contemplated hereby or by the JSB Option Agreement; (b) cooperate with one another in promptly (i) determining what filings and notices are required to be made or approvals, consents or waivers are required to be obtained under any relevant federal or state law or regulation or under any relevant agreement or other document and (ii) making any such filings and notices, furnishing information required in connection therewith and seeking timely to obtain any such approvals, consents or waivers; and (c) deliver to the other copies of the publicly available portions of all such filings, notices and applications promptly after they are filed. Section 4.5 Antitakeover Provisions. JSB and its Subsidiaries shall take all steps required by any relevant federal or state law or regulation or under any relevant agreement or other document to exempt or continue to exempt NFB, the Agreement, the Plan of Bank Merger, the Merger, the Bank Merger and the JSB Option Agreement from any provisions of an antitakeover nature in JSB's or its Subsidiaries' organization certificates and bylaws and the provisions of any federal or state antitakeover laws. Section 4.6 Additional Agreements. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use all reasonable efforts to take promptly, or cause to be taken promptly, all actions and to do promptly, or cause to be done promptly, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement (including, if the Plan of Bank Merger is executed, the Bank Merger) as expeditiously as possible, including using efforts to obtain all necessary actions or non-actions, extensions, waivers, consents and approvals from all applicable Governmental Entities, effecting all necessary registrations, applications and filings (including, without limitation, filings under any applicable state securities laws) and obtaining any required contractual consents and regulatory approvals. Section 4.7 Publicity. The initial press release announcing this Agreement shall be a joint press release and thereafter JSB and NFB shall consult with each other in issuing any press releases or otherwise making public statements with respect to the Merger and any other transaction contemplated hereby and in making any filings with any Governmental Entity or with any national securities exchange with respect thereto. Section 4.8 Stockholders Meetings. JSB and NFB each shall take all action necessary, in accordance with applicable law and its respective corporate documents, to convene a meeting of its respective stockholders (each, a "Stockholder Meeting") as promptly as practicable for the purpose of considering and voting on approval and adoption of the transactions provided for in this Agreement. Except to the extent legally required for the discharge by the Board of Directors of its fiduciary duties as advised by such Board's counsel in writing, the Board of Directors of each of JSB and NFB shall (a) recommend at its Stockholder Meeting that the stockholders vote in favor of and approve the transactions provided for in this Agreement and (b) use its best efforts to solicit such approvals. JSB and NFB, in consultation with the other, shall each employ professional proxy solicitors to assist in contacting stockholders in connection with soliciting favorable votes on the Merger. JSB and NFB shall coordinate and cooperate with respect to the timing of their respective Stockholder Meetings. Section 4.9 Proxy Statements; Comfort Letters. (i) As soon as practicable after the date hereof, NFB and JSB shall cooperate with respect to the preparation of a Joint Proxy Statement-Prospectus for the purpose of taking stockholder action on the Merger and this Agreement and file the Joint Proxy Statement- Prospectus with the SEC, respond to comments of the staff of the SEC and, promptly after the Registration Statement is declared effective by the SEC, mail the Joint Proxy Statement-Prospectus to the respective holders of record (as of the applicable record date) of shares of voting stock of each of JSB and NFB. NFB and JSB each represents and covenants to the other that the Joint Proxy Statement-Prospectus, and any amendment or supplement thereto, with respect to the information pertaining to it or its Subsidiaries at the date of mailing to its stockholders and the date of its Stockholder Meeting will be in compliance with the Exchange Act and all relevant rules and regulations of the SEC and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (ii) NFB shall cause KPMG LLP, its independent public accounting firm, to deliver to JSB, and JSB shall cause KPMG LLP, its independent public accounting firm, to deliver to NFB and to its officers and directors who sign the Registration Statement for this transaction, a "comfort letter" or "agreed upon procedures" letter, in the form customarily issued by such accountants at such time in transactions of this type, dated (a) the date of the mailing of the Joint Proxy Statement-Prospectus for the Stockholders Meeting of JSB and the date of mailing of the Joint Proxy Statement-Prospectus for the Stockholders meeting of NFB, respectively, and (b) a date not earlier than five business days preceding the date of the Closing (as defined in Section 7.1). Section 4.10Registration of NFB Common Stock. (a) NFB shall, as promptly as practicable following the preparation thereof, file the Registration Statement (including any pre-effective or post-effective amendments or supplements thereto) with the SEC under the Securities Act in connection with the transactions contemplated by this Agreement, and NFB and JSB shall use all reasonable efforts to have the Registration Statement declared effective under the Securities Act as promptly as practicable after such filing. NFB will advise JSB promptly after NFB receives notice of the time when the Registration Statement has become effective or any supplement or amendment has been filed, of the issuance of any stop order or the suspension of the qualification of the shares of capital stock issuable pursuant to the Registration Statement, or the initiation or threat of any proceeding for any such purpose, or of any request by the SEC for the amendment or supplement of the Registration Statement or for additional information. NFB will provide JSB with as many copies of such Registration Statement and all amendments thereto promptly upon the filing thereof as JSB may reasonably request. (b) NFB shall use its reasonable best efforts to obtain, prior to the effective date of the Registration Statement, all necessary state securities laws or "blue sky" permits and approvals required to carry out the transactions contemplated by this Agreement. (c) NFB shall use its reasonable best efforts to list, prior to the Effective Time, on the NYSE, or on such other exchange as NFB Common Stock shall then be trading, subject only to official notice of issuance, the shares of NFB Common Stock to be issued by NFB in exchange for the shares of JSB Common Stock. Section 4.11 Affiliate Letters. Promptly, but in any event within two weeks after the execution and delivery of this Agreement, JSB shall deliver to NFB a letter identifying all persons who, to the knowledge of JSB, may be deemed to be "affiliates" of JSB under Rule 145 of the Securities Act and the pooling-of-interests accounting rules, including, without limitation, all directors and executive officers of JSB. Within two weeks after delivery of such letter, JSB shall deliver executed letter agreements, each substantially in the form attached hereto as Exhibit B, executed by each such person so identified as an affiliate of JSB agreeing (i) to comply with Rule 145, (ii) to refrain from transferring shares as required by the pooling-of-interests accounting rules and (iii) to be present in person or by proxy and vote in favor of the Merger at the JSB Stockholders Meeting. Within four weeks after the date hereof, NFB shall cause its directors and executive officers to enter into letter agreements, in the form attached hereto as Exhibit C, with NFB concerning the pooling-of-interests accounting rules. NFB hereby agrees to publish, or file a Form 8-K, Form 10-K or Form 10-Q containing, financial results covering at least 30 days of post-Merger combined operations of NFB and JSB as soon as practicable, but in no event later than 30 days following the end of the first calendar month ending at least 30 days after the Effective Time, in form and substance sufficient to remove the restrictions in connection with the pooling-of-interests accounting rules contained therein. Section 4.12 Notification of Certain Matters. Each party shall give prompt notice to the others of: (a) any event or notice of, or other communication relating to, a default or event that, with notice or lapse of time or both, would become a default, received by it or any of its Subsidiaries subsequent to the date of this Agreement and prior to the Effective Time, under any contract material to the financial condition, properties, businesses or results of operations of each party and its Subsidiaries taken as a whole to which each party or any Subsidiary is a party or is subject; and (b) any event, condition, change or occurrence which individually or in the aggregate has, or which, so far as reasonably can be foreseen at the time of its occurrence, is reasonably likely to result in a Material Adverse Effect. Each of JSB and NFB shall give prompt notice to the other party of any notice or other communication from any third party alleging that the consent of such third party is or may be required in connection with any of the transactions contemplated by this Agreement. Section 4.13 Directors and Officers. (a) NFB agrees to cause Park T. Adikes (the "New NFB Director") to be elected or appointed as a director of NFB and NFB Bank at, or as promptly as practicable after, the Effective Time; provided, however, that if Mr. Adikes does not become a director of NFB or NFB Bank because of death, disability or otherwise, or if Mr. Adikes shall cease to be a director of NFB or NFB Bank at any time before the third anniversary of the Effective Time, NFB agrees to cause a person who is a member of the Board of Directors of JSB as of the date hereof to be elected or appointed as the New NFB Director. (b) At the Effective Time, NFB shall cause NFB Bank, or, if the Bank Merger is not effected, JSB Bank, to assume and honor the JSB Bank Outside Directors' Consultation and Retirement Plan ("JSB Bank Outside Directors' Plan") in accordance with the terms and conditions of such plan as of the date hereof; provided, however, that, notwithstanding any provision of such plan to the contrary, (i) effective immediately prior to the Effective Time, the references to "fifteen (15) years" in Section 3 of the JSB Bank Outside Directors' Plan regarding eligibility shall be amended so as to refer to "one (1) year" for the purpose of making all eight outside directors of JSB Bank participants under such plan and (ii) any outside member of the JSB Bank Board of Directors who does not become a member of the Board of Directors of NFB Bank from and after the Effective Time shall have the right to commence receiving benefits under the JSB Bank Outside Directors' Plan effective as of the Effective Time and shall not be required to provide consulting services in order to receive such benefits; provided, further, that in no event shall any amendment or termination of the JSB Bank Outside Directors' Plan on or after the Effective Time adversely affect the right of any plan participant, former participant or beneficiary thereof to receive any benefits under such plan in respect of participation for any period ending on or before the date on which such amendment or termination is adopted or, if later, the date on which it is made effective. NFB Bank and JSB Bank also agree that all individuals who, prior to the Effective Time, were receiving benefits under the JSB Bank Outside Directors' Plan shall continue to receive all such benefits from this plan on the same terms and conditions from and after the Effective Time. (c) NFB shall use all reasonable efforts to identify and offer employment opportunities to qualified, satisfactorily performing officers and employees of JSB and its Subsidiaries in positions within the business operations of NFB and its Subsidiaries for which such officers and employees are qualified. NFB shall give, and shall cause its Subsidiaries to give, priority consideration to all such officers and employees of JSB and its Subsidiaries vis-a-vis all individuals other than current officers and employees of NFB; provided, however, that officers and employees of JSB and its Subsidiaries who become employed by NFB or its Subsidiaries shall then be treated on an equal basis with the officers and employees of NFB and its Subsidiaries. (d) NFB shall honor (i) the Employment Agreements between JSB and, respectively, Park T. Adikes, Edward P. Henson, Joanne Corrigan, Thomas R. Lehmann, Lawrence J. Kane, John F. Bennett, Jack Connors, John J. Conroy, Bernice Glaz, Teresa D. Covello, Joseph J. Hennessy, Philip Pepe, Daniel J. Huber and Laurel M. Romito, each as amended and restated as of June 22, 1999 and (ii) the Employment Agreements between JSB Bank and, respectively, Park T. Adikes, Edward P. Henson, Joanne Corrigan, Thomas R. Lehmann, Lawrence J. Kane, John F. Bennett, Jack Connors, John J. Conroy, Bernice Glaz, Teresa D. Covello, Joseph J. Hennessy, Philip Pepe, Daniel J. Huber and Laurel M. Romito, each as amended and restated as of June 22, 1999, by permitting JSB to pay to each such individual on the Closing Date the lump sum amounts that are due under each agreement and by providing any additional payments or benefits in accordance with the terms of such Employment Agreements, regardless of whether or not the individual officer continues employment with NFB or NFB Bank. NFB and JSB have delivered to each other a good faith reasonable estimate of the amounts payable on the Closing Date under the Employment Agreements, based upon procedures and information available at the date of this Agreement, and the procedures used in preparing such estimates shall be followed in determining the actual amounts payable under the Employment Agreements on the Closing Date, which estimate is attached hereto as Schedule 4.13(d). Section 4.14 Indemnification; Directors' and Officers' Insurance. (a) From and after the Effective Time through the sixth anniversary of the Effective Date, NFB agrees to indemnify and hold harmless each present and former director and officer of JSB and its Subsidiaries and each officer or employee of JSB and its Subsidiaries that is serving or has served as a director or trustee of another entity expressly at JSB's request or direction (each, an "Indemnified Party"), against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities (collectively, "Costs") incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or prior to the Effective Time (including the transactions contemplated by this Agreement, including the entering into of the JSB Option Agreement), whether asserted or claimed prior to, at or after the Effective Time, and to advance any such Costs to each Indemnified Party as they are from time to time incurred, in each case to the fullest extent such Indemnified Party would have been indemnified as a director, officer or employee of JSB and its Subsidiaries and as then permitted under applicable law. (b) Any Indemnified Party wishing to claim indemnification under Section 4.14(a), upon learning of any such claim, action, suit, proceeding or investigation, shall promptly notify NFB thereof, but the failure to so notify shall not relieve NFB of any liability it may have hereunder to such Indemnified Party if such failure does not materially prejudice the indemnifying party. In the event of any such claim, action, suit, proceeding or investigation, (i) NFB shall have the right to assume the defense thereof with counsel reasonably acceptable to the Indemnified Party and NFB shall not be liable to such Indemnified Party for any legal expenses of other counsel subsequently incurred by such Indemnified Party in connection with the defense thereof, except that if NFB does not elect to assume such defense within a reasonable time or counsel for the Indemnified Party at any time advises that there are issues which raise conflicts of interest between NFB and the Indemnified Party (and counsel for NFB does not disagree), the Indemnified Party may retain counsel satisfactory to such Indemnified Party, and NFB shall remain responsible for the reasonable fees and expenses of such counsel as set forth above, to be paid promptly as statements therefor are received; provided, however, that NFB shall be obligated pursuant to this paragraph (b) to pay for only one firm of counsel for all Indemnified Parties in any one jurisdiction with respect to any given claim, action, suit, proceeding or investigation unless the use of one counsel for such Indemnified Parties would present such counsel with a conflict of interest; (ii) the Indemnified Party will reasonably cooperate in the defense of any such matter; and (iii) NFB shall not be liable for any settlement effected by an Indemnified Party without its prior written consent, which consent may not be withheld unless such settlement is unreasonable in light of such claims, actions, suits, proceedings or investigations against, or defenses available to, such Indemnified Party. (c) NFB shall pay all reasonable Costs, including attorneys' fees, that may be incurred by any Indemnified Party in successfully enforcing the indemnity and other obligations provided for in this Section 4.14 to the fullest extent permitted under applicable law. The rights of each Indemnified Party hereunder shall be in addition to any other rights such Indemnified Party may have under applicable law. (d) For a period of six years after the Effective Time, NFB shall cause the former directors and officers of JSB to be covered by the policy of directors and officers liability insurance currently maintained by JSB; provided, however, that NFB may substitute therefor a policy of at least the same coverage and containing terms no less advantageous to the beneficiaries thereof than such policies (including, without limitation, by providing coverage under its existing policy); provided, however, that in no event shall NFB be obligated to expend, in order to maintain or provide insurance coverage pursuant to this Section 4.14(d), any premium per annum in excess of 175% of the amount of the annual premiums paid as of the date hereof by JSB for such insurance ("Maximum Agreement"); provided, further, that if the amount of the annual premiums necessary to maintain or procure such insurance coverage exceeds the Maximum Amount, NFB shall obtain the most advantageous coverage of directors' and officers' insurance obtainable for an annual premium equal to the Maximum Amount; and provided, further, that officers and directors of JSB may be required to make application and provide customary representations and warranties to NFB's insurance carrier for the purpose of obtaining such insurance. Section 4.15 Employees; Benefit Plans and Programs. (a) Each person who is employed by JSB or JSB Bank immediately prior to the Effective Time (a "JSB Employee") shall, at the Effective Time, become an employee of NFB or NFB Bank (unless the Bank Merger is not effected, in which case the references in this Section 4.15 to NFB Bank shall mean JSB Bank). Beginning at the Effective Time, each of the JSB Employees shall serve NFB or NFB Bank in the same capacity in which he or she served immediately prior to the Effective Time and upon the same terms and conditions generally applicable to other employees of NFB or NFB Bank with comparable positions, with the following special provisions: (i) No JSB Employee shall be, or have or exercise the authority of, an officer of NFB or NFB Bank unless and until elected or appointed an officer of NFB or NFB Bank in accordance with NFB's or NFB Bank's bylaws. (ii) At or as soon as practicable following the Effective Time, NFB and NFB Bank shall establish and implement a program of compensation and benefits designed to cover all similarly situated employees on a uniform basis ("New Compensation and Benefits Program"). The New Compensation and Benefits Program may contain any combination of new plans, continuations of plans maintained by NFB or NFB Bank immediately prior to the Effective Time and continuation of plans maintained by JSB or JSB Bank immediately prior to the Effective Time as NFB, in its discretion, may determine. To the extent that it is not practicable to implement any constituent part of the New Compensation and Benefits Program at the Effective Time, NFB and NFB Bank shall continue in effect any comparable plan maintained immediately prior to the Effective Time for the respective employees of NFB, JSB, NFB Bank and JSB Bank for a transition period. During the transition period, the persons who were employees of JSB or JSB Bank immediately prior to the Effective Time who become employees of NFB or NFB Bank at the Effective Time shall continue to participate in the plans of JSB and JSB Bank that are continued for transitional purposes, and all other employees of NFB or NFB Bank will participate only in the comparable plans of NFB and NFB Bank that are continued for transitional purposes. (iii) Each constituent part of the New Compensation and Benefits Program shall recognize, in the case of persons employed by NFB, NFB Bank, JSB or JSB Bank immediately prior to the Effective Time who are also employed by NFB or NFB Bank immediately after the Effective Time, all service with NFB, NFB Bank, JSB or JSB Bank as service with NFB and NFB Bank for all purposes, including eligibility, vesting, benefit accrual and level of matching contributions; provided, however, that such service shall not be recognized to the extent that such recognition would result in a duplication of benefit; provided further, however, that in no event will such recognition result in any current or former employees of JSB or any of its Subsidiaries being covered under the post-retirement medical benefits plan of NFB or any of its Subsidiaries to the extent such coverage is provided at the expense of NFB or any of its Subsidiaries. (iv) In the case of any constituent part of the New Compensation and Benefits Program which is a life or health insurance plan: (A) such plan shall not apply any preexisting condition limitations for conditions covered under the applicable life or health insurance plans maintained by NFB, NFB Bank, JSB and JSB Bank as of the Effective Time, (B) each such plan which is a life or health insurance plan shall honor any deductible and out of pocket expenses incurred under the applicable life or health insurance plans maintained by NFB, NFB Bank, JSB and JSB Bank as of the Effective Time and (C) each such plan which is a life insurance plan shall waive any medical certification otherwise required in order to assure the continuation of coverage at a level not less than that in effect immediately prior to the implementation of such plan (but subject to any overall limit on the maximum amount of coverage under such plans). (b) NFB shall assume the obligations of JSB and JSB Bank with respect to any severance plans or agreements identified in JSB's Disclosure Letter, as they may be in effect at the Effective Time, and shall pay amounts thereunder when due; provided, however, that in the event of the termination of employment of officers and employees of JSB or JSB Bank within 15 months following the Effective Time, such persons shall be provided severance benefits equal to the greater of those provided under the JSB Bank Severance Plan or those provided by NFB or NFB Bank under any severance plan maintained by NFB or NFB Bank. (c) Notwithstanding any other provision in this Agreement to the contrary, officers and employees of JSB and its Subsidiaries who are covered under the JSB Pension Plan immediately prior to the Effective Time and who continue to be employed by NFB or its Subsidiaries on and after the Effective Time shall, if, as of the Effective Time, they either: (i) are within 10 years of their normal retirement age (as defined in the JSB Pension Plan) and have a period of service (as defined in the JSB Pension Plan) of at least 10 years with JSB or its Subsidiaries, or (ii) have a period of service (as defined in the JSB Pension Plan) of at least 25 years with JSB or its Subsidiaries, have the right to elect to continue to accrue benefits under the benefit accrual formula under the JSB Pension Plan rather than having their benefits be determined under the NFB Cash Balance Retirement Plan. (d) Notwithstanding any other provision in this Agreement to the contrary, if the Closing Date occurs after December 31, 1999, the amounts payable to any officer or employee of JSB under the Benefit Restoration Plan of Jamaica Savings Bank FSB ("JSB Bank BRP") shall be determined under the actuarial factors and interest rate assumptions in effect on December 31, 1999 even if such factors and assumptions would otherwise have changed by the express terms of the JSB Bank BRP, the JSB Pension Plan, by changes in the law (such as the pension and benefit provisions of the Uruguay Round Agreements Act of the General Agreement on Tariffs and Trade ("GATT")), or otherwise, the purpose of this Section 4.15(d) being that any benefits payable under the JSB Bank BRP shall be determined under the actuarial factors and interest rate assumptions in effect on December 31, 1999. JSB shall, and shall cause JSB Bank to, take all actions as shall be necessary to provide that no change-in-control, termination or severance payments or benefits (including without limitation any amounts paid under the agreements listed in Section 4.13(d)) will be taken into account for purposes of determining any amounts payable under the JSB Bank BRP. (e) In the event that the Closing Date occurs on or before December 31, 1999, the employees of JSB Bank shall receive bonuses in accordance with JSB Bank's past practices (and the amount of such bonuses shall be based upon such employees' compensation for the entire year of 1999), and such bonuses shall be paid at least five business days prior to the Closing Date. In the event that the Closing Date occurs on or after January 1, 2000, (i) the employees of JSB Bank shall be paid bonuses in accordance with JSB Bank's past practices (and the amount of such bonuses shall be based upon such employees' compensation for the entire year of 1999) for 1999, which shall be paid in December 1999 in accordance with JSB Bank's past practices, and (ii) the employees of JSB Bank shall be paid additional bonuses equal to the amounts payable to each such employee as a bonus for 1999 multiplied by a fraction, the numerator of which is the number of days in 2000 through and including the Closing Date and the denominator of which is 366, and such additional bonuses shall be paid at least five business days prior to the Closing Date. A schedule showing the aggregate bonus estimates for 1999 is attached hereto as Schedule 4.15(e). (f) Employees of JSB Bank who have obtained or who have received approval to obtain, at any time prior to the Closing Date, a loan or a mortgage loan under the existing JSB Bank employee loan program shall continue to receive the benefits of such employee loan program, subject to the terms and conditions of such program; provided, however, that if the employment of any such employee with JSB Bank or, after the Closing Date, NFB Bank, shall terminate for any reason other than cause, the interest rate reduction under the employee loan shall continue in effect notwithstanding such termination of employment. (g) Employees of JSB Bank (other than officers) shall be entitled to receive attendance bonuses in accordance with JSB Bank's past practices for 1999, and, if the Closing Date occurs after December 31, 1999, such persons shall be entitled to attendance bonuses in accordance with JSB Bank's past practices for 2000, pro-rated through the Closing Date in the manner described in Section 4.15(e). (h) Employees of JSB Bank shall be entitled to receive payment for accrued but unused vacation days in accordance with JSB Bank's past practices, and any accrued but unused vacation days of employees of JSB Bank as of the Closing Date shall, at the employee's option, either be paid immediately prior to the Closing Date or taken as vacation time as soon as practicable following the Closing Date; provided, however, that JSB shall deliver to NFB, not later than 15 business days after the date of this Agreement, a schedule of employees indicating their accrued but unused vacation days as of the most recent date practicable. Life insurance and continued health insurance for retirees of JSB Bank shall be continued in accordance with JSB Bank's past practices, to the extent that such continued coverage does not result in a material increase in the costs of such continued coverage to NFB Bank over the costs of such coverage to JSB Bank. JSB and NFB agree to use all reasonable efforts to review the tax-qualified defined benefit plans of both banks with a view towards, effective as of the Closing Date, continuing, to the extent practicable, the types and forms of benefits under the JSB Pension Plan for participants in such JSB Pension Plan whose employment is terminated upon or within one-year following the Closing Date, particularly with respect to the 100% joint and survivor form of benefits provided in the event that the participant dies prior to the commencement of the participant's benefit payments. JSB Bank shall make a contribution to the JSB Bank Employee Stock Ownership Plan ("JSB Bank ESOP") for 1999 in accordance with its past practices and such contribution shall be allocated in accordance with the terms of the JSB Bank ESOP. A pro-rated JSB Bank contribution shall be made to the JSB Bank ESOP for the portion of the year 2000 through the Closing Date. Section 4.16 Advisory Board. NFB shall, promptly following the Effective Time, cause all of the members of JSB's Board of Directors as of the date of this Agreement, other than the New NFB Director, who are willing to so serve to be elected or appointed as members of NFB's advisory board ("Advisory Board"), the function of which shall be to advise NFB with respect to deposit and lending activities in JSB's former market area and to maintain and develop customer relationships. The members of the Advisory Board who are willing to so serve shall be elected to serve an initial term of three years beginning on the Effective Date. Each member of the Advisory Board shall receive an annual retainer fee for such service of $25,000, payable in monthly installments or in one lump sum at any time in advance at the option of NFB, notwithstanding that such Advisory Board members are receiving benefits under the JSB Bank Outside Directors' Plan. Service on the Advisory Board shall be considered service as a director of NFB for purposes of any stock option plan of JSB or NFB. ARTICLE V CONDITIONS TO CONSUMMATION Section 5.1 Conditions to Each Party's Obligations. The respective obligations of each party to effect the Merger , the Bank Merger and any other transactions contemplated by this Agreement shall be subject to the satisfaction of the following conditions: (a) this Agreement shall have been approved by (i) the requisite vote of JSB's stockholders in accordance with applicable law and regulations and (ii) the requisite vote of NFB's stockholders in accordance with applicable law and regulations; (b) the Requisite Regulatory Approvals and any necessary regulatory consents and waivers with respect to this Agreement and the transactions contemplated hereby shall have been obtained and shall remain in full force and effect, and all statutory waiting periods shall have expired; (c) no party hereto shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of the Merger or the Bank Merger; (d) no statute, rule or regulation shall have been enacted, entered, promulgated, interpreted, applied or enforced by any Governmental Entity which prohibits, restricts or makes illegal consummation of the Merger or the Bank Merger; (e) the Registration Statement shall have been declared effective by the SEC and no proceedings shall be pending or threatened by the SEC to suspend the effectiveness of the Registration Statement; all required approvals by state securities or "blue sky" authorities with respect to the transactions contemplated by this Agreement shall have been obtained; and (f) NFB shall have caused to be listed on the NYSE, or on such other market on which shares of NFB Common Stock shall then be trading, subject only to official notice of issuance, the shares of NFB Common Stock to be issued by NFB in exchange for the shares of JSB Common Stock. Section 5.2 Conditions to the Obligations of NFB and NFB Bank. The obligations of NFB and NFB Bank to effect the Merger, the Bank Merger and any other transactions contemplated by this Agreement shall be further subject to the satisfaction of the following additional conditions, any one or more of which may be waived by NFB: (a) each of the obligations of JSB and JSB Bank, respectively, required to be performed by it at or prior to the Closing pursuant to the terms of this Agreement shall have been duly performed and complied with in all material respects and the representations and warranties of JSB and JSB Bank contained in this Agreement shall be true and correct, subject to Sections 2.1 and 2.2, as of the date of this Agreement and as of the Effective Time as though made at and as of the Effective Time (except as to any representation or warranty which specifically relates to an earlier date). NFB shall have received a certificate to the foregoing effect signed by the chief executive officer and the chief financial or principal accounting officer of JSB; (b) all action required to be taken by, or on the part of, JSB and JSB Bank to authorize the execution, delivery and performance of this Agreement and the consummation by JSB and JSB Bank of the transactions contemplated hereby shall have been duly and validly taken by the Board of Directors and stockholders of JSB or JSB Bank, as the case may be, and NFB shall have received certified copies of the resolutions evidencing such authorization; (c) JSB shall have obtained the consent, waiver or approval of each person (other than the regulatory approvals or consents referred to in Section 5.1(b)) whose consent, waiver or approval shall be required in order to consummate the Merger or the Bank Merger or to permit the succession by the surviving corporation pursuant to the Merger to any obligation, right or interest of JSB or its Subsidiaries under any loan or credit agreement, note, mortgage, indenture, lease, license or other agreement or instrument to which JSB or its Subsidiaries is a party or is otherwise bound, except those for which failure to obtain such consents, waivers and approvals would not, individually or in the aggregate, have a Material Adverse Effect on NFB (after giving effect to the consummation of the transactions contemplated hereby) or upon the consummation of the transactions contemplated hereby; (d) NFB shall have received certificates (such certificates to be dated as of a day as close as practicable to the Closing Date) from appropriate authorities as to the corporate existence and good standing of JSB and JSB Bank; and (e) NFB shall have received an opinion of Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden"), counsel to NFB, dated as of the Effective Date, in form and substance reasonably satisfactory to NFB, substantially to the effect that on the basis of the facts, representations and assumptions set forth in such opinion which are consistent with the state of facts existing at the Effective Time, the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. In rendering its opinion, Skadden may require and rely upon, in addition to the review of such matters of fact and law as Skadden considers appropriate, representations and covenants, including those contained in certificates of officers of NFB, NFB Bank, JSB, JSB Bank and others, reasonably satisfactory in form and substance to Skadden. Section 5.3 Conditions to the Obligations of JSB and JSB Bank. The obligations of JSB and JSB Bank to effect the Merger, the Bank Merger and any other transactions contemplated by this Agreement shall be further subject to the satisfaction of the following additional conditions, any one or more of which may be waived by JSB: (a) each of the obligations of NFB and NFB Bank, respectively, required to be performed by it at or prior to the Closing pursuant to the terms of this Agreement shall have been duly performed and complied with in all material respects and the representations and warranties of NFB and NFB Bank contained in this Agreement shall be true and correct, subject to Sections 2.1 and 2.2, as of the date of this Agreement and as of the Effective Time as though made at and as of the Effective Time (except as to any representation or warranty which specifically relates to an earlier date). JSB shall have received a certificate to the foregoing effect signed by the chief executive officer and the chief financial or principal accounting officer of NFB; (b) all action required to be taken by, or on the part of, NFB and NFB Bank to authorize the execution, delivery and performance of this Agreement and the consummation by NFB and NFB Bank of the transactions contemplated hereby shall have been duly and validly taken by the Board of Directors and stockholders of NFB or NFB Bank, as the case may be, and JSB shall have received certified copies of the resolutions evidencing such authorization; (c) NFB shall have obtained the consent, waiver or approval of each person (other than the governmental approvals or consents referred to in Section 5.1(b)) whose consent, waiver or approval shall be required in connection with the transactions contemplated hereby under any loan or credit agreement, note, mortgage, indenture, lease, license or other agreement or instrument to which NFB or its Subsidiaries is a party or is otherwise bound, except those for which failure to obtain such consents, waivers and approvals would not, individually or in the aggregate, have a Material Adverse Effect on NFB (after giving effect to the transactions contemplated hereby) or upon the consummation of the transactions contemplated hereby; (d) JSB shall have received certificates (such certificates to be dated as of a day as close as practicable to the Closing Date) from appropriate authorities as to the corporate existence and good standing of NFB and NFB Bank; and (e) JSB shall have received an opinion of Thacher Proffitt & Wood ("Thacher Proffitt"), counsel to JSB, dated as of the Effective Date, in form and substance reasonably satisfactory to JSB, substantially to the effect that on the basis of the facts, representations and assumptions set forth in such opinion which are consistent with the state of facts existing at the Effective Time, the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. In rendering its opinion, Thacher Proffitt may require and rely upon, in addition to the review of such matters of fact and law as Thacher Proffitt considers appropriate, representations and covenants, including those contained in certificates of officers of NFB, NFB Bank, JSB, JSB Bank and others, reasonably satisfactory in form and substance to Thacher Proffitt. ARTICLE VI TERMINATION Section 6.1 Termination. This Agreement may be terminated, and the Merger abandoned, at or prior to the Effective Date, either before or after its approval by the stockholders of JSB and NFB: (a) by the mutual consent of NFB and JSB, if the Board of Directors of each so determines by vote of a majority of the members of its entire Board; (b) by NFB or JSB, if its Board of Directors so determines by vote of a majority of the members of its entire Board, in the event of (i) the failure of the stockholders of JSB or NFB to approve the Agreement at its Stockholder Meeting called to consider such approval; provided, however, that JSB or NFB, as the case may be, shall only be entitled to terminate the Agreement pursuant to this clause (i) if it has complied in all material respects with its obligations under Sections 4.8 and 4.9, or (ii) a material breach by the other party hereto of any representation, warranty, covenant or agreement contained herein which causes the conditions set forth in Section 5.2(a) (in the case of termination by NFB) and Section 5.3(a) (in the case of the termination by JSB) not to be satisfied and such breach is not cured within 25 business days after written notice of such breach is given to the party committing such breach by the other party or which breach is not capable of being cured by the date set forth in Section 6.1(d) or any extension thereof; (c) by NFB or JSB, by written notice to the other party, if either (i) any approval, consent or waiver of a Governmental Entity required to permit consummation of the transactions contemplated hereby shall have been denied or (ii) any governmental authority of competent jurisdiction shall have issued a final, unappealable order enjoining or otherwise prohibiting consummation of the transactions contemplated by this Agreement; (d) by NFB or JSB, if its Board of Directors so determines by vote of a majority of the members of its entire Board, in the event that the Merger is not consummated by February 29, 2000 ("Initial Termination Date"), unless the failure to so consummate by such time is due to the breach of any representation, warranty or covenant contained in this Agreement by the party seeking to terminate; provided, that if, as of such date, all necessary regulatory or governmental approvals, consents or waivers required to consummate the transactions contemplated hereby shall not have been obtained but all other conditions to the consummation of the Merger (other than the delivery of executed documents at the Closing) shall be fulfilled, the Initial Termination Date shall be extended to April 30, 2000; (e) by NFB or JSB, if the Board of Directors of the other party does not publicly recommend in the Joint Proxy Statement-Prospectus that its stockholders approve and adopt this Agreement or if, after recommending in the Joint Proxy Statement-Prospectus that its stockholders approve and adopt this Agreement, the Board of Directors of the other party shall have withdrawn, qualified or revised such recommendation in any respect materially adverse to the party seeking to terminate this Agreement; or (f) by JSB, if its Board of Directors so determines by a majority vote of the members of its entire Board, if both of the following conditions are satisfied: (i) the NFB Market Value on the Valuation Date is less than $16.35; and (ii) (A) the number obtained by dividing the NFB Market Value as of the Valuation Date by the Initial NFB Market Value ("NFB Ratio") shall be less than (B) the number obtained by dividing the Final Index Price by the Initial Index Price and subtracting 0.10 from the quotient in this clause (ii)(B) ("Index Ratio"); subject, however, to the following three sentences. If JSB elects to exercise its termination right pursuant to this Section 6.1(f), it shall give written notice thereof to NFB at any time during the five business day period commencing on the day following the Valuation Date; provided, that such notice of election to terminate may be withdrawn at any time during the 15 business day period commencing on the day such notice is received by NFB. During the five business day period commencing with its receipt of such notice, NFB shall have the option to increase the consideration to be received by the holders of JSB Common Stock hereunder by increasing the Exchange Ratio from 3.0 to a number equal to the lesser of (1) the product of (x) the Index Ratio plus 0.10 and (y) 3.0, divided by the NFB Ratio or (2) the quotient obtained by dividing $61.31 by the NFB Market Value. If NFB so elects, it shall give, within such five business day period, written notice to JSB of such election and the revised Exchange Ratio, whereupon no termination shall be deemed to have occurred pursuant to this Section 6.1(f) and this Agreement shall remain in full force and effect in accordance with its terms (except as the Exchange Ratio shall have been so modified). For purposes of this Section 6.1(f), the following terms shall have the meanings indicated below: "Acquisition Transaction" shall have the meaning set forth in Section 3.4(e), without regard to subsection (ii) of the proviso set forth therein. "Final Index Price" means the sum of the Final Prices for each company comprising the Index Group multiplied by the weighting set forth opposite such company's name in the definition of Index Group below. "Final Price," with respect to any company belonging to the Index Group, means the average of the daily closing sales prices of a share of common stock of such company (and if there is no closing sales price on any such day, then the mean between the closing bid and the closing asked prices on that day), as reported on the consolidated transaction reporting system for the market or exchange on which such common stock is principally traded, for the 15 consecutive trading days immediately preceding the Valuation Date. "Index Group" means the 23 financial institution holding companies listed below, the common stock of all of which shall be publicly traded and as to which there shall not have been an Acquisition Transaction involving any of such companies publicly announced at any time during the period beginning on the date of this Agreement and ending on the day immediately preceding the Valuation Date. In the event that: (i) the common stock of any of such companies ceases to be publicly traded, or (ii) an Acquisition Transaction involving any of such companies is announced at any time during the period beginning on the date of this Agreement and ending on the day immediately preceding the Valuation Date, or (iii) any such company shall announce at any time during the period beginning on the date of this Agreement and ending on the day immediately preceding the Valuation Date that it has entered into a definitive agreement to acquire insured deposits from another financial institution in excess of 20% of its deposit base as of the most recent quarter end for which information is available or intends to issue additional capital securities in excess of 10% of the total value of its Tier 1 capital securities outstanding as of the most recent quarter end for which information is available, then such company or companies will be removed from the Index Group, and the weights attributed to the remaining companies will be adjusted proportionately for purposes of determining the Final Index Price and the Initial Index Price; provided, however, that, in the event an Acquisition Transaction is publicly announced which involves only companies that are listed below, none of such companies shall be removed from the Index Group. The 23 financial institution holding companies and the weights attributed to them are as follows: Holding Company Symbol Weighting --------------- ------ --------- Astoria Financial Corporation ASFC 4.26% CCB Financial Corporation CCB 3.10% Charter One Financial, Inc. COFI 12.85% Chittenden Corporation CHZ 2.19% City National Corporation CYN 3.55% Dime Community Bancshares, Inc. DCOM 0.99% First Commonwealth Financial Corporation FCF 2.41% FirstMerit Corporation FMER 7.03% Fulton Financial Corporation FULT 5.37% GreenPoint Financial Corp. GPT 8.48% Independence Community Bank Corp. ICBC 5.29% Keystone Financial, Inc. KSTN 3.69% M & T Bank Corporation MTB 0.61% Peoples Heritage Financial Group, Inc. PHBK 8.12% Queens County Bancorp, Inc. QCSB 1.67% Richmond County Financial Corp. RCBK 2.46% State Bancorp, Inc. STB 0.54% Staten Island Bancorp, Inc. SIB 3.19% Suffolk Bancorp SUBK 0.47% Summit Bancorp SUB 13.19% Susquehanna Bancshares, Inc. SUSQ 2.88% Valley National Bancorp VLY 4.70% Webster Financial Corporation WBST 2.96% ------- 100.00% "Initial Index Price" means the sum of the per share closing sales price of the common stock of each company comprising the Index Group multiplied by the applicable weighting, as such prices are reported on the consolidated transaction reporting system for the market or exchange on which such common stock is principally traded on the trading day immediately preceding the public announcement of this Agreement. "Initial NFB Market Value" means the closing sales price of a share of NFB Common Stock, as reported on the NYSE, on the trading day immediately preceding the public announcement of this Agreement, adjusted as indicated in the last sentence of this Section 6.1(f). "NFB Market Value" shall have the meaning set forth in Section 1.2(b) hereof. "Valuation Date" shall have the meaning set forth in Section 1.2(c) hereof. If NFB or any company belonging to the Index Group declares or effects a stock dividend, reclassification, recapitalization, split-up, combination, exchange of shares or similar transaction between the date of this Agreement and the Valuation Date, the prices for the common stock of such company shall be appropriately adjusted for the purposes of applying this Section 6.1(f). Section 6.2 Effect of Termination. In the event of the termination of this Agreement by either NFB or JSB, as provided above, this Agreement shall thereafter become void and, subject to Section 6.3, there shall be no liability on the part of any party hereto or their respective officers or directors, except that (a) any such termination shall be without prejudice to the rights of any party hereto arising out of the breach by any other party of any covenant, representation or obligation contained in this Agreement and (b) the obligations of the parties under the last three sentences in Section 4.3(a) and under Section 8.6 shall survive. Section 6.3 Termination Fee. In recognition of the efforts, expenses and other opportunities foregone by NFB and JSB, respectively, while structuring the Merger, the parties hereto agree that: (a) NFB shall pay to JSB a termination fee of Twelve Million, Five Hundred Thousand Dollars ($12,500,000) plus JSB's documented, reasonable out-of-pocket expenses (including fees and expenses of legal, financial and accounting advisors) in cash on demand if, within 12 months after the date of this Agreement, after a written bona fide proposal is made after the date of this Agreement by a third party to NFB or its stockholders to engage in an Acquisition Transaction (as defined in Section 3.4(e)), other than any Acquisition Transaction permitted pursuant to the terms of this Agreement, including without limitation Section 3.4(e) (a "Permitted Transaction"), any of the following occur: (i) NFB shall have willfully breached any covenant or obligation contained in this Agreement and such breach would entitle JSB to terminate the Agreement; (ii) the stockholders of NFB shall not have approved the Agreement at the meeting of such stockholders held for the purpose of voting on the Agreement, such meeting shall not have been held or shall have been canceled prior to termination of the Agreement; or (iii) NFB's Board of Directors shall have withdrawn or modified in a manner adverse to JSB the recommendation of NFB's Board of Directors with respect to the Agreement; and (b) NFB shall pay to JSB a termination fee of Twenty-Five Million Dollars ($25,000,000) plus JSB's documented, reasonable out-of-pocket expenses (including fees and expenses of legal, financial and accounting advisors) in cash on demand if, during a period of 18 months after the date hereof, NFB or any of its Subsidiaries, without having received JSB's prior written consent, shall have entered into an agreement to engage in an Acquisition Transaction (as defined in Section 3.4(e)), other than a Permitted Transaction, with any person (the term "person" for purposes of this Agreement having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of the Exchange Act and the rules and regulations thereunder) other than JSB or any of its Subsidiaries or the Board of Directors of NFB shall have recommended that the stockholders of NFB approve or accept an Acquisition Transaction other than a Permitted Transaction with any person other than JSB or any of its Subsidiaries. Any fee payable to JSB pursuant to Section 6.3(b) shall be reduced dollar for dollar to the extent that any fee is actually paid pursuant to Section 6.3(a). Notwithstanding the foregoing, NFB shall not be obligated to pay to JSB the termination fee described in Section 6.3(a) or Section 6.3(b) in the event that at or prior to such time as such fee becomes payable (i) NFB and JSB validly terminate this Agreement pursuant to Section 6.1(a), (ii) NFB or JSB validly terminates this Agreement pursuant to Sections 6.1(c) or 6.1(d), (iii) NFB validly terminates this Agreement pursuant to Section 6.1(b) or Section 6.1(e) or (iv) JSB validly terminates this Agreement pursuant to Section 6.1(f). (c) JSB shall pay to NFB a termination fee of Twelve Million, Five Hundred Thousand Dollars ($12,500,000) plus NFB's documented, reasonable out-of-pocket expenses (including fees and expenses of legal, financial and accounting advisors) in cash on demand if, within 12 months after the date of this Agreement, after a bona fide proposal is made after the date of this Agreement by a third party to JSB or its stockholders to engage in an Acquisition Transaction (as defined in the JSB Option Agreement), any of the following occur: (i) JSB shall have willfully breached any covenant or obligation contained in this Agreement and such breach would entitle NFB to terminate the Agreement; (ii) the stockholders of JSB shall not have approved the Agreement at the meeting of such stockholders held for the purpose of voting on the Agreement, such meeting shall not have been held or shall have been canceled prior to termination of the Agreement; or (iii) JSB's Board of Directors shall have withdrawn or modified in a manner adverse to NFB the recommendation of JSB's Board of Directors with respect to the Agreement; and (d) JSB shall pay to NFB a termination fee of Twenty-Five Million Dollars ($25,000,000) plus NFB's documented, reasonable out-of-pocket expenses (including fees and expenses of legal, financial and accounting advisors) in cash on demand if, during a period of 18 months after the date hereof, JSB or any of its Subsidiaries, without having received NFB's prior written consent, shall have entered into an agreement to engage in an Acquisition Transaction (as defined in the JSB Option Agreement) with any person other than NFB or any of its Subsidiaries or the Board of Directors of JSB shall have recommended that the stockholders of JSB approve or accept an Acquisition Transaction (as defined in the JSB Option Agreement) with any person other than NFB or any of its Subsidiaries. Any fee payable to NFB pursuant to this Section 6.3(d) shall be reduced dollar for dollar to the extent that any fee is actually paid pursuant to Section 6.3(c). Notwithstanding the foregoing, JSB shall not be obligated to pay to NFB the termination fee described in Section 6.3(c) or Section 6.3(d) in the event that at or prior to such time as such fee becomes payable (i) NFB and JSB validly terminate this Agreement pursuant to Section 6.1(a), (ii) NFB or JSB validly terminates this Agreement pursuant to Sections 6.1(c) or 6.1(d) or (iii) JSB validly terminates this Agreement pursuant to Section 6.1(b), Section 6.1(e) or Section 6.1(f). ARTICLE VII CLOSING, EFFECTIVE DATE AND EFFECTIVE TIME Section 7.1 Effective Date and Effective Time. The closing of the transactions contemplated hereby ("Closing") shall take place at the offices of Thacher Proffitt & Wood, Two World Trade Center, New York, New York 10048, on a date ("Closing Date") that is no later than five business days following the date on which the expiration of the last applicable waiting period in connection with notices to and approvals of regulatory and governmental authorities shall occur and all conditions to the consummation of this Agreement are satisfied or waived, or on such other date as may be agreed to by the parties. Prior to the Closing Date, NFB and JSB shall execute a Certificate of Merger in accordance with all appropriate legal requirements, which shall be filed as required by law on the Closing Date, and the Merger provided for therein shall become effective upon such filing or on such date as may be specified in such Certificate of Merger. The date of such filing or such later effective date as specified in the Certificate of Merger is herein referred to as the "Effective Date." The "Effective Time" of the Merger shall be as set forth in the Certificate of Merger. Section 7.2 Deliveries at the Closing. Subject to the provisions of Articles V and VI, on the Closing Date there shall be delivered to NFB and JSB the documents and instruments required to be delivered under Article V. ARTICLE VIII CERTAIN OTHER MATTERS Section 8.1 Certain Definitions; Interpretation. As used in this Agreement, the following terms shall have the meanings indicated: "material" means material to NFB or JSB (as the case may be) and its respective Subsidiaries, taken as a whole. "person" includes an individual, corporation, limited liability company, partnership, association, trust or unincorporated organization. When a reference is made in this Agreement to Sections, Exhibits or Schedules, such reference shall be to a Section of, Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for ease of reference only and shall not affect the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed followed by the words "without limitation." Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. Any reference to gender in this Agreement shall be deemed to include any other gender. Section 8.2 Survival. Only those agreements and covenants of the parties that are by their terms applicable in whole or in part after the Effective Time, including Sections 4.3(a), 4.13, 4.14, 4.15, 4.16, 4.17 and 8.6 of this Agreement, shall survive the Effective Time. All other representations, warranties, agreements and covenants shall not survive the Effective Time. If the Agreement shall be terminated, the agreements of the parties in the last three sentences of Section 4.3(a) and in Section 8.6 shall survive such termination. Section 8.3 Waiver; Amendment. Prior to the Effective Time, any provision of this Agreement may be: (i) waived in writing by the party benefitted by the provision or (ii) amended or modified at any time (including the structure of the transaction) by an agreement in writing between the parties hereto except that, after the vote by the stockholders of JSB or NFB, no amendment or modification may be made that would reduce the Merger Consideration or contravene any provision of the Delaware General Corporation Law or the federal banking laws, rules and regulations. Section 8.4 Counterparts. This Agreement may be executed in counterparts each of which shall be deemed to constitute an original, but all of which together shall constitute one and the same instrument. Section 8.5 Governing Law. This Agreement shall be governed by, and interpreted in accordance with, the laws of the State of New York, without regard to conflicts of laws principles. Section 8.6 Expenses. Each party hereto will bear all expenses incurred by it in connection with this Agreement and the transactions contemplated hereby. Section 8.7 Notices. All notices, requests, acknowledgments and other communications hereunder to a party shall be in writing and shall be deemed to have been duly given when delivered by hand, overnight courier or facsimile transmission (confirmed in writing) to such party at its address or facsimile number set forth below or such other address or facsimile transmission as such party may specify by notice to the other party hereto. If to JSB, to: JSB Financial, Inc. 303 Merrick Road Lynbrook, New York 11563 Facsimile: (516) 887-6007 Attention: Mr. Park T. Adikes Chairman of the Board and Chief Executive Officer With copies to: JSB Financial, Inc. 303 Merrick Road Lynbrook, New York 11563 Facsimile: (516) 887-6007 Attention: Mr. Lawrence J. Kane Executive Vice President and Douglas J. McClintock, Esq. Thacher Proffitt & Wood Two World Trade Center New York, New York 10048 Facsimile: 212-432-2898 If to NFB, to: North Fork Bancorporation, Inc. 275 Broad Hollow Road Melville, New York 11747 Facsimile: (516) 844-1471 Attention: Mr. John Adam Kanas Chairman, President and Chief Executive Officer With copies to: North Fork Bancorporation, Inc. 275 Broad Hollow Road Melville, New York 11747 Facsimile: (516) 844-1471 Attention: Mr. Daniel M. Healy Executive Vice President and Chief Financial Officer and William S. Rubenstein, Esq. Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022 Facsimile: (212) 735-2000 Section 8.8 Entire Agreement; etc. This Agreement, together with the Plan of Bank Merger, the JSB Option Agreement and the Disclosure Letters, represents the entire understanding of the parties hereto with reference to the transactions contemplated hereby and supersedes any and all other oral or written agreements heretofore made. All terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Except for Section 4.13 (other than Section 4.13(c)) and Section 4.14, which confer rights on the parties described therein, nothing in this Agreement is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Section 8.9 Assignment. This Agreement may not be assigned by either party hereto without the written consent of the other party. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the date first above written. NORTH FORK BANCORPORATION, INC. By: /s/ John Adam Kanas ---------------------------------------- Chairman of the Board, President and Chief Executive Officer JSB FINANCIAL, INC. By:/s/ Park T. Adikes ---------------------------------------- Park T. Adikes Chairman of the Board and Chief Executive Officer EX-23 4 EXHIBIT 23.1 EXHIBIT 23.1 ------------ CONSENT OF INDEPENDENT ACCOUNTANTS As independent public accountants, we hereby consent to the inclusion in this Current Report on Form 8-K of North Fork Bancorporation, Inc. of our report dated July 21, 1999 included in Reliance Bancorp, Inc.'s Form 10-K for the year ended June 30, 1999 and to all references to our Firm included in this Current Report. /s/ Arthur Andersen LLP - -------------------------- Arthur Andersen LLP New York, New York December 29, 1999 EX-23 5 EXHIBIT 23.2 EXHIBIT 23.2 ------------ CONSENT OF INDEPENDENT ACCOUNTANTS The Board of Directors Reliance Bancorp, Inc.: We consent to the inclusion of our report dated July 23, 1998 with respect to the consolidated statement of financial condition of Reliance Bancorp, Inc. and subsidiary as of June 30, 1998, and the related consolidated statements of income, changes in stockholders' equity, comprehensive income and cash flows for each of the years in the two-year period ended June 30, 1998, which report appears in the Form 8-K of North Fork Bancorporation, Inc. dated December 29, 1999. /s/ KPMG LLP - ------------------------ KPMG LLP Melville, New York December 29, 1999 EX-23 6 EXHIBIT 23.3 EXHIBIT 23.3 ------------ CONSENT OF INDEPENDENT ACCOUNTANTS The Board of Directors JSB Financial, Inc.: We consent to the inclusion of our report dated January 28, 1999, with respect to the consolidated statements of financial condition of JSB Financial, Inc. and subsidiary as of December 31, 1998 and 1997, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998, which report appears in the Form 8-K of North Fork Bancorporation, Inc. dated December 29, 1999. /s/ KPMG LLP - -------------------------- KPMG LLP Melville, New York December 29, 1999 EX-99 7 EXHIBIT 99.1 EXHIBIT 99.1 RELIANCE BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
September 30, June 30, 1999 1999 ------------- -------- Assets Cash and due from banks................................. $ 29,623 $ 33,255 Debt and equity securities available-for-sale........... 123,877 122,168 Debt and equity securities held-to-maturity (with estimated market values of $48,702 and $28,840, respectively)........................................ 48,835 28,835 Mortgage-backed securities available-for-sale........... 889,004 935,038 Mortgage-backed securities held-to-maturity (with estimated market values of $256,806 and $252,233, respectively)........................................ 260,844 255,917 Loans receivable: Mortgage loans..................................... 824,835 810,894 Commercial loans................................... 50,540 44,949 Consumer and other loans........................... 132,219 127,350 Less allowance for loan losses................... (9,068) (9,120) -------- -------- Loans receivable, net...................... 998,526 974,073 Accrued interest receivable, net........................ 14,148 13,095 Office properties and equipment, net.................... 17,779 16,368 Prepaid expenses and other assets....................... 41,135 16,960 Mortgage servicing rights............................... 1,389 1,514 Excess of cost over fair value of net assets acquired... 53,232 54,373 Real estate owned, net.................................. 507 177 ----------- ---------- Total assets...............................$ 2,478,899 $2,451,773 =========== ========== Liabilities and Stockholders' Equity Deposits................................................$ 1,555,159 $1,549,419 Borrowed Funds.......................................... 711,989 702,434 Advance payments by borrowers for taxes and insurance... 12,693 6,399 Accrued expenses and other liabilities.................. 27,356 21,854 ----------- ---------- Total liabilities.......................... 2,307,197 2,280,106 --------- --------- Commitments Stockholders' Equity Preferred Stock, $.01 par value, 4,000,000 shares authorized; none issued............................... -- -- Common stock, $.01 par value, 20,000,000 shares authorized; 10,750,820 shares issued; 8,589,490 and 8,586,210 outstanding, respectively........................... 108 108 Additional paid-in capital.............................. 121,309 121,037 Retained earnings, substantially restricted............. 119,607 115,976 Accumulated other comprehensive income: Net unrealized depreciation on securities available-for-sale, net of taxes.................... (14,654) (10,546) Less: Unallocated common stock held by ESOP................... (3,519) (3,726) Unearned common stock held by RRP....................... (23) (66) Common stock held by SERP (at cost)..................... (551) (550) Treasury stock, at cost (2,161,330 and 2,164,610 shares, respectively)................................ (50,575) (50,566) ---------- --------- Total stockholders' equity......................... 171,702 171,667 ----------- ---------- Total liabilities and stockholders' equity..$ 2,478,899 $2,451,773 =========== ===========
RELIANCE BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) Three Months Ended September 30, 1999 1998 ---- ---- Interest income: First mortgage loans................................. $ 15,814 $ 15,718 Commercial loans..................................... 1,123 1,392 Consumer and other loans............................. 2,644 2,925 Mortgage-backed securities........................... 18,803 19,724 Money market investments............................. 35 163 Debt and equity securities........................... 2,903 2,946 ------ ------ Total interest income............................. 41,322 42,868 ------ ------ Interest expense: Deposits............................................. 13,880 16,635 Borrowed funds....................................... 9,993 9,030 ------ ------ Total interest expense............................ 23,873 25,665 ------ ------ Net interest income before provision for loan losses 17,449 17,203 Provision for loan losses............................ -- 150 ------ ------- Net interest income after provision for loan losses 17,449 17,053 ------ ------ Non-interest income: Loan fees and service charges........................ 443 160 Other operating income............................... 1,272 1,013 Income from Money Centers............................ 723 632 Net gain on securities............................... -- 66 ------- ------ Total non-interest income......................... 2,438 1,871 ----- ----- Non-interest expense: Compensation and benefits............................ 5,267 5,286 Occupancy and equipment.............................. 1,697 1,775 Federal deposit insurance premiums................... 230 228 Advertising.......................................... 217 268 Other operating expenses............................. 1,868 1,570 ------ ----- Total general and administrative expenses......... 9,279 9,127 Real estate operations, net.......................... 55 87 Amortization of excess of cost over fair value of net assets acquired...................... 1,141 1,140 Total non-interest expense........................... 10,475 10,354 Income before income taxes.............................. 9,412 8,570 Income tax expense ..................................... 4,030 3,799 ------ ------ Net income.............................................. $ 5,382 $ 4,771 ===== ===== Net income per common share: Basic.................................. $ 0.65 $ 0.53 ===== ==== Diluted................................ $ 0.62 $ 0.50 ==== ====
RELIANCE BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS) Three months ended September 30, 1999 1998 ---- ---- Cash flows from operating activities: Net income................................................. $ 5,382 $ 4,771 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses.................................. -- 150 Provision for losses on real estate owned.................. 29 35 Amortization of premiums, net.............................. 65 595 Amortization relating to allocation and earned portion of stock plans................................... 702 913 Amortization of excess of cost over fair value of net assets acquired.................................. 1,141 1,140 Amortization of mortgage servicing rights.................. 125 201 Depreciation and amortization.............................. 350 451 Net gain on securities..................................... -- (66) Net gain on loans sold..................................... (3) (32) Proceeds from loans sold................................... 1,758 6,184 Net gain on sale of real estate owned...................... (1) -- Increase in accrued interest receivable, net............... (1,053) (454) (Increase) decrease in prepaid expenses and other assets... (21,083) 1,892 Increase in accrued expenses and other liabilities......... 5,594 6,680 -------- ------- Net cash provided by operating activities.............. (6,994) 22,460 ------- ------ Cash flows from investing activities: (Originated and purchased loans) net of principal repayments............................................. (26,466) (11,053) Purchases of mortgage-backed securities available-for-sale. (12,353) (194,362) Proceeds from sales of mortgage-backed securities available-for-sale..................................... -- 115,705 Purchases of mortgage-backed securities held-to-maturity... (22,172) (55,208) Principal repayments from mortgage-backed securities....... 71,476 110,897 Purchases of debt securities available-for-sale............ (4,995) (2,000) Purchases of debt securities held-to-maturity.............. (20,000) -- Proceeds from calls and maturities of debt securities...... -- 12,195 Proceeds from sales of debt securities available-for-sale.. -- 1,292 Purchases of office properties and equipment............... (1,777) (278) Proceeds from sales of real estate owned................... 4 -- -------- -------- Net cash used in investing activities.................. (16,283) (22,812) -------- -------- Cash flows from financing activities: Increase in deposits....................................... 5,853 30,399 Decrease in advance payments by borrowers for taxes and insurance............................................ 6,294 3,231 Proceeds from FHLB advances................................ 215,943 99,700 Repayment of FHLB advances............................... (222,006) (45,136) Proceeds from reverse repurchase agreements................ 283,722 180,132 Repayment of reverse repurchase agreements.................(269,104) (258,450) Proceeds from other borrowings............................. 1,000 -- Purchases of treasury stock................................ (530) (15,621) Net proceeds from issuance of common stock upon exercise of stock options............................... 223 145 Dividends paid............................................. (1,750) (1,640) ------- -------- Net cash provided by (used in) financing activities.... 19,645 (7,240) ------ -------- Net decrease in cash and cash equivalents.................. (3,632) (7,592) Cash and cash equivalents at beginning of period........... 33,255 47,096 ------ ------- Cash and cash equivalents at end of period.................$ 29,623 $ 39,504 ====== ====== See accompanying notes to unaudited consolidated financial statements.
RELIANCE BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED (UNAUDITED) (DOLLARS IN THOUSANDS)
Three months ended September 30, 1999 1998 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the three months ended for: Interest................................................... $ 22,369 $ 23,158 ====== ====== Income taxes...............................................$ -- $ -- === === Non-cash investing activities: Transfers from loans to real estate owned..................$ 363 $ 237 === === See accompanying notes to unaudited consolidated financial statements.
RELIANCE BANCORP, INC. AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements include the accounts of Reliance Bancorp, Inc. (the "Company"), its direct wholly-owned subsidiary, Reliance Federal Savings Bank (the "Bank") and the subsidiaries of the Bank. The unaudited consolidated financial statements included herein reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The results of operations for the three months ended September 30, 1999 are not necessarily indicative of the results of operations that may be expected for the entire fiscal year. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited consolidated financial statements should be read in conjunction with audited consolidated financial statements and notes thereto, included in the Company's 1999 Annual Report on Form 10-K. 2. ACQUISITION OF RELIANCE BANCORP, INC. BY NORTH FORK BANCORPORATION, INC. On August 30, 1999, the Company announced that it had signed a definitive Agreement and Plan of Merger, dated as of August 30, 1999, with North Fork Bancorporation, Inc. NFB is the bank holding company parent of North Fork Bank, a New York State chartered stock commercial bank. The Merger Agreement provides, among other things, that Reliance will merge with and into NFB, with NFB being the surviving corporation. Pursuant to the Merger Agreement, each share of Reliance common stock, par value $0.01 per share, issued and outstanding immediately prior to the Effective Time will be converted into and become the right to receive 2.0 shares of NFB common stock, par value $2.50 per share. The Merger will be structured as a tax-free reorganization and will be accounted under the purchase method of accounting. Consummation of the Merger is subject to the satisfaction of certain customary conditions, including approval of the Merger Agreement by the stockholders of Reliance and approval of the appropriate regulatory agencies. Following consummation of the Merger, the Bank will be merged with and into North Fork Bank and Trust Company. It is anticipated that the Merger will be completed in 2000. Reliance has the right to terminate the Merger Agreement if the closing price of NFB's shares decline beyond a specified price and index, unless NFB elects to increase the Merger Consideration to be received by Reliance's stockholders as set forth in the Merger Agreement. The Merger Agreement also provides that options to purchase shares of Reliance Common Stock under Reliance's stock option plans that are outstanding at the Effective Time shall be converted into options to purchase shares of NFB Common Stock in accordance with the procedure set forth in the Merger Agreement. In connection with the Merger Agreement, Reliance granted to NFB a stock option pursuant to a Stock Option Agreement, dated as of August 30, 1999, which, under certain defined circumstances, would enable NFB to purchase up to 19.9% of Reliance's issued and outstanding shares of common stock. The Stock Option Agreement provides that the total profit receivable thereunder may not exceed $17.4 million plus reasonable out-of-pocket expenses. On October 29, 1999, the Company amended its definitive Agreement and Plan of Merger. The amendments reflect modifications and clarifications to the price-based termination provisions with regard to the determination of the index group price. The amendments also reflect the revision of the financial institutions group index to remove Dime Bancorp, Inc. The Bank and North Fork Bank also executed the Subsidiary Agreement and Plan of Merger, pursuant to which the Bank will merge with and into North Fork Bank. 3. IMPACT OF NEW ACCOUNTING STANDARDS In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.133"). SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. The accounting for changes in the fair value of a derivative (that is, unrealized gains and losses) depends on the intended use of the derivative and the resulting designation. SFAS No. 133 is effective for fiscal quarters of fiscal years beginning after June 15, 1999 and does not require restatement of prior periods. In June 1999, the FASB issued SFAS No. 137, "Deferral of Effective Date of SFAS No. 133", which defers the adoption of SFAS No. 133 by one year. Management of the Company believes the implementation of SFAS No. 133 will not have a material impact on the Company's financial condition or results of operations. 4. COMPREHENSIVE INCOME The Company follows Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 requires that all items that are components of "comprehensive income" be reported in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income is defined as "the change in equity [net assets] of a business enterprise during a period from transactions and other events and circumstances from nonowner sources." It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Company adopted the provisions of SFAS No. 130 during the first quarter of fiscal 1999 and as such was required to (a) classify items of other comprehensive income by their nature in a financial statement; (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section in the statement of financial condition and (c) reclassify prior periods presented. As the requirements of SFAS No. 130 are disclosure-related, its implementation had no impact on the Company's financial condition or results of operations. Comprehensive income for the three months ended September 30, 1999 and 1998 is as follows:
Three Months Ended September 30, 1999 1998 ---- ---- (Unaudited) Net income .............................................. $ 5,382 $ 4,771 Other comprehensive income, net of taxes: Change in net unrealized (depreciation) appreciation on securities available-for- sale net of reclassification adjustment........... (4,108) 1,204 ------- ------- Comprehensive income..................................... $ 1,274 $ 5,975 ======= =======
EX-99 8 EXHIBIT 99.2 EXHIBIT 99.2 REPORT OF INDEPENDENT AUDITORS [LOGO] Arthur Andersen LLP Independent Public Accountants 1345 Avenue of the Americas New York, NY 10105 To the Board of Directors and Stockholders of Reliance Bancorp, Inc., We have audited the accompanying consolidated statement of condition of Reliance Bancorp, Inc. and subsidiary as of June 30, 1999, and the related consolidated statements of income, changes in stockholders' equity, comprehensive income and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The consolidated financial statements of Reliance Bancorp, Inc. and subsidiary as of June 30, 1998, and for each of the years in the two year period then ended were audited by other auditors whose report dated July 23, 1998, expressed an unqualified opinion on those statements. We conducted our audit 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 audit provides 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 Reliance Bancorp, Inc. and subsidiary as of June 30, 1999, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP - -------------------------- Arthur Andersen LLP New York, New York July 21, 1999 (except with respect to the matter discussed in Note 2, as to which the date is August 30, 1999) REPORT OF INDEPENDENT AUDITORS [LOGO] KPMG LLP 1305 Walt Whitman Road Melville, NY 11747-4302 To the Board of Directors and Stockholders of Reliance Bancorp, Inc., We have audited the accompanying consolidated statement of condition of Reliance Bancorp, Inc. and subsidiary as of June 30, 1998, and the related consolidated statements of income, changes in stockholders' equity, comprehensive income and cash flows for each of the years in the two-year period ended June 30, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 Reliance Bancorp, Inc. and subsidiary as of June 30, 1998, and the results of their operations and their cash flows for each of the years in the two-year period ended June 30, 1998, in conformity with generally accepted accounting principles. /s/ KPMG LLP - -------------- KPMG LLP July 23, 1998
RELIANCE BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CONDITION (In thousands, except share amounts) June 30, -------------------------- 1999 1998 -------- ------- ASSETS Cash and due from banks................................ $ 33,255 $ 37,596 Money market investments............................... -- 9,500 Debt and equity securities available-for-sale.......... 122,168 134,907 Debt and equity securities held-to-maturity (with estimated market values of $28,840 and $40,509, respectively)....................................... 28,835 40,189 Mortgage-backed securities available-for-sale.......... 935,038 940,347 Mortgage-backed securities held-to-maturity (with estimated market values of $252,233 and $252,332, respectively)....................................... 255,917 249,259 Loans receivable: Mortgage loans.................................... 810,894 790,951 Commercial loans.................................. 44,949 49,887 Consumer and other loans.......................... 127,350 137,900 Less allowance for loan losses.................. (9,120) (8,941) --------- --------- Loans receivable, net..................... 974,073 969,797 Accrued interest receivable, net....................... 13,095 14,958 Office properties and equipment, net................... 16,368 15,436 Prepaid expenses and other assets...................... 16,960 11,732 Mortgage servicing rights.............................. 1,514 2,317 Excess of cost over fair value of net assets acquired.. 54,373 58,936 Real estate owned, net................................. 177 755 ------- ----------- Total assets.............................. $ 2,451,773 $2,485,729 =========== =========== Liabilities and Stockholders' Equity Deposits............................................... $ 1,549,419 $1,628,298 Borrowed Funds......................................... 702,434 630,206 Advance payments by borrowers for taxes and insurance.. 6,399 9,806 Accrued expenses and other liabilities................. 21,854 22,555 ----------- --------- Total liabilities......................... 2,280,106 2,290,865 ----------- ---------- Commitments Stockholders' Equity Preferred Stock, $.01 par value, 4,000,000 shares authorized; none issued.............................. -- -- Common stock, $.01 par value, 20,000,000 shares authorized; 10,750,820 shares issued; 8,586,210 and 9,564,988 outstanding, respectively........................... 108 108 Additional paid-in capital............................. 121,037 117,909 Retained earnings, substantially restricted............ 115,976 102,305 Accumulated other comprehensive income: Net unrealized (depreciation) appreciation on securities available-for-sale, net of taxes...... (10,546) 4,212 Less: Unallocated common stock held by ESOP.................. (3,726) (4,554) Unearned common stock held by RRP...................... (66) (713) Common stock held by SERP (at cost).................... (550) (373) Treasury stock, at cost (2,164,610 and 1,185,832 shares, respectively)............................... (50,566) (24,030) ----------- --------- Total stockholders' equity........................ 171,667 194,864 ---------- --------- Total liabilities and stockholders' equity.................................. $ 2,451,773 $2,485,729 =========== ========== See accompanying notes to consolidated financial statements.
RELIANCE BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) Year Ended June 30, ----------------------------------------------- 1999 1998 1997 -------- -------- -------- Interest Income: First Mortgage Loans....................... $ 62,182 $ 63,573 $ 56,948 Commercial Loans........................... 4,892 3,916 -- Consumer and Other Loans................... 10,730 12,130 11,525 Mortgage-Backed Securities................. 78,948 67,185 59,392 Money Market Investments................... 284 615 618 Debt and Equity Securities................. 10,274 6,400 4,806 -------- --------- --------- Total Interest Income................ 167,310 153,819 133,289 ------- -------- -------- Interest Expense: Deposits................................... 61,972 63,432 54,139 Borrowed Funds............................. 36,034 23,396 17,514 ------ -------- -------- Total Interest Expense............... 98,006 86,828 71,653 ------ -------- -------- Net Interest Income Before Provision for Loan Losses........................ 69,304 66,991 61,636 Provision for Loan Losses...................... 650 1,650 950 -------- -------- ------- Net Interest Income After Provision for Loan Losses........................ 68,654 65,341 60,686 ------- ------- ------- Non-Interest Income: Loan Fees and Service Charges.............. 1,352 1,047 683 Other Operating Income..................... 4,279 3,452 2,557 Income from Money Centers.................. 2,650 1,882 -- Condemnation Award on Joint Venture........ -- 1,483 -- Net Gain (Loss) on Securities.............. 119 (5) 172 -------- ---------- -------- Total Non-Interest Income............ 8,400 7,859 3,412 ------- ------- ------- Non-Interest Expense: Compensation and Benefits.................. 20,373 20,297 16,509 Occupancy and Equipment.................... 7,064 6,531 5,719 Federal Deposit Insurance Premiums......... 930 921 1,813 Advertising................................ 1,247 1,202 1,168 Other Operating Expenses................... 6,675 6,274 5,778 ------- -------- ------- Total General and Administrative Expenses 36,289 35,225 30,987 Real Estate Operations, Net................ 111 218 383 Amortization of Excess of Cost Over Fair Value of Net Assets Acquired................... 4,563 4,218 3,404 SAIF Recapitalization Charge............... -- -- 8,250 ---------- ---------- ------- Total Non-Interest Expense........... 40,963 39,661 43,024 ------- ------- ------- Income Before Income Taxes..................... 36,091 33,539 21,074 Income Tax Expense ............................ 15,940 14,810 10,138 ------- ------- ------- Net Income .................................... $ 20,151 $ 18,729 $ 10,936 ====== ====== ====== Net Income per Common Share: Basic............................. $ 2.38 $ 2.11 $ 1.32 Diluted........................... $ 2.26 $ 1.99 $ 1.25 See accompanying notes to consolidated financial statements.
RELIANCE BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands, except share amounts) Year Ended June 30, ------------------------------ 1999 1998 1997 ------ ------ ------ Common Stock (Par Value: $.01): Balance at Beginning and End of Year....... $ 108 $ 108 $ 108 --- --- --- Additional Paid in Capital: Balance at Beginning of Year............... 117,909 105,871 104,041 Net (Loss) Gain from Reissuance of Treasury Stock........................... (675) 7,903 -- Allocation of ESOP Stock and Earned Portion of RRPs......................... 1,646 2,023 868 Common Stock Acquired by SERP.............. 177 164 209 Tax Benefits on Stock Plans................ 1,980 1,948 753 -------- -------- -------- Balance at End of Year..................... 121,037 117,909 105,871 ------- ------- ------- Retained Earnings, Substantially Restricted: Balance at Beginning of Year............... 102,305 89,660 83,966 Net Income................................. 20,151 18,729 10,936 Dividends Declared......................... (6,480) (6,044) (4,930) Loss on Reissuance of Treasury Stock....... -- (40) (312) ---------- ------- -------- Balance at End of Year..................... 115,976 102,305 89,660 ------- ------- ------- Accumulated Other Comprehensive Income: Net Unrealized (Depreciation) Appreciation on Securities Available-for-Sale, Net of Tax: Balance at Beginning of Year............... 4,212 1,705 (5,281) Change in Net Unrealized (Depreciation) Appreciation, Net of Tax.................. (14,758) 2,507 6,986 --------- ------- -------- Balance at End of Year..................... (10,546) 4,212 1,705 --------- ------- -------- Unallocated Common Stock Held by ESOP: Balance at Beginning of Year............... (4,554) (5,382) (6,210) Allocation of ESOP Stock................... 828 828 828 -------- -------- -------- Balance at End of Year..................... (3,726) (4,554) (5,382) -------- -------- -------- Unearned Common Stock Held by RRPs: Balance at Beginning of Year............... (713) (1,567) (2,392) Earned Portion of RRPs..................... 647 854 825 ------- -------- -------- Balance at End of Year..................... (66) (713) (1,567) -------- --------- -------- Common Stock Held by Supplemental Executive Retirement Plan: Balance at Beginning of Year.............. (373) (209) -- Common Stock Acquired by SERP (6,312, 4,433 and 11,021 shares)..................... (177) (164) (209) -------- ------- -------- Balance at End of Year.................... (550) (373) (209) -------- ------- -------- Treasury Stock: Balance at Beginning of Year.............. (24,030) (27,516) (20,613) Reissuance of stock for Continental Bank acquisition (1,013,909 shares).... -- 14,711 -- Common Stock Purchased, at Cost (1,040,207, 460,973 and 442,182 shares)....................... (27,936) (15,269) (8,113) Exercise of Stock Options................. 1,400 4,044 1,210 -------- --------- --------- Balance at End of Year.................... (50,566) (24,030) (27,516) --------- --------- --------- Total Stockholders' Equity................. $ 171,667 $ 194,864 $ 162,670 ======= ======= ======= See accompanying notes to consolidated financial statements. RELIANCE BANCORP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Years Ended June 30, --------------------------- 1999 1998 1997 ------ ------ ------ Net Income...................................... $ 20,151 $18,729 $10,936 Other Comprehensive Income, Net of Income Taxes: Unrealized (Losses)/Gains on Securities Available-for-Sale.......................... (14,758) 2,507 6,986 ------------------------------ Comprehensive Income............................ $ 5,393 $21,236 $17,922 ============================== See accompanying notes to consolidated financial statements. RELIANCE BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended June 30, -------------------------------- 1999 1998 1997 ------ ------ ------ Cash Flows From Operating Activities: Net Income..........................................$ 20,151 $ 18,729 $ 10,936 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for Loan Losses......................... 650 1,650 950 Provision for Losses on Real Estate Owned ........ 35 93 200 Amortization of Premiums, Net..................... 2,060 2,755 1,448 Net (Gain) Loss on Securities..................... (118) 5 (172) Expense Charge Relating to Allocation and Earned Portions of Stock Plans....................... 3,120 3,705 2,521 Amortization of Excess of Cost Over Fair Value of Net Assets Acquired ......................... 4,564 4,218 3,404 Amortization of Mortgage Servicing Rights......... 803 729 859 Acquisition Related Tax Benefits not Previously Recognized........................... -- -- 562 Depreciation and Amortization..................... 1,844 1,635 1,417 Net Gain on Loans Sold............................ (134) (44) (28) Proceeds from Loans Sold.......................... 28,240 8,473 7,303 Net Gain on Sale of Real Estate Owned............. (84) (146) (56) Decrease (Increase) in Accrued Interest Receivable, Net.................................. 1,863 (1,837) (728) Decrease (Increase) in Prepaid Expenses and Other Assets.................................... 3,862 (1,345) 3,174 Increase in Accrued Expenses and Other Liabilities............................... 3,251 2,670 7,164 ------ ------ ------ Net Cash Provided by Operating Activities.... 70,107 41,290 38,954 ------ ------- ------ Cash Flows From Investing Activities: (Originations and Purchased Loans) Net of Principal Payments............................... (33,733) 5,417 (101,583) Purchases of Mortgage-Backed Securities Held-to-Maturity................................ (106,292) (147,163) -- Purchases of Mortgage-Backed Securities Available-for-Sale............................. (730,157) (623,759) (277,483) Proceeds from Sales of Mortgage-Backed Securities Available-for-Sale.................. 322,180 190,245 59,810 Principal Repayments from Mortgage-Backed Securities..................................... 488,009 351,591 123,823 Proceeds from Call of Debt Securities............ 38,145 12,500 7,313 Proceeds from Sales of Debt and Equity Securities Available-for-Sale1................. 5,229 4,870 5,028 Purchases of Debt Securities Available-for-Sale..... (24,743) (115,500) (19,715) Purchases of Debt and Equity Securities Held-to-Maturity............................... (11,138) -- (5,007) Proceeds from Maturities of Debt Securities......... 3,400 1,205 1,350 Purchases of Premises and Equipment................. (2,837) (1,623) (1,734) Proceeds from Sale of Real Estate Owned ............ 1,199 3,402 1,899 Cash and Cash Equivalents Acquired from Continental Bank Acquisition...................... -- 9,106 -- -------- ------- --------- Net Cash Used in Investing Activities......... (40,738) (309,709) (206,299) -------- --------- --------- Cash Flows from Financing Activities: (Decrease) Increase in Deposits.....................$(78,422) $ 55,717 $ 91,009 (Decrease) Increase in Advance Payments by Borrowers for Taxes and Insurance............... (3,407) 789 171 Proceeds from FHLB Advances.........................1,095,981 143,336 60,000 Repayment of FHLB Advances..........................(939,399) (22,025) (23,000) Proceeds from Reverse Repurchase Agreements......... 743,772 1,077,963 1,177,298 Repayment of Reverse Repurchase Agreements..........(828,126)(1,002,606)(1,128,545) Proceeds from Capital Securities.................... -- 50,000 -- Purchases of Treasury Stock......................... (27,936) (15,269) (8,113) Net Proceeds from Issuance of Common Stock Upon Exercise of Stock Options........................ 725 2,670 898 Dividends Paid...................................... (6,398) (5,725) (4,578) ------- ------- ---------- Net Cash (Used in) Provided by Financing Activities....................... (43,210) 284,850 165,140 Net (Decrease) Increase in Cash and Cash Equivalents. (13,841) 16,431 (2,205) Cash and Cash Equivalents at Beginning of Year....... 47,096 30,665 32,870 ------- ------ ------- Cash and Cash Equivalents at End of Year.............$ 33,255 $ 47,096 $ 30,665 ====== ======= ====== Supplemental Disclosures of Cash Flow Information Cash Paid During the Year for: Interest........................................... $97,218 $ 85,449 $ 71,005 ====== ====== ====== Income Taxes ...................................... $14,390 $ 11,077 $ 4,745 ====== ====== ===== Non-cash Investing Activities: Transfers from Loans to Real Estate Owned........... $ 571 $ 3,654 $ 929 === ===== === Supplemental Information to the Consolidated Statement of Cash Flows Relating to Continental Bank Acquisition. Non-cash investing and financing transactions relating to the Continental Bank acquisition for the year ended June 30, 1998 not reflected in the Consolidated Statement of Cash Flows are listed below: 1998 ----------- Fair Value of Assets Acquired, Excluding Cash and Cash Equivalents Acquired.............................. $ 168,240 Liabilities Assumed.................................. (171,083) Excess of Cost Over Fair Value of Net Assets Acquired 17,691 Stock Consideration.................................. (23,954) --------- Cash and Cash Equivalents Acquired................... $ (9,106) ======= See accompanying notes to consolidated financial statements.
RELIANCE BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of Reliance and subsidiary conform to generally accepted accounting principles and to general practice within the financial institution industry. The following is a description of the more significant policies which the Company follows in preparing and presenting its consolidated financial statements. (a) Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Reliance Federal Savings Bank. All significant intercompany transactions and balances are eliminated in consolidation. As more fully discussed in Note 3, Reliance Bancorp Inc., a Delaware corporation, was organized by the Bank for the purpose of acquiring all of the capital stock of the Bank pursuant to the conversion of the Bank from a federally chartered mutual savings bank to a federally chartered stock savings bank. The Company is subject to the financial reporting requirements of the Securities and Exchange Act of 1934, as amended. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of condition and income and expense for the years presented. Estimates that are susceptible to change include primarily the determination of the allowances for losses on loans and the valuation of real estate acquired in connection with foreclosures. (b) Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, federal funds sold and repurchase agreements with an original term to maturity of less than three months. (c) Securities Available-for-Sale The Company follows Statement of Financial Accounting Standards ("SFAS") No.115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires securities, including debt, equity and mortgage-backed securities, classified as available-for-sale to be recorded at estimated fair value with changes in unrealized gains or losses reported net of tax as a separate component in stockholders' equity. Debt securities are classified as available-for-sale when management intends to hold the securities for indefinite periods of time or when the securities may be utilized for tactical asset/liability management strategy and may be sold from time to time to effectively manage interest rate exposure and resultant prepayment risk and liquidity needs. Premiums and discounts are amortized or accreted, respectively, using the level-yield method. Readily marketable equity securities are also classified as available-for-sale. Gains or losses on the sales of the securities are recognized when sold using the specific identification method. (d) Debt and Equity Securities Held-to-Maturity Debt and equity securities classified as held-to-maturity are carried at cost unless there is a permanent impairment of value, at which time they are valued at the lower of cost or market value resulting in a new cost basis for the security. The debt securities are adjusted for amortization of premiums and accretion of discounts over the term of the security using the level-yield method. The Company currently has the ability and intent to hold the debt securities until maturity. Equity securities classified held-to-maturity are not readily marketable. (e) Mortgage-Backed Securities Held-to-Maturity Mortgage-backed securities represent participating interests in pools of long-term first mortgage loans originated and serviced by the issuers of the securities. Mortgage-backed securities held-to-maturity are carried at current unpaid principal balances, adjusted for unamortized premiums and unaccreted discounts. Premiums are amortized and discounts are accreted to income over the estimated life of the respective securities using the level-yield method. The Company currently has the ability and intent to hold the securities until maturity. (f) Loans Loans are stated at the principal amount outstanding, less unearned discounts and net deferred loan origination fees, if applicable. Interest on loans is credited to income based on the principal amount outstanding during the period. Gains and losses on the sale of loans are determined using the specific identification method. Interest on loans is recognized on the accrual basis. Loans are placed on nonaccrual status when principal or interest becomes 90 days or more past due for mortgage loans and commercial loans and 120 days past due for other loans, unless the obligation is both well secured and in the process of collection. Accrued interest receivable previously recognized is reserved when a loan is placed on nonaccrual status. Loans remain on nonaccrual status until principal and interest payments are current or the obligation is considered both well secured and in the process of collection. A loan is considered a troubled debt restructuring when changes, such as reduction in interest rates or deferral of interest or principal payments, are made to contractual terms due to a borrower's weakened financial condition. The Company defers loan origination fees on multi-family loans, less certain direct costs, and subsequently recognizes them as an adjustment of the loan's yield over the contractual life of the loan using the level-yield method or, in the case of loans with below-market introductory rates, generally over the applicable introductory period, using the interest method. The Company follows SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures". Under SFAS No. 114 and SFAS No. 118, a loan is considered impaired when, based upon current information and events, it is probable that a creditor will be unable to collect all amounts due including principal and interest, according to the contractual terms of the loan agreement. These statements require that impaired loans that are within their scope be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or as a practical expedient, at the loan's current observable market price, or the fair value of the collateral if the loan is collateral dependent. The amount by which the recorded investment of an impaired loan exceeds the measurement value is recognized by creating a valuation allowance through a charge to the provision for loan losses. Interest income received on impaired loans is recognized on a cash basis. (g) Allowance for Loan Losses A provision for loan losses charged to income is reflected as an addition to a valuation allowance which is netted against loans receivable. Management's periodic evaluation of the adequacy of the valuation allowance considers the Bank's past loan loss experience, known and inherent risks in the portfolio, adverse situations which may affect the borrower's ability to repay, estimated value of the underlying collateral and the current real estate markets and economic condition in the Bank's lending areas. In addition, the Bank's regulators, as an integral part of their examination process, periodically review the Bank's allowance for losses on loans and real estate. Accordingly, the Bank may be required to take certain charge-offs and recognize additions to the allowance based on the regulators' judgments concerning information available to them during their examination. (h) Office Properties and Equipment Land is carried at cost. Buildings, leasehold improvements, furniture and fixtures and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided on a straight-line method over the estimated useful lives of the assets. The cost of leasehold improvements is being amortized using the straight-line method over the shorter of the term of the related leases or the estimated useful lives. (i) Excess of Cost Over Fair Value of Net Assets Acquired The excess of cost over the fair value of net assets acquired in the acquisitions of the Bank of Westbury, Sunrise Bancorp, Inc. and Continental Bank is amortized using the straight line method over fifteen years. The excess of cost over the fair value of net assets acquired is evaluated periodically by the Company for impairment in response to changes in circumstances or events. (j) Real Estate Owned Real estate acquired through foreclosure is recorded at the lower of cost (unpaid loan balance plus foreclosure costs) or fair market value at the time of acquisition. The carrying value of individual properties is subsequently adjusted to the extent it exceeds estimated fair market value less costs to sell. Operating expenses of holding real estate, net of related income, are charged against income as incurred. Gains on sales of real estate are recognized when down payment and other requirements are met; otherwise such gains are deferred and recognized on the installment method of accounting. Losses on the disposition of real estate, including expenses incurred in connection with the disposition, are charged to income. A valuation allowance is maintained through provisions for real estate losses charged to income for any decrease in the fair value of property less costs to sell, which is netted against real estate owned. (k) Taxes on Income The Company files a calendar-year Federal income tax return on a consolidated basis with its subsidiary. The Company follows SFAS No. 109, "Accounting for Income Taxes" which requires the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and tax bases of existing assets and liabilities. Under SFAS No. 109, the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. (l) Employee Benefits The Bank's pension plan is non-contributory and covers substantially all eligible employees. The plan conforms to the provisions of the Employee Retirement Income Security Act of 1974, as amended. The Bank's policy is to accrue for all pension costs and to fund the maximum amount allowable for tax purposes. In the interest of maintaining a comprehensive benefit package for employees, the Bank periodically evaluates the overall effectiveness and economic value of the pension plan. Based on an evaluation of the pension plan in fiscal 1998, the Bank concluded that future benefit accruals under the plan would cease, or "freeze" on May 31, 1998. In its stead, Reliance Federal Savings Bank 401(k) Retirement Savings Plan (the "401(k) Plan") was formed. Effective June 1, 1998, all Reliance Federal Savings Bank employees who are at least 21 years of age and have completed one year of service are eligible to participate in the 401(k) Plan. Actuarial gains and losses that arise from changes in assumptions concerning future events, used in estimating pension costs, have been amortized over a period that reflects the long range nature of pension expense. However, as a result of the freezing of the plan, the Bank recognized a curtailment gain in fiscal 1998. (See Note 17). The Company follows AICPA Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans" ("SOP 93-6") to account for the established Employee Stock Ownership Plan ("ESOP"). SOP 93-6 requires that compensation expense be recognized for shares committed to be released to directly compensate employees equal to the fair value of the shares committed. In addition, SOP 93-6 requires that leveraged ESOP debt and related interest expense be reflected in the employer's financial statements. The application of SOP 93-6 results in fluctuations in compensation expense as a result of changes in the fair value of the Company's common stock; however, such compensation expense fluctuations result in an offsetting adjustment to paid in capital. Therefore, total stockholders' equity is not affected. The Bank follows SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123 applies to all transactions in which an entity acquires goods or services by issuing equity instruments or by incurring liabilities where the payment amounts are based on the entity's common stock price, except for employee stock ownership plans. SFAS No. 123 established a fair value-based method of accounting for stock-based compensation arrangements with employees, rather than the intrinsic value-based method that is contained in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). SFAS No. 123 does not require an entity to adopt the new fair value-based method for purposes of preparing its basic financial statements; an entity is allowed to continue to use the APB No. 25 method for preparing its basic financial statements. The Company has chosen to continue to use the APB No. 25 method, however, SFAS No. 123 requires presentation of pro forma net income and earnings per share information, in the notes to the financial statements, as if the fair value-based method had been adopted. (m) Treasury Stock Repurchases of common stock are recorded as treasury stock at cost. (n) Comprehensive Income The Company follows Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 requires that all items that are components of "comprehensive income" be reported in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income is defined as "the change in equity [net assets] of a business enterprise during a period from transactions and other events and circumstances from nonowner sources." It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Company adopted the provisions of SFAS No. 130 during the first quarter of fiscal 1999 and as such was required to (a) classify items of other comprehensive income by their nature in a financial statement; (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section in the statement of financial condition and (c) reclassify prior periods presented. As the requirements of SFAS No. 130 are disclosure-related, its implementation had no impact on the Company's financial condition or results of operations. (o) Earnings Per Share The Company follows SFAS No. 128, "Earnings per Share" which specifies the computation, presentation and disclosure requirements for earnings per share ("EPS") for entities with publicly held common stock or potential common stock. This statement simplifies the standard for computing EPS previously found in Accounting Principles Board Opinion No. 15 ("APB No. 15"). It replaces the presentation of primary EPS with a presentation of basic EPS and the presentation of fully diluted EPS with a presentation of diluted EPS. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period, adjusted for the unallocated portion of shares held by the ESOP in accordance with SOP 93-6. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Potential common stock due to the dilutive effect of stock options is computed using the treasury stock method. SFAS No. 128 was effective for financial statements issued for periods ending after December 15, 1997 and requires the restatement of all prior-period EPS data presented. The Company adopted SFAS No. 128 effective December 31, 1997. (p) Segment Reporting During fiscal 1999, the Company adopted Statement of Financial Accounting Standards No.131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 requires public companies to report certain financial information about significant revenue-producing segments of the business for which such information is available and utilized by the chief operating decision maker. Specific information to be reported for individual operating segments includes a measure of profit and loss, certain revenue and expense items, and total assets. As a community-oriented financial institution, substantially all of the Company's operations involve the delivery of loan and deposit products to customers. Management makes operating decisions and assesses performance base on an ongoing review of these community banking operations, which constitute the Company's only operating segment for financial reporting purposes under SFAS No.131. 2. SUBSEQUENT EVENT ACQUISITION OF RELIANCE BANCORP, INC. BY NORTH FORK BANCORPORATION, INC. On August 30, 1999, the Company announced that it had signed a definitive Agreement and Plan of Merger, dated as of August 30, 1999, with North Fork Bancorporation, Inc. NFB is the bank holding company parent of North Fork Bank and Trust Company, a New York State chartered stock commercial bank. The Merger Agreement provides, among other things, that Reliance will merge with and into NFB, with NFB being the surviving corporation. Pursuant to the Merger Agreement, each share of Reliance common stock, par value $0.01 per share, issued and outstanding immediately prior to the Effective Time will be converted into and become the right to receive 2.0 shares of NFB common stock, par value $2.50 per share. The Merger will be structured as a tax-free reorganization and will be accounted under the purchase method of accounting. Consummation of the Merger is subject to the satisfaction of certain customary conditions, including approval of the Merger Agreement by the stockholders of Reliance and approval of the appropriate regulatory agencies. Following consummation of the Merger, the Bank will be merged with and into North Fork Bank and Trust Company. It is anticipated that the Merger will be completed in 2000. Reliance has the right to terminate the Merger Agreement if the closing price of NFB's shares decline beyond a specified price and index, unless NFB elects to increase the Merger Consideration to be received by Reliance's stockholders as set forth in the Merger Agreement. The Merger Agreement also provides that options to purchase shares of Reliance Common Stock under Reliance's stock option plans that are outstanding at the Effective Time shall be converted into options to purchase shares of NFB Common Stock in accordance with the procedure set forth in the Merger Agreement. In connection with the Merger Agreement, Reliance granted to NFB a stock option pursuant to a Stock Option Agreement, dated as of August 30, 1999, which, under certain defined circumstances, would enable NFB to purchase up to 19.9% of Reliance's issued and outstanding shares of common stock. The Stock Option Agreement provides that the total profit receivable thereunder may not exceed $17.4 million plus reasonable out-of-pocket expenses. 3. STOCK FORM OF OWNERSHIP On September 16, 1993, the Board of Directors of the Bank adopted a Plan of Conversion to convert from a federally chartered mutual savings bank to a federally chartered stock savings bank with the concurrent formation of a holding company. As part of the conversion, the Company was incorporated under Delaware law on November 16, 1993. The Company completed its initial public offering on March 31, 1994 and issued 10,750,820 shares of common stock resulting in net proceeds of approximately $103.6 million. The Company retained $51.8 million of the net proceeds and used the remaining net proceeds to purchase all of the outstanding stock of the Bank. The financial position and results of operations of the Company as of and for the year ended June 30, 1999, 1998 and 1997 are presented in Note 22. On November 6, 1998, the Company completed its seventh five percent stock repurchase plan purchasing 500,000 shares at an aggregate cost of $13.9 million. The Company also announced its eighth stock repurchase plan to repurchase up to 500,000 of the Company's outstanding shares. As of June 30, 1999, 146,207 shares under this program were repurchased at an aggregate cost of $4.1 million. During fiscal years 1999, 1998 and 1997, the Company repurchased total shares of 1,040,207, 460,973 and 442,182, respectively, at an aggregate cost of $27.9 million, $15.3 million and $8.1 million, respectively. At the time of the conversion, the Bank established a liquidation account with a balance equal to its retained earnings reflected in its statement of condition. The balance in the liquidation account at June 30, 1999 and 1998 was approximately $18.3 million and $21.4 million, respectively. The liquidation account will be maintained for the benefit of eligible account holders who continue to maintain their accounts at the Bank after the conversion. The liquidation account will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits as of each anniversary date. Subsequent increases will not restore an eligible account holder's interest in the liquidation account. In the event of a complete liquidation, each eligible account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the current adjusted qualifying balances for accounts then held. The Company may not declare or pay cash dividends on or repurchase any of its shares of common stock if the effect thereof would cause stockholders' equity to be reduced below applicable regulatory capital maintenance requirements, the amount required for the liquidation account, or if such declaration and payment would otherwise violate regulatory requirements. During fiscal 1999, the Company declared cash dividends totaling $6.5 million. 4. ACQUISITION ACQUISITION OF CONTINENTAL BANK On October 17, 1997, the Company completed the acquisition of Continental Bank ("Continental"), a commercial bank with two full service banking offices located in Nassau and Suffolk counties in Long Island, New York, a commercial lending facility and five check cashing facilities ("Money Centers") in Manhattan. The transaction was accounted for as a purchase. Under the terms of the merger, Reliance issued 1.10 shares (1,013,909 shares) of its common stock for each outstanding common share of Continental. The cost of the acquisition was approximately $24.4 million. Assets acquired in the transaction, principally loans and mortgage-backed securities aggregated $177.8 million and liabilities assumed, substantially all deposits and borrowings, aggregated $171.1 million. The excess of cost over fair value of net assets acquired in the transaction was $17.7 million, which is being amortized on a straight line basis over 15 years. 5. MONEY MARKET INVESTMENTS Money market investments generally have original maturities of three months or less, and at 1998 consist solely of securities purchased under agreements to resell (repurchase agreements). There were no money market investments at June 30,1999. These agreements represent short-term loans and are reflected as an asset in the consolidated statements of condition. The same securities are to be resold at maturity of the repurchase agreements. Securities purchased under repurchase agreements averaged $1.4 million for the year ended June 30, 1999 and $4.5 million for the year ended June 30, 1998. The maximum amount of such agreements outstanding at any month-end during the fiscal year ended June 30, 1999 and 1998 was $8.0 million and $23.0 million, respectively. 6. DEBT AND EQUITY SECURITIES A summary of the amortized cost and estimated market values of debt and equity securities are as follows:
June 30, 1999 --------------------------------------- Gross Gross Estimated Amortized unrealized unrealized market cost gain loss value ------------------------------------------------- (In thousands) HELD-TO-MATURITY: U.S. Government Agency Obligations..........$ 8,885 $ 3 $ -- $ 8,888 Obligation of New York State................ 390 2 -- 392 FHLB Stock................................. . 19,560 -- -- 19,560 ------ -- -- ------ $ 28,835 $ 5 $ -- $ 28,840 ======== ====== ======== ======== AVAILABLE-FOR-SALE: U.S. Government Agency Obligations..........$ 10,000 $ 10 $ -- $ 10,010 Corporate Obligations...................... .113,855 138 (2,712) 111,281 Marketable Equity Securities................ 1,177 19 (319) 877 -------- ------ --------- -------- $125,032 $ 167 $ (3,031) $122,168 ======== ====== ========= ======== June 30, 1998 ------------------------------------------- Gross Gross Estimated Amortized unrealized unrealized market cost gain loss value ------------------------------------------------- (In thousands) HELD-TO-MATURITY: U.S. Government Agency Obligations..........$ 22,493 $ 293 $ -- $ 22,786 Obligation of New York State................ 390 27 -- 417 FHLB Stock.................................. 17,306 -- -- 17,306 -------- ----- -------- -------- $ 40,189 $ 320 $ -- $ 40,509 ======== ====== ======== ======== AVAILABLE-FOR-SALE: U.S. Government Agency Obligations..........$ 29,031 $ 260 $ (1) $ 29,290 Corporate Obligations...................... .103,070 343 (246) 103,167 Marketable Equity Securities................ 2,419 31 -- 2,450 -------- ------ -------- --------- $134,520 $ 634 $ (247) $134,907 ======== ====== ======== =========
The amortized cost and estimated market value of debt and equity securities at June 30, 1999 and 1998, by contractual maturity, are shown below:
June 30, 1999 June 30, 1998 ---------------------------------------------- ----------------------------------------------- Held-to-maturity Available-for-sale Held-to-maturity Available-for-sale -------------------- -------------------- ------------------- ----------------------- Estimated Estimated Estimated Estimated Amortized market Amortized market Amortized market Amortized market cost value cost value cost value cost value --------- ------- --------- -------- --------- ------- --------- -------- (In thousands) Due in One Year or Less.. $ 390 $ 392 $ -- $ -- $ 2,493 $ 2,499 $ 5,892 $ 5,902 Due After One Year Through Five Years.... -- -- 2,046 1,970 390 417 18,466 18,493 Due After Five Years Through Ten Years..... 8,885 8,888 32,753 32,901 20,000 20,287 13,144 13,378 Due After Ten Years..... -- -- 89,056 86,420 -- -- 94,599 94,684 Equity Securities....... 19,560 19,560 1,177 877 17,306 17,306 2,419 2,450 ------- ------- ------ -------- -------- -------- --------- -------- $28,835 $28,840 $125,032 $122,168 $40,189 $ 40,509 $ 134,520 $ 134,907 ======== ======= ======== ======== ======== ======== ========== =========
In fiscal 1999, 1998 and 1997 gross proceeds from the sale of debt and equity securities available-for-sale totaled $15.2 million, $4.9 million and $5.0 million, respectively. For fiscal 1999, 1998 and 1997 gross realized gains totaled $172,000, $11,000 and $17,000, respectively, and gross realized losses totaled $127,000, $0, and $16,000, respectively. 7. MORTGAGE-BACKED SECURITIES The amortized cost and estimated market values of mortgage-backed securities are summarized as follows:
June 30, 1999 --------------------------------------- Gross Gross Estimated Amortized unrealized unrealized market cost gain loss value ------------------------------------------------- (In thousands) HELD- TO-MATURITY: Pass-through Certificates Guaranteed by: GNMA................................$ 55,782 $ 1,056 $ -- $ 56,838 FHLMC............................... 7,792 148 -- 7,940 FNMA................................ 28,228 269 (16) 28,481 REMICs: Agency Issuance.............. 91,476 27 (4,289) 87,214 Private Issuance............. 72,639 15 (894) 71,760 -------- --------- --------- ---------- $255,917 $ 1,515 $ (5,199) $ 252,233 ======== ========= ========= ========== AVAILABLE-FOR-SALE: Pass-through Certificates Guaranteed by: GNMA................................ $285,238 $ 601 $ (2,528) $ 283,311 FHLMC............................... 48,259 403 (152) 48,510 FNMA................................ 83,555 160 (707) 83,008 REMICs: Agency Issuance............... 160,742 47 (5,884) 154,905 Private Issuance.............. 373,053 13 (7,762) 365,304 -------- --------- --------- ---------- $950,847 $ 1,224 $(17,033) $ 935,038 ======== ========= ========= ========== June 30, 1998 --------------------------------------- Gross Gross Estimated Amortized unrealized unrealized market cost gain loss value ------------------------------------------------- (In thousands) HELD- TO-MATURITY: Pass-through Certificates Guaranteed by: GNMA................................ $ 78,106 $ 2,126 $ -- $ 80,232 FHLMC............................... 10,304 267 -- 10,571 FNMA................................ 33,949 959 -- 34,908 REMICs: Agency Issuance.............. 53,021 85 (307) 52,799 Private Issuance............. 73,879 353 (410) 73,822 ------ --------- -------- ---------- $249,259 $ 3,790 $ (717) $ 252,332 ======== ========= ======== ========== AVAILABLE-FOR-SALE: Pass-through Certificates Guaranteed by: GNMA................................$ 187,562 $ 2,732 $ (47) 190,247 FHLMC............................... 118,982 1,702 (7) 120,677 FNMA................................ 140,597 1,618 (32) 142,183 REMICs: Agency Issuance............... 128,113 198 (39) 128,272 Private Issuance.............. 358,033 1,404 (469) 358,968 ------- ---------- -------- ---------- $ 933,287 $ 7,654 $ (594) $ 940,347 ======== ========= ======== ==========
In fiscal 1999, 1998 and 1997 gross proceeds from the sale of mortgage-backed securities available-for-sale totaled $322.2 million, $190.2 million and $59.8 million, respectively. For fiscal 1999, 1998 and 1997 gross realized gains totaled $1.2 million, $540,000 and $466,000, respectively, and gross realized losses totaled $1.1 million, $556,000 and $295,000, respectively. 8. LOANS RECEIVABLE Loans receivable, net are summarized as follows: June 30, -------------------------- 1999 1998 ---------- --------- (In thousands) Mortgage Loans: One- to four-family.............................. $ 434,237 $ 492,804 Multi-family..................................... 316,115 243,070 Commercial Real Estate........................... 48,104 43,624 Co-op............................................ 5,872 7,516 Construction..................................... 7,515 4,879 ------- -------- 811,843 791,893 Less: Unearned Discount, Premiums and Deferred Loan Origination Fees, Net.............. (949) (942) ----------- ---------- Total Mortgage Loans........................ 810,894 790,951 -------- ------- Commercial Loans: Asset Based Loans................................ 11,056 21,339 Other Commercial Loans........................... 33,893 28,548 ------- ------- Total Commercial Loans...................... 44,949 49,887 ------- ------- Consumer and Other Loans: Home Equity Lines of Credit...................... 85,576 93,862 Guaranteed Student Loans......................... 12,791 15,262 Home Equity Loans................................ 21,530 19,050 Loans on Deposit Accounts........................ 4,788 5,416 Other Loans...................................... 2,065 3,622 -------- -------- 126,750 137,212 Deferred Loan Origination Costs, Net.............. 600 688 --------- -------- Total Consumer and Other Loans.............. 127,350 137,900 ------- ------- Less: Allowance for Loan Losses........................ (9,120) (8,941) --------- --------- $ 974,073 $ 969,797 ========= ========= June 30, ----------------------- 1999 1998 -------- -------- (In thousands) Commitments Outstanding: Mortgage Loans................................... $ 40,412 $ 33,386 Consumer and Other Commercial Loans.............. $ 4,793 $ 7,056 Unused Consumer Lines of Credit.................. $ 52,014 $ 53,361 Unused Commercial Lines of Credit................ $ 18,105 $ 22,622 At June 30, 1999 and 1998, the Company had commitments to sell loans of $2.2 million and $3.7 million, respectively. At June 30, 1999 and 1998, the Company had no commitments to purchase loans. The principal balance of loans in arrears three months or more: June 30, ------------------------------ 1999 1998 ---------- -------- No. of No. of loans Amount loans Amount (Dollars in thousands) One- to four-family Mortgages............ 44 $ 3,693 70 $ 6,256 Consumer and Other Loans................. 59 564 62 517 Commercial Real Estate................... 8 1,868 7 1,962 Commercial............................... 10 433 9 567 ---- ----- ---- ---- 121 $ 6,558 148 $ 9,302 === ===== === ===== Interest income that would have been recorded under the original terms of loans classified as non-accrual and interest income actually recognized are as follows: Year Ended June 30, ----------------------------- 1999 1998 1997 ------ ------ ------ (In thousands) Interest Income that would have been Recorded...... $ 792 $1,159 $ 838 Interest Income Recognized......................... (294) (360) (265) ----- ------ ------ Interest Income Foregone........................... $ 498 $ 799 $ 573 ===== === === In accordance with SFAS No. 114, the Company deems certain loans impaired when, based upon current information and events, it is probable that the Company will be unable to collect all amounts due, both principal and interest, according to the contractual terms of the loan agreement. SFAS No. 114 generally does not apply to large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment, such as one- to four-family mortgage loans and consumer loans. Loans individually reviewed for impairment by the Company are limited to multi-family loans, commercial loans, construction and land loans, loans modified in a troubled debt restructuring and selected large one- to four-family loans. Examples of measurement techniques utilized by the Company include present value of expected future cash flows, the loan's market price if one exists, and the estimated fair value of the collateral. At June 30, 1999, 1998 and 1997 the Company had seven, four and four impaired commercial real estate loans totaling $1.6 million, $1.9 million and $2.9 million, respectively, with no related allowance. The Company had 10 impaired commercial loans totaling $433,000 and $567,000, respectively, at June 30, 1999 and 1998 and no impaired commercial loans at June 30, 1997, with no related allowances. The Company's average recorded investment in impaired loans for the years ended June 30, 1999, 1998 and 1997 was $2.5 million, $2.5 million and $1.9 million, respectively. The Company did not recognize any interest income on impaired loans for the years ended June 30, 1999, 1998 and 1997. The Bank generally originates fixed rate loans with terms greater than 15 years for sale to FHLMC, FNMA or other secondary market investors. At June 30, 1999 and 1998, there were no fixed rate loans classified as held for sale. Included in mortgage loans at June 30, 1999 and 1998 are $408.8 million and $425.2 million, respectively, of adjustable rate mortgage loans. Proceeds from the sale of first mortgage loans were $28.2 million, $8.5 million and $7.3 million during the fiscal years ended June 30, 1999, 1998 and 1997, respectively. Gross realized gains and losses resulting from sale of first mortgage loans were as follows: Year Ended June 30, ------------------------------- 1999 1998 1997 ----------------------------- (In thousands) Gross Realized Gains............... $144 $ 44 $ 31 Gross Realized Losses.............. (10) -- (3) ---- ---- ---- $134 $ 44 $ 28 === ==== ==== The Bank services mortgage loans for investors which are not included in the accompanying consolidated statements of condition. A summary of the principal balances, custodial escrow, servicing income and number of loans serviced for others by the Bank are as follows:
Year Ended June 30, ------------------------------------ 1999 1998 1997 ------- -------- -------- (Dollars in thousands) Principal Balances.................................$ 298,635 $355,149 $ 410,229 Custodial Escrow................................... $ 3,242 $ 4,290 $ 4,493 Servicing Income (Excludes MSR Amortization)....... $ 959 $ 1,183 $ 1,399 Number of Loans.................................... 5,186 6,085 6,842
Fees earned for servicing loans are reported as income when the related mortgage payments are collected. Mortgage Servicing Rights ("MSRs") are amortized as a reduction to loan service fee income on a method that approximates the level-yield basis over the estimated remaining life of the underlying mortgage loans. MSRs are carried at fair value and impairment, if any, is recognized through a valuation allowance. For the year ended June 30, 1999 and 1998, no impairment existed in the MSRs and as a result, no valuation allowance was required. MSR activity is summarized as follows: Year Ended June 30, -------------------------------- 1999 1998 1997 ------ ------ ------ (In thousands) Balance at Beginning of the Year......... $ 2,317 $ 3,046 $ 3,905 Amortization............................. (803) (729) (859) Balance at End of the Year............... $ 1,514 $ 2,317 $ 3,046 9. ALLOWANCE FOR LOAN LOSSES Activity in the allowance for loan losses is summarized as follows: Year Ended June 30, --------------------------------- 1999 1998 1997 ------ ------ ------ (In thousands) Balance at Beginning of the Year.......... $ 8,941 $ 5,182 $ 4,495 Provision for Loan Losses................ 650 1,650 950 Allowances of Acquired Institutions...... -- 2,745 -- Charge-offs.............................. (513) (773) (306) Recoveries................................ 42 137 43 Balance at End of the Year................ $ 9,120 $ 8,941 $ 5,182 10. REAL ESTATE OWNED Real estate owned, net is summarized as follows: June 30, ------------------ 1999 1998 ---- ---- (In thousands) One- to four-family Residences..................... $ 185 $ 505 Co-ops............................................. 63 73 Commercial......................................... -- 300 Allowance for Losses on Real Estate Owned.......... (71) (123) ----- ----- $ 177 $ 755 ===== ===== Results of operating real estate owned for the years ended June 30, 1999, 1998 and 1997 are summarized as follows: Year Ended June 30, -------------------------- 1999 1998 1997 ------ ------ ------ (In thousands) Net Gain on Sale on Real Estate Owned.............. $ 84 $ 146 $ 56 Net Expenses of Holding Property................... (160) (271) (239) Provision for Losses............................... (35) (93) (200) ----- ----- ------ $ (111) $ (218) $ (383) ======= ====== ====== Activity in the allowance for losses in real estate owned is summarized as follows: Year Ended June 30, -------------------------- 1999 1998 1997 ----- ------ ------ (In thousands) Balance at Beginning of the Year................... $ 123 $ 334 $ 768 Provision for Losses............................... 35 93 200 Charge-offs........................................ (87) (304) (634) ---- ----- ----- Balance at End of the Year......................... $ 71 $ 123 $ 334 == === === 11. ACCRUED INTEREST RECEIVABLE Accrued interest receivable, net is summarized as follows: June 30, ---------------- 1999 1998 (In thousands) Debt Securities.................................... $ 932 $ 1,708 Mortgage-Backed Securities......................... 6,533 7,137 Loans Receivable, Net of Reserves for Uncollectible Interest of $1,078 and $1,293, respectively...... 5,630 6,113 ------ ------ $13,095 $14,958 ======= ======= 12. OFFICE PROPERTIES AND EQUIPMENT A summary of office properties and equipment, net is as follows: June 30, ------------------- 1999 1998 ---- ---- (In thousands) Land............................................... $ 4,489 $ 4,489 Buildings.......................................... 10,943 10,477 Furniture, Fixtures and Equipment.................. 15,852 13,853 Leasehold Improvements............................. 4,649 4,407 Capital Lease...................................... 1,470 1,470 ------ ------ Office Properties and Equipment, at Cost........... 34,403 34,696 Accumulated Depreciation and Amortization.......... (21,035) (19,260) --------- -------- $ 16,368 $15,436 ======== ======= In October 1989, the Bank sold a building used for a branch operation located in Jamaica, New York for approximately $2.3 million, and subsequently leased back a portion of the building to conduct the branch operation. The Bank received approximately $2.0 million in cash from the transaction, after expenses of the sale, which generated a gain of approximately $1.1 million. The gain has been deferred and is being amortized over the twelve-year lease period. Deferred gain on sale amounted to approximately $217,000 and $311,000 at June 30, 1999 and 1998, respectively, and is included in accrued expenses and other liabilities. The leaseback is recorded as a capital lease in the amount of $1.5 million at June 30, 1999 and 1998 (refer to the above table) and the related obligation under capital leases of $387,000 and $535,000, respectively, at June 30, 1999 and 1998 is reflected in accrued expenses and other liabilities. Depreciation and amortization of office properties and equipment, included in occupancy and equipment expense, was approximately, $1.8 million, $1.6 million and $1.4 million for the fiscal years ended June 30, 1999, 1998 and 1997, respectively. 13. DEPOSITS Deposits are summarized as follows:
June 30, -------------------------------------------------------------------------- 1999 1998 ---------------------------------------- ----------------------------------- Weighted Weighted average average rate Amount Percent rate Amount Percent (Dollars in thousands) NOW.............................. 1.39% $ 102,473 7% 1.52% $ 104,955 7% Passbook......................... 2.00 451,961 29 2.22 443,745 27 Money Market..................... 2.00 87,777 6 2.22 92,815 6 Certificates of Deposit.......... 5.56 842,778 54 5.56 934,558 57 Non-Interest Bearing Demand Deposit -- 64,430 4 -- 52,225 3 ----------- --- ----------- -- $1,549,419 100% $ 1,628,298 100% =========== ==== =========== ==== June 30, ---------------------------------------------- 1999 1998 ----- ---- Amount Percent Amount Percent (Dollars in thousands) Contractual Maturity of Certificates of Deposit Accounts: Under 12 months........................ $ 710,722 84% $ 797,860 85% Over 12 months to 36 months............ 118,147 14 112,097 12 Over 36 months......................... 13,909 2 24,601 3 -------- --- --------- --- $ 842,778 100% $ 934,558 100% ========= ==== ========= === The aggregate amount of certificates of deposit accounts with a minimum denomination of $100,000 was approximately $81,181,000 and $78,052,000 at June 30, 1999 and 1998, respectively. Interest expense on deposits is summarized as follows: Year Ended June 30, ------------------------------------ 1999 1998 1997 ---- ---- ---- (In thousands) NOW............................................ $ 1,608 $ 1,257 $ 1,041 Passbook....................................... 9,175 10,439 10,937 Money Market................................... 1,879 2,249 2,493 Certificates of Deposit........................ 49,310 49,487 39,668 --------- --------- -------- $ 61,972 $ 63,432 $ 54,139 ========= ========= ========
On September 30, 1996, Congress passed, and the President signed, legislation that recapitalized the Savings Association Insurance Fund (the "SAIF"). Under the major provisions of the legislation, savings institutions, such as the Bank, were assessed a one-time assessment of 65.7 basis points per $100 of insured SAIF deposits. The Company recorded a one-time pre-tax charge of $8.25 million during the first quarter of fiscal year 1997. 14. BORROWED FUNDS The Bank was obligated for borrowings as follows:
June 30, 1999 June 30, 1998 ------------------------------------------------- Weighted Weighted average average rate Amount rate Amount --------- ------- -------- ------- (Dollars in thousands) Advances from FHLB - NY............... 5.27% $ 338,718 5.49% $ 182,136 Reverse Repurchase Agreements......... 5.23 313,716 5.64 398,070 Company Obligated Mandatorily Redeemable Capital Securities of Reliance Capital Trust I........ 8.17 50,000 8.17 50,000 --------- -------- $ 702,434 $ 630,206 ========= =========
Information concerning borrowings under reverse repurchase agreements is summarized as follows: At or for the Year Ended June 30, 1999 June 30, 1998 ------------- ------------- (Dollars in thousands) Average Balance during the Year........... $ 276,748 $ 309,618 Average Interest Rate during the Year..... 5.57% 5.79% Maximum Month-end Balance during the Year.. $ 350,060 $ 398,070 Mortgage-Backed Securities Pledged as Collateral under Reverse Repurchase Agreements at Year End: Carrying Value....................... $ 339,052 $ 418,883 Estimated Market Value............... $ 334,736 $ 421,931 FHLB advances and reverse repurchase agreements at June 30, 1999 have contractual maturities as follows: Reverse Year Ended FHLB Repurchase June 30, Advances Agreements ----------- -------- ---------- (In thousands) 2000 $ 72,000 $ 171,156 2001 20,000 -- 2002 62,622 67,560 2003 -- 75,000 2004 -- -- Thereafter 184,096 -- ------- -------- Total $338,718 $ 313,716 ======= ======== As a member of the Federal Home Loan Bank System (FHLB), the Bank borrows from the FHLB on a secured basis. Borrowings at June 30, 1999 and 1998 were secured by a blanket lien over all assets equal to 110% of borrowings. On April 29, 1998, Reliance Capital Trust I, a trust formed under the laws of the State of Delaware (the "Capital Trust") issued $50 million of 8.17% capital securities. The Holding Company is the owner of all the beneficial interests represented by common securities of the Trust. The Trust exists for the sole purpose of issuing the Trust securities (comprised of the capital securities and the common securities) and investing the proceeds thereof in the 8.17% junior subordinated deferrable interest debentures issued by the Holding Company on April 23, 1998 which are scheduled to mature on May 1, 2028. Interest on the capital securities is payable in semiannual installments, commencing on November 1, 1998. The Trust securities are subject to mandatory redemption (i) in whole, but not in part upon repayment in full, at the stated maturity of the junior subordinated debentures at a redemption price equal to the principal amount of, plus accrued interest on, the junior subordinated debentures,(ii) in whole, but not in part, at any time prior to May 1, 2008, contemporaneously with the occurrence and continuation of a special event, defined as a tax event or regulatory capital event, at a special event redemption price equal to the greater of 100% of the principal amount of the junior subordinated debentures or the sum of the present values of the principal amount and premium payable with respect to an optional redemption of the junior subordinated debentures on the initial optional repayment date to and including the initial optional prepayment date, discounted to the prepayment date plus accrued and unpaid interest thereon, and (iii) in whole or in part, on or after May 1, 2008, contemporaneously with the optional prepayment by the Corporation of the junior subordinated debentures at a redemption price equal to the optional prepayment price. Subject to prior required regulatory approval, the junior subordinated debentures are redeemable during the 12-month periods beginning on or after May 1, 2008 at 104.085% of the principal amounts outstanding, declining ratably each year thereafter to 100%, plus accrued and unpaid interest thereon to the date of redemption. Deferred issuance costs in the amount of $1.0 million, are being amortized over ten years and are included in Prepaid Expenses and Other Assets in the Company's Consolidated Statement of Condition as of June 30, 1998. 15. INCOME TAXES The Company files a consolidated Federal income tax return on a calendar-year basis. Under legislation enacted subsequent to June 30, 1996, the Bank is no longer able to use the percentage of taxable income method previously allowed for Federal tax purposes, but is permitted to deduct bad debts only as they occur and is additionally required to recapture (that is, take into taxable income) the excess balance of its bad debt reserves as of December 31, 1995 over the balance of such reserves as of December 31, 1987. However, such recapture requirements would be suspended for each of two successive taxable years beginning January 1, 1996 in which the Bank originates a minimum amount of certain residential loans based upon the average of the principal amounts of such loans made by the Bank during its six taxable years preceding January 1, 1996. As a result of this legislation, the Bank will incur additional Federal tax liability, but with no impact on the Bank's results of operations. The New York State and New York City tax laws have been amended to prevent a similar recapture of the Bank's bad debt reserve, and to permit continued future use of the bad debt reserve methods for purposes of determining the Bank's New York State and New York City tax liabilities. The Company files state and local tax returns on a calendar-year basis. State and local taxes imposed on the Company consist of New York State franchise tax, New York City Financial Corporation tax and Delaware franchise tax. The Company's annual liability for New York State and New York City purposes is the greater of a tax on income or an alternative tax based on a specified formula. The Company's liability for Delaware franchise tax is based on the lesser of a tax based on an authorized shares method or an assumed par value capital method; however under either method, the Company's total tax will not exceed $150,000. The Company provided for New York State and New York City taxes based on alternative taxable income for the year ended June 30, 1999 and 1998 and based on taxable income for the years ended June 30, 1997. In connection with the acquisitions of the Bank of Westbury, Sunrise Bancorp, Inc and Continental Bank, a net deferred tax asset of $911,000, a net deferred tax liability of $2,285,000 and a net deferred tax asset of $1,050,000, respectively, were recognized for temporary differences between the book basis and tax basis of assets and liabilities acquired. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 30, 1999 and June 30, 1998 are presented below: June 30, June 30, 1999 1998 ------- ------- (In thousands) Deferred Tax Assets: Unrealized Loss on Available-for-Sale Securities.. $ 8,120$ -- Provisions for Losses on Loans and Real Estate Owned 2,603 1,833 Book Deferred Gain on Sale of Building............ 263 368 Deposits.......................................... 134 333 Deferred Fees..................................... -- 71 Other Assets...................................... -- 6 -------- ------ Total Deferred Tax Assets......................... 11,120 2,611 ------ ------ Deferred Tax Liabilities: Unrealized Gain on Available-for-Sale Securities.. -- 3,235 Mortgage Loans.................................... 297 483 Office Properties and Equipment................... 447 335 Benefit Plans..................................... 263 39 Mortgage Servicing Rights......................... 195 298 Intangible Assets................................. 108 94 Debt and Equity and Mortgage-Backed Securities.... 66 185 Other............................................. 656 614 -------- -------- Total Deferred Tax Liabilities..................... 2,032 5,283 ------- ------- Net Deferred Tax Asset (Liability).................... $ 9,088 $ (2,672) ===== ======= The total income tax provision for the years ended June 30, 1999, 1998 and 1997 differs from the amount of tax provision that would result by applying the statutory United States Federal income tax rate of 35.0% for fiscal 1999, 1998 and 1997 to income before income taxes:
Year Ended June 30, ----------------------------------------------------------- 1999 1998 1997 ----------------- ------------------ ------------ Amount % Amount % Amount % ------ - ------ - ------ - (Dollars in thousands) Tax Provision Statutory Rate.......... $ 12,632 35.0% $ 11,739 35.0% $ 7,376 35.0% Amortization of Excess of Cost Over Fair Value of Net Assets Acquired.... 1,551 4.3 1,444 4.3 1,191 5.7 State and Local Income Tax, Net of Federal Income Tax Benefit........... 982 2.7 924 2.8 1,228 5.8 Non-Deductible Expense of ESOP......... 462 1.3 643 1.9 302 1.4 Other, Net............................. 323 0.9 71 0.2 52 0.3 Tax Exempt Interest on Municipal Investments.......................... (11) -- (11) -- (1) (0.1) --------- ---- --------- ---- ------- ----- Income Tax Expense ................. $ 15,940 44.2% $ 14,810 44.2% $10,138 48.1% ======== ==== ========= ===== ======= =====
The components of the provision for income taxes for the years ended June 30, 1999, 1998 and 1997 are as follows: Year Ended June 30, ------------------------------------ 1999 1998 1997 ------- ------ ----- (In thousands) Current: Federal.............................. $ 14,856 $ 13,876 $ 8,193 State and Local...................... 1,489 1,459 1,861 -------- -------- -------- 16,345 15,335 10,054 --------- -------- -------- Deferred: Federal.............................. (426) (488) 56 State and Local...................... 21 (37) 28 -------- -------- -------- (405) (525) 84 --------- -------- -------- $ 15,940 $ 14,810 $ 10,138 ======== ======== ======== 16. COMMITMENTS At June 30, 1999, the Company was obligated under a number of non-cancellable operating leases on property used for banking purposes. Rental expense under these leases for the fiscal years ended June 30, 1999, 1998 and 1997 was approximately $1.4 million, $1.3 million and $1.0 million, respectively. The projected minimum annual rentals under the terms of these leases, exclusive of taxes and other charges, are summarized as follows: Amount ------ (In thousands) Year ended June 30: 2000...................................... $ 1,286 2001...................................... 1,227 2002...................................... 1,156 2003...................................... 757 2004...................................... 570 Thereafter................................ 2,140 -------- $ 7,136 ======== The Bank is a party to financial instruments with off-balance sheet risk in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of the purchaser to a third party. The Bank, in connection with its service corporations, at June 30, 1999 and 1998, has outstanding balances on letters of credits of $500,000 and $500,000, respectively. In addition, at June 30, 1999, the Bank had $565,000 in commercial standby letters of credit. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers (See note 8). 17. RETIREMENT PLANS Pension Plan The following table sets forth the Pension Plan's funded status and amounts recognized in the Company's consolidated statements of condition: June 30, ----------------- 1999 1998 ------ ------ (In thousands) Actuarial Present Value of Benefits Obligations: Vested Benefit Obligation.......................... $5,692 $ 4,991 Accumulated Benefit Obligation..................... 5,692 4,991 ===== ===== Plan Assets at Fair Value............................... 5,956 5,658 Projected Benefit Obligation for Service Rendered to Date 5,692 4,991 ----- ----- Plan Assets Greater (Less) Than Projected Benefit Obligation 264 667 Unrecognized Prior Service Cost......................... 146 (40) Unrecognized Net Loss Due to Past Experience Different from Assumptions Made and Changes in Assumptions 487 169 --- ---- Prepaid Pension Cost.................................... $ 897 $ 796 ==== === The components of net pension expense are as follows: Year Ended June 30, ---------------------------- 1999 1998 1997 ------ ------ ------ (In thousands) Service Cost-benefits Earned during the Year..........$ -- $ 627 $ 327 Interest Cost on Projected Benefit Obligation......... 358 710 627 Net Amortization and Deferral......................... (61) 20 (290) Actual Return on Plan Assets.......................... (398) (710) (482) Curtailment Gain Recognized........................... -- (739) -- Settlement Loss Recognized............................ -- 117 -- Net Pension Expense................................... $(101) $ 25 $ 182 Year Ended June 30, ----------------------------- 1999 1998 1997 ------ ------ ------ Assumptions Used: Weighted Average Discount Rate...................... 7.0% 7.0% 7.0% Rate of Increase in Compensation Levels............. 5.0% 5.0% 5.0% Expected Long-term Rate of Return on Assets......... 8.0% 8.0% 9.0% Based on an evaluation of the pension plan in fiscal 1998, the Bank concluded that future benefit accruals under the plan would cease, or "freeze" on May 31, 1998. In connection with the freezing of the Plan, the Bank recognized a curtailment gain of approximately $739,000 and a settlement loss of approximately $117,000 as of May 31, 1998. In connection with the acquisitions of Bank of Westbury, Sunrise Bancorp, Inc. and Continental Bank, their respective pension plans were terminated and are not included in the above tables. All former employees of Bank of Westbury and Sunrise Bancorp, Inc. remaining in the employment of the Company were eligible to participate in the Company's pension plan effective June 1, 1997. However, as a result of the pension plan's eligibility requirements and the freezing of the pension plan on May 31, 1998, no Continental employees were eligible to participate in the plan. Reliance Federal Savings Bank 401(k) Retirement Plan Effective June 1, 1998, employees of the Bank who are at least 21 years of age and have completed one year of service are eligible to participate in the Reliance Federal Savings Bank 401(k) Retirement Plan (the "401(k) Plan"). Eligible employees may make pre-tax contributions equal to the lesser of ten percent of their annual compensation or the amount permitted by law. As a base amount, the Bank will make contributions (on account for eligible employees) equal to two percent of all eligible employees earnings regardless of whether employees make contributions on their own behalf. Additionally, the Bank will make matching contributions equal to 75% of employee contributions that do not exceed four percent of their annual earnings. Employees are immediately vested in their own contributions and after five years of service they will be vested in the Bank's base and matching contributions. During fiscal 1999 and 1998, the Bank incurred $420,000 and $40,000, respectively, in 401(k) Plan costs. 18. STOCK BENEFIT PLANS The following are the stock based benefit plans maintained by the Company: STOCK OPTION PLAN The Company maintains the Reliance Bancorp, Inc. 1994 Incentive Stock Option Plan and the Reliance Bancorp, Inc. 1996 Incentive Stock Option Plans Amended and Restated as of February 19, 1997 (the "Stock Option Plans"). Under the Stock Option Plans, stock options (which expire ten years from the date of grant) have been granted to the executive officers and officers of the Company and its affiliate, the Bank. Each option entitles the holder to purchase one share of the Company's common stock at an exercise price equal to the fair market value of the stock at the date of grant. Options will be exercisable in whole or in part over the vesting period. However, all options become 100% exercisable in the event that the employee terminates his employment due to death, disability, normal retirement, or in the event of a change in control of the Bank or the Company. Simultaneous with the grant of these options, the Personnel Committee of the Board of Directors granted "Limited Rights" with respect to the shares covered by the options. Limited Rights granted are subject to terms and conditions and can be exercised only in the event of a change in control of the Company. Upon exercise of a limited right, the holder shall receive from the Company a cash payment equal to the difference between the exercise price of the option and the fair market value of the underlying shares of common stock. STOCK OPTION PLAN FOR OUTSIDE DIRECTORS The Company maintains the Amended and Restated Reliance Bancorp, Inc. 1994 and 1996 Stock Option Plans for Outside Directors (the "Directors' Option Plans"). Each member of the Board of Directors who is not an officer or employee of the Company or the Bank is granted non-statutory options to purchase shares of the Company's common stock. Members of the Board of Directors of the Company are granted options to purchase shares of the common stock of the Company at an exercise price equal to the fair market value of the stock at the date of grant. All of the options granted under the Directors' Option Plan become exercisable over the vesting period and expire upon the earlier of 10 years following the date of grant or one year following the date the optionee ceases to be a director.
Number of Shares of -------------------------------------- Non- Non- Weighted Incentive Statutory Qualified Average Stock Stock Options to Exercise Options Options Directors Price --------- ---------- ----------- -------- Balance Outstanding at June 30, 1995......$ 608,505 $ 216,390 $ 196,650 $ 10.00 Granted................................... -- -- 6,727 15.25 Forfeited................................. -- -- -- -- Exercised................................. -- -- -- -- ----------- ---------- ---------- --------- Balance Outstanding at June 30, 1996...... 608,505 216,390 203,377 $ 10.03 Granted................................... 70,398 213,402 40,500 18.22 Forfeited................................. -- -- -- -- Exercised................................. (48,780) (35,000) (6,000) 10.00 --------- ---------- ---------- --------- Balance Outstanding at June 30, 1997...... 630,123 394,792 237,877 $ 11.96 Granted................................... 13,647 3,353 40,500 29.87 Forfeited................................. -- -- -- -- Exercised................................. (131,399) (102,816) (1,500) 11.33 ---------- --------- ---------- -------- Balance Outstanding at June 30, 1998...... 512,371 295,329 276,877 $ 13.17 Granted................................... 631 13,569 60,728 38.00 Forfeited................................. -- -- -- -- -- -- -- -- Exercised................................. (53,959) (7,470) -- 11.79 -------- -------- --------- -------- Balance Outstanding at June 30, 1999...... 459,043 301,428 337,605 $ 14.94 ======= ======= ======== ======== Shares Exercisable at June 30, 1999....... 452,881 299,590 337,605 $ 14.82
Had compensation cost for the Company's three stock-based compensation plans been determined consistent with SFAS No. 123 for awards made after July 1, 1995, the Company's net income per common share would have been reduced to the pro forma amounts indicated below for the years ended June 30: 1999 1998 1997 -------- -------- -------- (Dollars in thousands, except per share data) Net Income As Reported $20,151 $ 18,729 $ 10,936 Pro forma 19,681 18,492 8,672 Net Income per Common Share: Basic As Reported $ 2.38 $ 2.11 $ 1.32 Pro forma $ 2.32 $ 2.08 1.04 Diluted As Reported $ 2.26 $ 1.99 $ 1.25 Pro forma $ 2.21 $ 1.96 0.99 The fair values of the share grants were estimated on the date of grant using the Black-Scholes option - pricing model using the following assumptions in fiscal 1999, 1998 and 1997: dividend yield of 3.00% for all years; expected volatility of 29.14% for fiscal 1999, 22.05% for fiscal 1998 and 16.64% for fiscal 1997; risk-free interest rates of 6.25% for all years; and expected option lives of 6 years for all years. EMPLOYEES STOCK OWNERSHIP PLAN ("ESOP") The Bank has established an ESOP for eligible employees. Full-time employees employed with the Bank as of January 1, 1993, and full-time employees of the Company or the Bank employed after such date who have been credited with at least 1,000 hours during a twelve-month period and who have attained age 21 are eligible to participate. The ESOP borrowed $8.3 million from the Company and used the funds to purchase 828,000 shares of the Company's common stock issued in the Conversion. The loan is repaid principally from the Bank's discretionary contributions to the ESOP over a 10 year period. At June 30, 1999 and 1998, the loan had an outstanding balance of $4.0 million and $4.8 million, respectively, and an interest rate of 7.75% and 8.50%, respectively. Interest expense for the obligation was $348,000, $441,000 and $502,000, respectively, for the year ended June 30, 1999, 1998 and 1997. Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is paid. Contributions to the ESOP and shares released from the loan collateral in an amount proportional to the repayment of the ESOP loan is allocated among participants on the basis of compensation, as described in the plan, in the year of allocation. Benefits generally become 100% vested after five years of credited service. However, in the event of a change in control, as defined in the plan, any unvested portion of benefits shall vest immediately. Forfeitures are reallocated among participating employees, in the same proportion as contributions. Benefits are payable upon death, retirement, disability, or separation from service based on vesting status and share allocations made. As of June 30, 1999, 366,019 shares remaining in the ESOP were allocated to participants and 41,400 shares were committed to be released. As shares are released from collateral, the shares become outstanding for earnings per share computations. As of June 30, 1999 and 1998, the fair market value of the 372,600 and 455,400 unallocated shares, respectively, was $10.3 million and $17.4 million, respectively. RECOGNITION AND RETENTION PLANS AND TRUSTS ("RRPS") The Bank maintains the Reliance Federal Savings Bank Recognition and Retention Plan for Officers and Employees and the Amended and Restated Reliance Federal Savings Bank 1994 Recognition and Retention Plan for Outside Directors (the "RRPs"). The purpose of the RRPs is to provide executive officers, officers, and directors of the Bank with a proprietary interest in the Company in a manner designed to encourage such persons to remain with the Bank. The RRPs acquired an aggregate of 414,000 shares of the Company's common stock in the Conversion of which 412,447 shares have been awarded to Officers and Directors (327,715 at the time of the Conversion and 84,732 thereafter). Such amounts represent deferred compensation and have been accounted for as a reduction of stockholders' equity. Awards vest at a rate of 20% per year for directors and officers, commencing one year from the date of award. Awards become 100% vested upon termination of employment due to death, disability, or following a change in control of the Bank or the Company. The Company recorded compensation expenses for the ESOP and RRP of $3.1 million, $3.7 million and $2.5 million, respectively, for the years ended June 30, 1999, 1998 and 1997. 19. EARNINGS PER SHARE The Company follows SFAS No. 128, "Earnings Per Share", which establishes new standards for computing and presenting earnings per share ("EPS"). All earnings per share amounts have been restated to conform to the new requirements. Basis EPS is computed by dividing net income by the weighted average number of common shares outstanding. The weighted average number of common shares outstanding includes the average number of shares of common stock outstanding adjusted for the weighted average number of unallocated shares held by the ESOP. Diluted EPS is computed by dividing net income by the weighted average number of common shares and common equivalent shares outstanding during the year. For the diluted EPS calculation, the weighted average number of common shares and common equivalent shares outstanding include the average number of shares of common stock outstanding adjusted for the weighted average number of unallocated shares held by the ESOP and the dilutive effect of unexercised stock options using the treasury stock method. When applying the treasury stock method, the Company's average stock price is utilized, and the Company adds to the proceeds the tax benefit that would have been credited to additional paid-in capital assuming exercise of non-qualified stock options. The computation of basis and diluted EPS for the fiscal years ended June 30, 1999, 1998 and 1997 are presented in the following table: Year Ended June 30, ------------------------------------ 1999 1998 1997 -------- -------- -------- (In thousands) Net income.......................... $ 20,151 $ 18,729 $ 10,936 Weighted average common shares...... 8,467 8,890 8,299 --------- -------- -------- Basic earnings per share............ $ 2.38 $ 2.11 $ 1.32 ========= ======== ======== Net income.......................... $ 20,151 $ 18,729 $ 10,936 Weighted average common shares - basic 8,467 8,890 8,299 Effect of dilutive stock options.... 447 535 425 -------- -------- -------- Weighted average common shares and common equivalent shares.......... 8,914 9,425 8,724 -------- --------- -------- Diluted earnings per share.......... $ 2.26 $ 1.99 $ 1.25 ========= ========= ======== 20. REGULATORY MATTERS Federal regulations require institutions to have a minimum regulatory tangible capital equal to 1.5% of total assets, a 3% core capital ratio and an 8% risk-based capital ratio. The OTS prompt corrective action standards effectively establish a minimum 2% tangible capital ratio, a minimum 4% leverage ratio (core) capital ratio and a minimum 4% Tier 1 risked based capital ratio. As of June 30, 1999 and 1998, the Bank was in compliance with the regulatory capital requirements. Additionally, under prompt corrective action regulations, the regulators have adopted rules, which require them to take action against undercapitalized institutions, based upon five categories of capitalization: "well capitalized", "adequately capitalized", "undercapitalized", "significantly undercapitalized", and "critically undercapitalized". The rules adopted generally provide that an insured institution whose risk-based capital ratio is 10% or greater, Tier 1 risk-based capital is 6% or greater, and leverage ratio is 5% or greater is considered a "well capitalized" institution. As of June 30, 1999, 1998 and 1997, the Bank was considered a "well capitalized" institution. Dividend payments to the Company from the Bank are subject to the profitability of the Bank and by applicable laws and regulations. During fiscal 1999 and 1998, the Bank made dividend payments to the Company of $13.0 million and $14.0 million, respectively. During fiscal 1998, the Company invested $18.8 million of the proceeds from the issuance of its Junior Subordinated debt in the Bank which increased the Bank's capital and capital ratios. The following table sets forth the required ratios and amounts and the Bank's actual capital amounts and ratios at June 30, 1999 and 1998:
June 30, 1999 -------------------------------------------------------- Capital Actual Excess Requirement % Capital % Capital % ----------- -- -------- -- -------- - (Dollars in thousands) Tangible.............. $ 36,113 1.5% $ 163,267 6.8% $ 127,154 5.3% Leverage.............. 72,226 3.0 163,267 6.8 91,041 3.8 Risk-based............ 80,415 8.0 172,333 17.1 91,918 9.1 June 30, 1998 -------------------------------------------------------- Capital Actual Excess Requirement % Capital % Capital % ----------- -- -------- -- -------- - (Dollars in thousands) Tangible.............. $ 35,825 1.5% $ 145,337 6.1% $ 109,512 4.6% Leverage.............. 71,650 3.0 145,337 6.1 73,687 3.1 Risk-based............ 80,724 8.0 154,245 15.3 73,521 7.3
21. FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" ("SFAS No. 107"), requires disclosure of estimated fair value information for the Company's financial instruments. Fair values are most commonly derived from quoted market prices available in the formal trading marketplaces. In many cases, the Company's financial instruments are not bought or sold in formal trading marketplaces. Accordingly, in cases where quoted market prices are not available, fair values are derived or estimated based on a variety of valuation techniques. These techniques are sensitive to the various assumptions and estimates used and the resulting fair value estimates may be materially affected by minor variations in those assumption or estimates. In that regard, it is likely that amounts different from the fair value estimates would be realized by the Company in immediate settlement of the financial instruments. SFAS No. 107 excludes certain financial instruments as well as all nonfinancial instruments from fair value disclosure. Accordingly, the fair values presented do not represent the Company's fair value as a going concern. In addition, the differences between the carrying amounts and the fair values presented may not be realized since the Company generally intends to hold these financial instruments to maturity and realize their recorded value. SFAS No. 107 provides minimal guidance and no limitations with regard to assumptions and estimates to be used. Therefore, while disclosure of estimated fair values is required, the fair value amounts presented in the financial statements do not represent the underlying value of the Company, nor do they provide any basis for comparison of the value of this Company with similar companies.
June 30, ------------------------------- 1999 1998 ---------------------------------------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value (In thousands) ON BALANCE SHEET: Financial Assets: Cash and Due from Banks............. $ 33,255 $ 33,255 $ 37,596 $ 37,596 Money Market Investments............ -- -- 9,500 9,500 Debt and Equity Securities Available-for-Sale................ 122,168 122,168 134,907 134,907 Debt and Equity Securities Held-to-Maturity................. 28,835 28,840 40,189 40,509 Mortgage-Backed Securities Available-for-Sale............... 935,038 935,038 940,347 940,347 Mortgage-Backed Securities Held-to-Maturity................ 255,917 252,233 249,259 252,332 Loans Receivable, Net............... 974,073 978,980 969,797 984,224 Mortgage Servicing Rights........... 1,514 1,612 2,317 2,632 Financial Liabilities: Deposits............................ 1,549,419 1,469,360 1,628,298 1,630,087 Borrowed Funds...................... 702,434 693,564 630,206 631,407 OFF BALANCE SHEET: Outstanding Commitments............. $115,324 115,324 116,425 116,425 Letters of Credit................... 1,065 1,065 1,382 1,382 Methods and assumptions used to produce fair value are stated below: CASH AND DUE FROM BANKS The carrying amounts reported in the consolidated statements of condition approximate the assets' fair values. MONEY MARKET INVESTMENTS The carrying amounts of federal funds sold and repurchase agreements approximate their fair values because these investments all mature in three months or less. DEBT, EQUITY AND MORTGAGE-BACKED SECURITIES Fair values for debt, equity and mortgage-backed securities are based on published market or securities dealers' estimated prices. LOANS Fair value estimates are calculated for pools of loans with similar characteristics. The loans are first segregated by type, such as 1-4 family residential, other residential, commercial, construction, and consumer, and then further segregated into fixed and adjustable rate categories. Fair value is estimated by discounting expected future cash flows. Expected future cash flows are based on contractual cash flows, adjusted for prepayments. Prepayment estimates are based on a variety of factors including the Bank's experience with respect to each loan category, the effect of current economic and lending conditions, and regional statistics for each loan category, if available. The discount rates used are based on market rates for new loans of similar type and purpose, adjusted, when necessary, for factors such as servicing cost, credit risk, and term. As mentioned previously, this technique of estimating fair value is extremely sensitive to the assumptions and estimates used. While management has attempted to use assumptions and estimates which are the most reflective of the loan portfolio and the current market, a greater degree of subjectivity is inherent in these values than those determined in formal trading marketplaces. As such, readers are again cautioned in using this information for purposes of evaluating the financial condition and/or value of the Company in and of itself or in comparison with any other company. MORTGAGE SERVICING RIGHTS The fair value is estimated based upon a valuation which stratifies the mortgage servicing portfolio based upon the predominate risk characteristics of the underlying cash flows utilizing current market assumptions regarding discount rates, prepayment speeds, delinquency rates, etc. OTHER RECEIVABLES AND PAYABLES The carrying amounts of short-term receivables and payables, including accrued interest approximate their fair values. DEPOSITS SFAS No. 107 stipulates that the fair values of deposits with no stated maturity, such as demand deposits, savings, NOW accounts and money market accounts, are equal to the amount payable on demand. The relative insensitivity of the majority of these deposits to interest rate changes creates a significant inherent value which is not reflected in the fair value reported. The fair value of certificates of deposit are based on discounted contractual cash flows using rates which approximate the rates offered by the Company for deposits of similar remaining maturities. OTHER BORROWINGS Fair value estimates are based on discounting contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities. OUTSTANDING COMMITMENTS Fair value of commitments outstanding are estimated based on the fees that would be charged for similar agreements, considering the remaining term of the agreement, the rate offered and the creditworthiness of the parties. 22. PARENT-ONLY FINANCIAL INFORMATION The following condensed statements of condition at June 30, 1999 and 1998 and condensed statements of income and cash flows for the years ended June 30, 1999, 1998 and 1997 for Reliance Bancorp, Inc. (parent company only) reflects the Company's investment in its wholly-owned subsidiary, the Bank, using the equity method of accounting. CONDENSED STATEMENTS OF CONDITION June 30, ----------------------- 1999 1998 ----- ------- (In thousands) ASSETS Cash.............................................. $ 1,961 $ 1,294 Money Market Investments.......................... -- 9,500 Debt Securities Available-for-Sale................ 10,076 24,374 ESOP Loan Receivable.............................. 3,979 4,799 Other Assets...................................... 2,046 2,210 Investment in Reliance Federal Savings Bank....... 205,096 205,355 Investment in Reliance Capital Trust I............ 1,547 1,547 --------- -------- Total Assets.............................. $224,705 $ 249,079 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Accrued Expenses.................................. $ 1,491 $ 2,668 Junior Subordinated Debt Issued to Reliance Capital Trust I................................ 51,547 51,547 Stockholders' Equity.............................. 171,667 194,864 ------- ------- Total Liabilities and Stockholders' Equity $ 224,705 $ 249,079 ======== =======
CONDENSED STATEMENTS OF INCOME Year Ended June 30, ---------------------------------- 1999 1998 1997 -------- -------- -------- (In thousands) Interest Income - Securities and Repurchase Agreements $ 1,316 $ 615 $ 230 Interest Income - ESOP Loan Receivable...... 348 441 502 -------- ------- ------ Total Interest Income............... 1,664 1,056 732 Interest Expense............................ (4,086) (724) -- Cash Dividends from the Bank................ 13,000 14,000 6,700 Other Operating Income...................... 45 11 -- Other Operating Expense..................... (630) (418) (521) -------- -------- -------- Income Before Income Taxes and Equity in Undistributed Earnings of the Bank..................... 9,993 13,925 6,911 (Recovery) Provision for Income Taxes....... (1,214) (30) 90 -------- -------- -------- Income before Equity in Undistributed Earnings of the Bank.................... 11,207 13,955 6,821 Equity in Undistributed Earnings of Reliance Federal Savings Bank.................... 8,944 4,774 4,115 -------- -------- -------- Net Income.................. $ 20,151 $ 18,729 $ 10,936 ======== ======== ======== CONDENSED STATEMENTS OF CASH FLOWS Year Ended June 30, --------------------------------------- 1999 1998 1997 -------- -------- -------- > (In thousands) CASH FROM OPERATING ACTIVITIES: Net Income.................................. $ 20,151 $ 18,729 $ 10,936 Equity in Undistributed Earnings of the Bank (8,944) (4,774) (4,115) Accretion of Discounts...................... 44 (47) (70) Net Gain on Sale of Securities.............. (44) (11) -- Decrease (Increase) in Other Assets......... 685 (1,655) 544 (Decrease) Increase in Accrued Expenses..... (1,165) 2,550 122 -------- -------- -------- Net Cash Provided by Operating Activities 10,727 14,792 7,417 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Debt Securities Available-for-Sale (2,000) (24,187) (4,715) Proceeds from Sales of Debt Securities Available-for-Sale 15,229 4,870 -- Principal Payments on ESOP Loan Receivable.. 820 823 850 Payments for Investments in Reliance Capital Trust I -- (1,547) -- Payments for Investments in Bank............ -- (18,750) -- Net Cash Provided by (Used in) Investing Activities 14,049 (38,791) (3,865) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Issuance of Junior Subordinated Debt -- 51,547 -- Purchase of Treasury Stock.................. (27,936) (15,269) (8,113) Net Proceeds from Issuance of Common Stock Upon Exercise of Stock Options........... 725 2,670 898 Dividends Paid.............................. (6,398) (5,725) (4,578) ------- -------- --------- Net Cash (Used in) Provided by Financing Activities (33,609) 33,223 (11,793) Net (Decrease) Increase in Cash and Cash Equivalents (8,833) 9,224 (8,241) Cash and Cash Equivalents at Beginning of Year 10,794 1,570 9,811 Cash and Cash Equivalents at the End of Year $ 1,961 $ 10,794 $ 1,570 ======== ======== ==========
RELIANCE BANCORP, INC. AND SUBSIDIARY SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in thousands, except per share data) Fiscal 1999 Quarter Ended --------------------------------------------------- September 30, December 31, March 31, June 30, ---------- ----------- --------- -------- Interest Income.......................... $ 42,868 $ 42,374 $ 41,439 40,629 Interest Expense......................... 25,665 24,774 23,958 23,609 Net Interest Income...................... 17,203 17,600 17,481 17,020 Provision for Loan Losses................ 150 350 150 -- Net Interest Income after Provision for Loan Losses 17,053 17,250 17,331 17,020 Non-Interest Income...................... 1,871 1,937 2,117 2,475 General and Administrative Expense....... 9,127 8,790 9,192 9,180 Real Estate Operations, net.............. 87 (14) 17 21 Amortization of Excess of Cost Over Fair Value of Net Assets Acquired................. 1,140 1,141 1,141 1,141 ---------- --------- --------- ------- Income Before Provision for Income Taxes. 8,570 9,270 9,098 9,153 Income Tax Expense....................... 3,799 4,051 4,022 4,068 ---------- --------- --------- ------- Net Income............................... $ 4,771 $ 5,219 $ 5,076 $ 5,085 ========== ========= ========= ======= Basic Earnings Per Share................. $ 0.53 $ 0.63 $ 0.61 $ 0.62 ========== ========= ========= ======= Diluted Earnings Per Share .............. $ 0.50 $ 0.60 $ 0.58 $ 0.59 ========== ========= ========= ======= Fiscal 1998 Quarter Ended --------------------------------------------------- September 30, December 31, March 31, June 30, ---------- ----------- --------- -------- Interest Income........................ $ 36,183 $ 39,266 $ 38,446 39,924 Interest Expense....................... 20,169 22,078 21,424 23,157 Net Interest Income.................... 16,014 17,188 17,022 16,767 Provision for Loan Losses.............. 900 300 300 150 Net Interest Income after Provision for Loan Losses 15,114 16,888 16,722 16,617 Non-Interest Income.................... 2,263 1,692 1,922 1,982 General and Administrative Expense..... 8,047 8,816 9,087 9,275 Real Estate Operations, net............ 225 (67) 12 48 Amortization of Excess of Cost Over Fair Value of Net Assets Acquired............... 846 1,090 1,141 1,141 ---------- ----------- --------- -------- Income Before Provision for Income Taxes 8,259 8,741 8,404 8,135 Income Tax Expense..................... 3,518 3,854 3,746 3,692 ---------- ----------- --------- -------- Net Income............................. $ 4,741 $ 4,887 $ 4,658 $ 4,443 ========== =========== ========= ======== Basic Earnings Per Share............... $ 0.58 $ 0.54 $ 0.51 $ 0.48 ========== =========== ========= ======== Diluted Earnings Per Share ............ $ 0.54 $ 0.51 $ 0.48 $ 0.46 ========== =========== ========= ========
EX-99 9 EXHIBIT 99.3 EXHIBIT 99.3 ------------ JSB FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31, ASSETS 1999 1998 - ------ ------------- ------------- Cash and due from banks $ 12,753 $ 13,849 Federal funds sold 32,500 99,000 ------------- ------------- Cash and cash equivalents 45,253 112,849 Securities available-for-sale, at estimated fair value 79,173 83,592 Securities held-to-maturity, net (estimated fair value of $192,781 and $208,906, respectively) 193,540 208,457 Other investments 10,833 8,922 Mortgage loans, net 1,207,177 1,146,915 Other loans, net 19,631 22,744 Premises and equipment, net 18,310 18,340 Interest due and accrued 8,840 8,773 Real estate held for sale and Other real estate ("ORE") 558 785 Other assets 12,455 10,272 ------------- ------------- Total Assets $1,595,770 $1,621,649 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Deposits $1,092,044 $1,124,166 Federal Home Loan Bank of New York ("FHLB-NY") advances 50,000 50,000 Advance payments for real estate taxes and insurance 20,848 13,993 Official bank checks outstanding 17,784 11,604 Deferred tax liability, net 24,715 25,476 Accrued expenses and other liabilities 16,147 13,934 ------------- -------------- Total Liabilities 1,221,538 1,239,173 -------------- -------------- Commitments and Contingencies STOCKHOLDERS' EQUITY - -------------------- Preferred stock ($.01 par value, 15,000,000 shares authorized; none issued) -- -- Common stock ($.01 par value, 65,000,000 shares authorized; 16,000,000 issued; 9,289,793 and 9,505,923 outstanding, respectively) 160 160 Additional paid-in capital 170,219 168,663 Retained income, substantially restricted 345,616 337,474 Common stock held by Benefit Restoration Plan Trust, at cost (196,823 and 193,723 shares, respectively) (4,758) (4,477) Common stock held in treasury, at cost (6,710,207 and 6,494,077 shares, respectively) (175,393) (160,215) Accumulated other comprehensive income: Net unrealized gain on securities available-for-sale, net of tax 38,388 40,871 Total Stockholders' Equity 374,232 382,476 Total Liabilities and Stockholders' Equity $1,595,770 $1,621,649 ============ =============== See accompanying notes to the consolidated financial statements.
JSB FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- --------------------- 1999 1998 1999 1998 ------------- ----------- ---------- --------- Interest Income - --------------- Mortgage loans, net $ 23,091 $ 22,157 $ 68,848 $ 64,518 Debt & equity securities, net ("CMOs") 1,449 2,514 5,244 9,195 Collateralized mortgage obligations and mortgage-backed securities ("MBS"), net 1,704 1,711 4,999 4,956 Other loans, net 328 426 1,048 1,436 Federal funds sold 776 773 2,361 3,151 ---------- ---------- ---------- --------- 27,348 27,581 82,500 83,256 ---------- ---------- ---------- --------- Interest Expense Deposits 8,531 9,714 25,879 29,098 FHLB-NY advances 709 - 2,102 - ---------- ---------- ---------- --------- Total Interest Expense 9,240 9,714 27,981 29,098 ---------- ---------- ---------- --------- Net Interest Income 18,108 17,867 54,519 54,158 Provision for Loan Losses 1 13 13 41 ---------- ---------- ---------- --------- Net Interest Income After Provision for Loan Losses 18,107 17,854 54,506 54,117 ---------- ---------- ---------- --------- Non-Interest Income Real estate operations, net 104 172 1,223 287 Loan fees and service charges 1,309 1,967 3,279 4,559 Recovery of prior period expenses & unaccrued interest on troubled loans - - - 4,346 Miscellaneous (loss)/income (28) 1,359 (41) 1,766 ---------- ---------- ---------- --------- Total Non-Interest Income 1,385 3,498 4,461 10,958 ---------- ---------- ---------- --------- Non-Interest Expense Compensation and benefits 3,894 4,167 11,932 11,941 Occupancy and equipment expenses, net 1,441 1,416 4,155 3,919 Federal deposit insurance premiums 34 36 104 108 Other general and administrative 1,494 1,532 4,984 4,850 ---------- ---------- ---------- --------- Total Non-Interest Expense 6,863 7,151 21,175 20,818 ---------- ---------- ---------- --------- Income Before Provision for Income Taxes 12,629 14,201 37,792 44,257 Provision for Income Taxes 5,427 2,824 16,218 10,030 ---------- ---------- ---------- --------- Net Income 7,202 11,377 21,574 34,227 ========== ========== ========== ========= Earnings and Cash Dividends Per Common Share: Basic earnings per common share $ .78 $ 1.16 $ 2.32 $ 3.47 ========== ========== ========== ========= Diluted earnings per common share $ .76 $ 1.13 $ 2.27 $ 3.37 ========== ========== ========== ========= Basic weighted average common shares 9,284 9,830 9,319 9,864 ========== ========== ========== ========= Diluted weighted average common & dilutive potential shares 9,484 10,093 9,520 10,159 ========== ========== ========== ========= Cash dividends per common share $ .45 $ .40 $ 1.35 $ 1.20 ========== ========== ========== ========= Comprehensive Income: Net Income $ 7,202 $ 11,377 $ 21,574 $ 34,227 Other comprehensive income, net of tax: Net unrealized (depreciation)/appreciation on securities available-for-sale, net of tax (4,229) (2,206) (2,483) 3,237 ---------- ---------- --------- --------- Comprehensive Income $ 2,973 $ 9,171 $ 19,091 $ 37,464 ========== ========== ========== ========= See accompanying notes to the consolidated financial statements.
JSB FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED SEPTEMBER 30, 1999 ---------------------- Common Stock (Par value: $.01) - ------------------------------ Balance at beginning and end of period $ 160 --------- Additional Paid-in Capital - -------------------------- Balance at beginning of period 168,663 Net allocation of common stock for Benefit Restoration Plan 281 Tax benefit for stock plans 1,226 Issuance of common stock for Director's compensation 49 Balance at end of period 170,219 Retained Income, Substantially Restricted - ----------------------------------------- Balance at beginning of period 337,474 Net income 21,574 Loss on reissuance of treasury stock (790) Cash dividends on common stock ($1.35) (12,642) ---------- Balance at end of period 345,616 Common Stock Held by Benefit Restoration Plan Trust, at Cost - ------------------------------------------------------------ Balance at beginning of period (4,477) Common stock acquired (359) Common stock distributed 78 Balance at end of period (4,758) Common Stock Held in Treasury, at Cost - -------------------------------------- Balance at beginning of period (160,215) Common stock reacquired (17,995) Common stock reissued for options exercised 2,775 Common stock reissued for Director's compensation 42 ---------- Balance at end of period (175,393) Accumulated Other Comprehensive Income: - -------------------------------------- Balance at beginning of period 40,871 Net unrealized depreciation in securities available-for-sale, net of tax benefit of $1,935 (2,483) ---------- Balance at end of period 38,388 ---------- Total Stockholders' Equity $ 374,232 ========== See accompanying notes to the consolidated financial statements.
JSB FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------------- 1999 1998 ----------------------------- Cash flows from operating activities - ------------------------------------ Net income $ 21,574 $ 34,227 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 13 41 Decrease in deferred loan fees and discounts, net (468) (576) Accretion of discount less than (in excess of) amortization of premium on MBS and CMOs 109 (47) Accretion of discount in excess of amortization of (4) (90) premium on debt securities Depreciation and amortization on premises and equipment 1,894 1,544 Mortgage loans originated for sale (274) (4,249) Proceeds from sale of mortgage loans originated for sale 370 4,229 Gains on sale of mortgage and other loans (3) (45) Tax benefit for stock plans credited to capital 1,226 2,430 (Increase) decrease in interest due and accrued (67) 223 Increase (decrease) in official bank checks outstanding 6,180 (2,780) Other, net 1,675 3,685 ---------- ----------- Net cash provided by operating activities 32,225 38,592 ---------- ----------- Net cash flow from investing activities - --------------------------------------- Loans originated: Mortgage loans (115,180) (208,769) Other loans (7,497) (12,282) Purchases of CMOs held-to-maturity (50,244) (46,701) Purchases of debt securities held-to-maturity and (305,000) (279,000) securities available-for-sale Principal payments on: Mortgage loans 55,087 68,849 Other loans 10,461 12,469 CMOs 34,282 47,686 MBS 774 1,111 Proceeds from maturities of U.S. Government and 335,000 389,000 federal agency securities Proceeds from sale of other loans 138 5,133 Purchases of FHLB-NY stock (1,911) (1,277) Purchases of premises and equipment, net of disposals (1,864) (2,779) Net decrease in investment in real estate held-for-sale 52 2,128 ---------- ----------- Net cash used by investing activities (45,902) (24,432) ---------- ----------- Net cash flow from financing activities - --------------------------------------- Net decrease in deposits (32,122) (11,590) Increase in advance payments for real estate taxes and insurance 6,855 11,406 Proceeds from common stock option exercises 1,985 1,531 Cash dividend paid to common stockholders (12,642) (11,862) Payments to repurchase common stock (17,995) (16,034) ---------- ----------- Net cash used by financing activities (53,919) (26,549) ---------- ----------- Decrease in cash and cash equivalents (67,596) (12,389) Cash and cash equivalents at beginning of year 112,849 74,924 ---------- ----------- Cash and cash equivalents at end of quarter $ 45,253 $ 62,535 ========== =========== See accompanying notes to the consolidated financial statements.
GE> JSB FINANCIAL, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation --------------------- The financial information for JSB Financial, Inc. (the "Company" or "JSB Financial") as consolidated with its wholly owned subsidiary Jamaica Savings Bank FSB (the "Bank") is prepared in conformity with generally accepted accounting principles for interim financial statements and with instructions to Form 10-Q and Article 10 of Regulation S-X. Such principles are applied on a basis consistent with those reflected in the 1998 Annual Report filed with the Securities and Exchange Commission ("SEC"). The financial information included herein, other than the consolidated statement of financial condition as of December 31, 1998, has been prepared by management without an audit by independent certified public accountants who do not express an opinion thereon. The consolidated statement of financial condition as of December 31, 1998, has been derived from, but does not include all the disclosures contained in, the audited consolidated financial statements for the year ended December 31, 1998. The information furnished includes all adjustments and accruals consisting only of normal recurring accrual adjustments which are in the opinion of management, necessary for a fair presentation of results for the interim periods. The foregoing interim results are not necessarily indicative of the results of operations for the full year ending December 31, 1999. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, included in the Annual Report to Stockholders for JSB Financial, Inc. for the year ended December 31, 1998 and the Form's 10-Q for the periods ended March 31, 1999 and June 30, 1999. 2. Impact of New Accounting Standard Not Yet Adopted ------------------------------------------------- In June of 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement 133"). Statement 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. Statement 133 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. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. If certain conditions are met, a derivative may be specifically designed as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. The issuance of Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133," delayed the effective date of Statement 133 to all fiscal quarters beginning after June 15, 2000. Earlier application of all provisions of Statement 133 is encouraged, but it is permitted only as of the beginning of a fiscal quarter that begins after the issuance of this Statement. Statement 133 should not be applied retroactively to financial statements of prior periods. Upon implementation of Statement 133, hedging relationships must be designated anew and documented pursuant to the provisions of Statement 133. The Company does not expect the adoption of Statement 133 to have a material affect on its financial condition or results of operations. 3. Debt and Equity Securities -------------------------- The following tables set forth information regarding the Company's debt and equity securities as of:
September 30, 1999 December 31, 1998 ---------------------- ------------------------ Amortized Estimated Amortized Estimated Cost Fair Value Cost Fair Value --------- ---------- --------- ---------- Held-to-Maturity (In Thousands) - ---------------- U.S. Government and federal agency securities $ 80,000 $ 79,973 $ 109,996 $ 110,026 CMOs, net 111,641 110,795 95,790 95,997 MBS, net 1,899 2,013 2,671 2,883 --------- ---------- --------- ---------- Total Securities held-to-maturity $193,540 $ 192,781 $ 208,457 $ 208,906 ========= ========== ========= ========== September 30, 1999 December 31, 1998 ---------------------- ------------------------ Amortized Estimated Amortized Estimated Cost Fair Value Cost Fair Value --------- ---------- --------- ---------- Available-for-Sale (In Thousands) - ------------------ Marketable equity securities $ 10,869 $ 79,173 $ 10,869 $ 83,592 ========== ========== ========== ==========
4. Recent Developments ------------------- On August 16, 1999, the Company announced that, on that day, it had entered into an Agreement and Plan of Merger ("Merger Agreement") in which the Company will merge with and into North Fork Bancorporation, Inc. ("North Fork"). Under the terms of the Merger Agreement, stockholders of JSB Financial will receive 3.0 shares of North Fork common stock for each share of the Company's common stock. The transaction, which is subject to regulatory and stockholder approvals, is expected to be accounted for as a pooling-of-interests and is expected to close during the first quarter of 2000. On September 14, 1999, in connection with the pending merger with North Fork, the Company's Board of Directors terminated the Company's eleventh stock repurchase program, which was approved by the Board of Directors on October 13, 1998. Prior to the termination, the Company repurchased 326,600 shares of its common stock during the nine months ended September 30, 1999. Under the eleventh program, 461,700 shares of the 900,000 shares targeted for repurchase had been acquired at an aggregate cost of $25.1 million, or an average price of $54.33 per share through September 14, 1999. 5. Subsequent Events ----------------- On October 12, 1999, the Board of Directors declared a $.45 per share cash dividend on the Company's common stock. The dividend is to be paid on November 17, 1999, to stockholders of record on November 3, 1999, and will total approximately $4.2 million. EX-99 10 EXHIBIT 99.4 EXHIBIT 99.4 ------------ REPORT OF INDEPENDENT AUDITORS KPMG LLP LOGO INDEPENDENT AUDITORS' REPORT To The Stockholders and The Board of Directors of JSB Financial, Inc. We have audited the accompanying consolidated statements of financial condition of JSB Financial, Inc. and subsidiary as of December 31, 1998 and 1997, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the years in the three year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of JSB Financial, Inc. and subsidiary at December 31, 1998 and 1997, and the results of their operations and their 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 Melville, New York January 28, 1999 JSB FINANCIAL, INC. AND SUBSIDIARY Consolidated Statements of Financial Condition December 31, 1998 and 1997 (In Thousands, Except Share and Per Share Amounts) ASSETS 1998 1997 - ------ ------------ ----------- Cash and due from banks $ 13,849 $ 12,924 Federal funds sold 99,000 62,000 ------------ ----------- Cash and cash equivalents 112,849 74,924 Securities available-for-sale, at estimated fair value 83,592 62,243 Securities held-to-maturity, net (estimated fair 208,457 352,967 value of $208,906 and $353,996, respectively) Other investments 8,922 7,645 Mortgage loans, net 1,146,915 970,737 Other loans, net 22,744 29,008 Premises and equipment, net 18,340 17,029 Interest due and accrued 8,773 9,278 Real estate held-for-sale and Other real estate 785 3,450 Other assets 10,272 7,750 ------------ ----------- Total Assets $ 1,621,649 $1,535,031 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $1,124,166 $1,121,203 Federal Home Loan Bank of New York ("FHLB-NY") advances 50,000 - Advance payments for real estate taxes and insurance 13,993 10,322 Official bank checks outstanding 11,604 10,405 Deferred tax liability, net 25,476 15,628 Accrued expenses and other liabilities 13,934 9,959 ------------ ----------- Total Liabilities 1,239,173 1,167,517 ============ =========== Commitments and Contingencies STOCKHOLDERS' EQUITY Preferred stock ($.01 par value, 15,000,000 shares authorized; none issued) - - Common stock ($.01 par value, 65,000,000 shares authorized; 160 160 16,000,000 issued; 9,505,923 and 9,919,927 outstanding, respectively) Additional paid-in capital 168,663 165,112 Retained income, substantially restricted 337,474 311,436 Accumulated other comprehensive income: Net unrealized gain on securities available-for-sale, net of tax 40,871 28,469 Common stock held by Benefit Restoration Plan Trust, (4,477) (4,199) at cost (193,723 and 188,323 shares, respectively) Common stock held in treasury, at cost (6,494,077 and 6,080,073 shares, respectively) (160,215) (133,464) Total Stockholders' Equity 382,476 367,514 ------------ ----------- Total Liabilities and Stockholders' Equity $ 1,621,649 $ 1,535,031 ============ =========== See accompanying Notes to Consolidated Financial Statements. JSB FINANCIAL, INC. AND SUBSIDIARY Consolidated Statements of Operations Years ended December 31, 1998, 1997 and 1996 (In Thousands, Except Per Share Amounts)
1998 1997 1996 ------- -------- ------- Interest Income: Mortgage loans, net $87,149 $ 74,149 $69,113 Debt & equity securities, net 11,179 19,584 21,695 Collateralized mortgage obligations("CMOs"), net 6,218 7,937 10,063 Other loans, net 1,838 2,070 2,138 Mortgage-backed securities("MBS"), net 319 499 739 Federal funds sold 4,057 3,503 3,863 Total Interest Income 110,760 107,742 107,611 ------- -------- ------- Interest Expense: Deposits 38,291 39,874 40,217 FHLB advances 185 - - Total Interest Expense 38,476 39,874 40,217 ------- -------- ------- Net Interest Income 72,284 67,868 67,394 Provision for Possible Loan Losses 51 648 640 Recovery of Provision for Possible Other Credit Losses - - (2,040) Net Interest Income After Provision for Possible Credit Losses 72,233 67,220 68,794 ------- -------- ------- Non-Interest Income: Real estate operations, net 714 10,442 1,767 Loan fees and service charges 5,859 3,969 2,833 Recovery of prior period expenses and unaccrued interest on troubled loans 4,346 - - Gain on sale of investments, net - 6,991 2 Miscellaneous income, net 1,982 527 479 Total Non-Interest Income 12,901 21,929 5,081 ------- -------- ------- Non-Interest Expense: Compensation and benefits 15,843 15,921 16,412 Occupancy and equipment expenses (net of rental income of $1,283, $1,287 and $1,126, respectively) 5,181 5,094 5,599 Federal deposit insurance premiums 142 149 2 Advertising 881 1,005 1,340 Other real estate expense (income), net 33 (59) (772) Other general and administrative 5,378 5,324 5,017 Total Non-Interest Expense 27,458 27,434 27,598 ------- -------- ------- Income Before Provision for Income Taxes 57,676 61,715 46,277 Provision for Income Taxes 13,288 24,625 19,552 ------- -------- ------- Net Income $44,388 $ 37,090 $26,725 ======= ======== ======= Basic earnings per common share $ 4.53 $ 3.76 $ 2.66 Diluted earnings per common share $ 4.41 $ 3.64 $ 2.56 Cash dividends per common share $ 1.60 $ 1.40 $ 1.20 See accompanying Notes to Consolidated Financial Statements.
JSB FINANCIAL, INC. AND SUBSIDIARY Consolidated Statements of Changes in Stockholders' Equity Years ended December 31, 1998, 1997 and 1996 (In Thousands, Except Per Share Amounts)
1998 1997 1996 --------- --------- --------- Common Stock (Par value: $.01) Balance at beginning and end of year $ 160 $ 160 $ 160 --------- --------- --------- Additional Paid-in Capital Balance at beginning of year 165,112 163,500 162,566 Net allocation of common stock for Benefit 278 924 5 Restoration Plan Tax benefit for stock plans 3,222 688 599 Issuance of common stock for Directors' 51 - - compensation Compensation expense for 1996 stock option plan - - 330 Balance at end of year 168,663 165,112 163,500 --------- --------- --------- Retained Income, Substantially Restricted Balance at beginning of year 311,436 289,588 276,317 Net income 44,388 37,090 26,725 Loss on reissuance of treasury stock (2,634) (1,437) (1,364) Cash dividends on common stock ($1.60, $1.40, $1.20, respectively) (15,716) (13,805) (12,090) --------- --------- --------- Balance at end of year 337,474 311,436 289,588 --------- --------- --------- Accumulated Other Comprehensive Income: Net Unrealized Gain on Securities Available-For-Sale, Net of Tax Balance at beginning of year 28,469 21,795 15,750 Net unrealized holding gains on securities arising during period (net of realized gains included in income of $0, $6,991 and $2, respectively, and tax effect of $8,947, $5,371 and $4,863, respectively) 12,402 6,674 6,045 Balance at end of year 40,871 28,469 21,795 --------- --------- --------- Common Stock Held by Benefit Restoration Plan Trust, at Cost Balance at beginning of year (4,199) (3,275) (3,270) Common stock acquired (285) (934) (11) Common stock distributed 7 10 6 Balance at end of year (4,477) (4,199) (3,275) --------- --------- --------- Common Stock Held in Treasury, at Cost Balance at beginning of year (133,464) (136,469) (111,416) Common stock reacquired (31,466) - (27,650) Common stock reissued for options exercised 4,675 3,005 2,597 Common stock reissued for Directors' 40 - - compensation Balance at end of year (160,215) (133,464) (136,469) --------- --------- --------- Total Stockholders' Equity $ 382,476 $ 367,514 $ 335,299 ========= ========= ========= See accompanying Notes to Consolidated Financial Statements.
JSB FINANCIAL, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows Years ended December 31, 1998, 1997 and 1996 (In Thousands)
CASH FLOWS FROM FINANCING ACTIVITIES: 1998 1997 1996 ---- ---- ---- Net income $ 44,388 $ 37,090 $ 26,725 Adjustments to reconcile net income to net cash provided by operating activities: Provision for possible loan losses 51 648 640 (Recovery of) provision for possible other credit losses - - (2,040) Net gain on sale/redemption of equity securities - (6,991) (2) Decrease in deferred loan fees and discounts, net (630) (418) (593) Accretion of discount in excess of amortization of premium on MBS and CMOs (46) (300) (578) Accretion of discount in excess of amortization of premium on debt securities (94) (337) (249) Depreciation and amortization of premises and equipment 2,213 1,891 1,826 Mortgage loans originated for sale (4,839) (1,612) (1,621) Proceeds from sale of mortgage loans originated for sale 4,821 1,636 1,737 Gain on sales of mortgage and other loans, net (47) (35) (53) Tax benefit for stock plans credited to capital 3,222 688 599 Gain on sale of real estate held-for-sale (691) (9,992) (571) Decrease in interest due and accrued 505 32 3,597 Payments received against Nationar claim - - 10,205 Net gain on sale of ORE - (144) (688) Increase (decrease) in official bank checks outstanding 1,199 761 (14,748) Other 2,445 137 1,547 --------- ---------- ---------- Net cash provided by operating activities 52,497 23,054 25,733 --------- ---------- ---------- Cash flows from investing activities: Loans originated: Mortgage loans (261,201) (205,174) (136,218) Other loans (15,143) (21,010) (19,032) Purchases of CMOs held-to-maturity (57,084) (55,035) (124,275) Purchases of debt securities held-to-maturity and securities (379,000) (499,920) (534,569) available-for-sale Principal payments on: Mortgage loans 85,652 60,833 46,506 Other loans 16,278 19,025 19,656 CMOs 65,381 106,545 114,105 MBS 1,353 1,590 2,047 Proceeds from maturities of U.S. Government and federal agency securities 514,000 555,000 675,000 Proceeds from sale of other loans 5,144 681 934 Purchases of FHLB-NY stock (1,277) (786) (557) Proceeds from sale/redemption of equity - 7,813 30 securities Purchases of premises and equipment, net of disposals (3,524) (2,091) (3,498) Proceeds from sales of real estate held-for-sale and ORE, net of change in real estate holdings 3,356 18,375 5,165 --------- ---------- ---------- Net cash (used) provided by investing activities (26,065) (14,154) 45,294 --------- ---------- ----------
JSB FINANCIAL, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows - Continued Years ended December 31, 1998, 1997 and 1996 (In Thousands)
1998 1997 1996 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net increase (decrease) in deposits 2,963 (23,190) (19,053) Increase in advance payments for real estate taxes and insurance 3,671 2,057 34 Proceeds upon exercise of common stock options 2,041 1,568 1,233 Cash dividends paid to common stockholders (15,716) (13,805) (12,090) Payments to repurchase common stock (31,466) - (27,650) FHLB-NY advances 50,000 - - --------- ---------- ---------- Net cash provided (used) by financing activities 11,493 (33,370) (57,526) --------- ---------- ---------- Net increase (decrease) in cash and cash equivalents 37,925 (24,470) 13,501 Cash and cash equivalents at beginning of year 74,924 99,394 85,893 --------- ---------- ---------- Cash and cash equivalents at end of year $112,849 $ 74,924 $ 99,394 ========= ========== ========== Supplemental Disclosures of Cash Flow Information Cash paid for: Interest on deposits $ 38,333 $ 39,881 $ 40,215 ========= ========== ========== Income taxes $ 5,825 $ 32,036 $ 22,370 ========= ========== ========== Supplemental Disclosures of Noncash Investing and Financing Activities Real estate acquired through foreclosure $ - $ 540 $ 8,190 ========= ========== ========== Transfer of real estate held-for-investment to held-for-sale $ - $ 6,145 $ - ========= ========== ========== Mortgage originated upon sale of real estate from the held-for-sale portfolio and other real estate $ - $ 33 $ 6,675 ========= ========== ========== Deferred tax liability on securities available-for-sale $ 31,852 $ 22,905 $ 17,534 ========= ========== ========== See accompanying Notes to Consolidated Financial Statements.
JSB FINANCIAL, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements Note (1) Summary of Significant Accounting Policies and Related Matters JSB Financial, Inc.(the "Company" or the "Parent") is a unitary savings and loan holding company. The Company holds all of the outstanding common stock of its subsidiary, Jamaica Savings Bank FSB (the "Bank" or the "Subsidiary"). The Company is subject to the financial reporting requirements of the Securities Exchange Act of 1934. (1) Basis of Presentation and Accounting Standards Adopted During 1998. The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, the Bank, as consolidated with the Bank's wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Reclassifications have been made to prior year financial statements to conform with the 1998 presentation. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities as of the dates of the consolidated statements of financial condition and revenues and expenses for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowances for credit losses. Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income"("Statement 130"). Comprehensive income represents the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Statement 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. In applying Statement 130, such items are reported in the Consolidated Statements of Changes in Stockholders' Equity. Effective January 1, 1998, the Company addressed SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("Statement 131"). The Company determined that it has no reportable segments pursuant to the criteria presented in Statement 131, however if such reportable segments should exist in the future, the disclosure as required by Statement 131 would be provided. Effective January 1, 1998, the Company adopted SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("Statement 132"). Statement 132 revises employers' disclosures about pension and other postretirement benefit plans, it does not change the accounting for such plans. The adoption of Statement 132 had no impact on the Company's financial condition or results of operations. (See Note 20.) (2) Consolidated Statements of Cash Flows For the purposes of reporting cash flows, the Company considers all short-term investments with a maturity of less than three months from the date of purchase to be cash equivalents. (3) Securities The Company is required to report debt, readily-marketable equity, and mortgage-backed securities in one of the following categories: (i) "held-to-maturity" (when management has a positive intent and ability to hold to maturity) which are reported at amortized cost; (ii) "trading" (when held for current resale) which are to be reported at estimated fair value, with unrealized gains and losses included in earnings; and (iii) "available-for-sale" (all other debt and equity securities not designated as held-to-maturity or trading) which are reported at estimated fair value, with unrealized gains and losses excluded from earnings and reported, net of tax, as other comprehensive income, a separate component of stockholders' equity. The designation of a security as held-to-maturity or available-for-sale is made at the time of acquisition. Discounts on debt securities are accreted to income and premiums are amortized against income over the life of the security using a method which approximates the level yield method. Gains and losses on the sales of securities, if any, are recognized upon realization, using the specific identification method. (4) Mortgage and Other Loans Loans are carried at unpaid principal balances net of any deferred loan fees and unearned discounts. Discounts are accreted to income using a method which approximates the level yield method, over the composite average life of the loans. Loan fees received for commitments to make or purchase loans are deferred and accreted into income over the life of the loan using the level yield method. Interest is accrued monthly on the outstanding balances of loans. Mortgages 90 days in arrears and/or loans where full collection of principal and interest is questionable are placed on non-accrual status, at which time loan interest due and accrued is reversed against interest income of the current period. A non-accrual loan is restored to accrual status when principal and interest payments are current and full payment of principal and interest is expected. Cash receipts on an impaired loan are applied to principal and interest in accordance with the contractual terms of the loan unless full payment of principal is not expected, in which case both principal and interest payments received are netted against the loan balance. The Bank continues to accrue interest income on non-insured other loans up to 120 days delinquent, beyond which time the loan balance is written off. In accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" ("Statement 114"), and the amendment thereof, SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition Disclosures" ("Statement 118"), the Company considers a loan impaired if it is probable that, based upon current information, the Company will be unable to collect all amounts due according to the contractual terms of a loan agreement. Statement 114 does not apply to large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment including the Company's one-to four-family mortgage loans and consumer loans other than those modified in a troubled debt restructure ("TDR"). The Company generally does not consider a loan impaired when the delay in the timing of payments is three months or less or the shortfall in the amount of payments is the lower of $10,000 or 1.0% of the loan amount. Loans individually reviewed for impairment by the Company are limited to loans secured by multi-family, underlying cooperative, commercial and construction properties, loans modified in TDRs and selected large one-to four-family loans. Examples of measurement techniques utilized by the Company include present value of expected future cash flows, the loan's market price (if one exists) and the estimated fair value of the collateral. Reserves are established against impaired loans in amounts equal to the difference between the recorded investment in the asset and either the present value of the cash flows expected to be received, or the fair value of the underlying collateral if foreclosure is deemed probable or if the loan is considered collateral dependent. The Company's impaired loan identification and measurement process is conducted in conjunction with the Company's review of the adequacy of its allowance for loan losses. A loan is deemed a TDR by the Company when concessionary modifications to the original contractual terms are made for economic or legal reasons related to the debtor's financial difficulties. Loans modified in a TDR subsequent to the January 1, 1995 adoption of Statement 114 are considered impaired, unless in periods subsequent to restructuring, the loan is performing in accordance with the new terms of the agreement and such terms reflect those that would be offered by the Bank for a new credit. Valuation allowances associated with such impaired loans are measured in accordance with Statement 114 throughout the loan term. Modifications made to loans in TDRs prior to the adoption of Statement 114 that are not considered impaired based on the terms of the restructuring agreement continue to be accounted for under Statement 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings", and are not included in the Company's impaired loan statistics. Loans originated for sale are carried at the lower of unpaid principal balance, net of any discounts and deferred fees or estimated fair value, in the aggregate. (5) Allowances for Losses Allowances for losses are estimates which are primarily reactive to actual and anticipated changes in the real estate market, the economy in the Bank's market area and debtors' financial condition. In connection with the determination of allowances, management reviews: loan performance; historical trends; appraisals of real estate held-for-sale, ORE and properties securing significant mortgages; investment ratings for debt and equity securities; and capital and liquidity levels for correspondent banks, on an ongoing basis. The allowance for possible loan losses is available for future charge-offs of loans. The allowance is increased by the provision for possible loan losses made and recoveries of loans previously charged off. The allowance is reduced by charge-offs, in whole or in part, of problem loans. The allowance for possible loan losses is based on continuous analysis of the loan portfolio and reflects an amount which, in management's judgment, is adequate to provide for possible loan losses in the existing portfolio. In evaluating the portfolio, management considers numerous factors, such as the Bank's loan growth, prior loss experience, present and potential risks of the loan portfolio and current economic conditions and entails management's review of delinquency reports, loan to value ratios, collateral condition and debt coverage ratios. The ultimate collection of the Bank's loan portfolio is affected by economic conditions in the Bank's market area and changes thereto. The Bank's mortgage loans are secured primarily by properties located in the New York-metropolitan area. Management believes that the allowances for loan losses as presented in these consolidated financial statements are adequate. Future additions to the allowances could be necessary based on changes in debtors' financial condition, economic conditions or if economic conditions differ from management's previous assessments. Various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowances for losses. Such agencies may require the Bank to recognize additions to the allowances based on their judgment using information available to them at the time of their examination. (6) Premises and Equipment Depreciation is computed on the straight-line method over the estimated useful life of the related assets. Estimated lives are 15 to 60 years for buildings and 5 to 8 years for furniture and fixtures. Amortization for leasehold improvements is computed on the straight-line method over the lesser of the term of the lease or the asset's estimated useful life. Premises and equipment are carried at cost, net of accumulated depreciation. (7) Real Estate Held-for-Sale and ORE Real estate held-for-sale is carried at the lower of cost or net fair value. Gains on the sale, if any, are accounted for using the cost recovery method. Revenues and expenses from the operations are reflected, as incurred, in the Company's operating results. Real estate properties acquired through foreclosure, known as ORE, are recorded at the lower of the net unpaid loan balance at the foreclosure date plus related costs, or net fair value. Subsequent valuation adjustments are made if the net fair value decreases below the carrying amount. Gains, if any, on the sale of ORE are accounted for using the cost recovery method. (See Notes 11, 12 and 13.) (8) Income Taxes The Company, the Bank and certain of its subsidiary corporations file consolidated tax returns with the federal, state and local taxing authorities. Other subsidiaries file separate domestic tax returns as required. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases (temporary differences). Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. A valuation allowance is provided for deferred tax assets where realization is not considered "more likely than not". The effect of changes in tax laws or rates on deferred tax assets and liabilities is recognized in the period that includes the enactment date. (See Note 14.) (9) Stock Based Compensation SFAS No. 123 "Accounting for Stock-Based Compensation" ("Statement 123") permits either the recognition of compensation cost for the estimated fair value of employee stock-based compensation arrangements on the date of grant, or the disclosure in the notes to the financial statements of the pro forma effects on net income and earnings per share, determined as if the fair value-based method had been applied in measuring compensation cost. The Company has adopted the disclosure option and continues to apply Accounting Principles Bulletin Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for its plans. Accordingly, no compensation cost has been recognized for the Company's stock option plans. (See Note 22.) (10) Earnings Per Share Basic earnings per share ("EPS") is calculated by dividing net income by the weighted average number of common shares outstanding, with no consideration given to potential outstanding shares. Diluted EPS is calculated using the same method as basic EPS, but reflects the potential dilution that would occur if stock options outstanding were exercised and converted into common stock. Common stock equivalents are computed using the treasury stock method. (See Note 15.) (11) Treasury Stock Repurchases of common stock are accounted for under the cost method, whereby shares repurchased are recorded in a contra-equity account. (See Note 2.) Note (2) Repurchases of Common Stock. For the year ended December 31, 1998 the Company repurchased 620,100 shares of its outstanding common stock at an average price of $50.74. The Company did not repurchase any shares during 1997 and repurchased 845,000 shares during 1996 at an average price of $32.72 per share. The Company issued 204,296, 136,896 and 123,256 shares of treasury stock for options exercised during 1998, 1997 and 1996, respectively. In addition, during 1998, the Company issued 1,800 shares of treasury stock pursuant to the Directors' Stock Program. (See Note 23.) There were 6,494,077 and 6,080,073 shares of common stock in the treasury at December 31, 1998 and 1997, respectively. Note (3) Securities The following tables set forth information regarding the Company's securities portfolios as of December 31:
1998 ---- Estimated Gross Unrealized Cost Fair Value Gains Losses ----------- --------- ---------- ---------- Securities Available-For-Sale: (In Thousands) Marketable equity securities $ 10,869 $ 83,592 $ 72,746 $ 23 =========== ========= ========== ========== Securities Held-to-Maturity: Amortized Estimated Gross Unrealized Cost Fair Value Gains Losses ----------- --------- ---------- ---------- (In Thousands) U.S. Government and federal agency securities $ 109,996 $ 110,026 $ 38 $ 8 CMOs, net 95,790 95,997 310 103 MBS: GNMA* 2,464 2,659 195 - FNMA* 53 57 4 - Freddie Mac* 154 167 13 - ----------- --------- ---------- --------- Total MBS, net $ 2,671 $ 2,883 $ 212 - ----------- --------- ---------- --------- Total $ 208,457 $ 208,906 $ 560 $ 111 =========== ========= ========== ========== 1997 ---- Securities Available-for-Sale: Estimated Fair Gross Unrealized Cost Value Gains Losses ----------- --------- ---------- ---------- (In Thousands) Marketable equity securities $ 10,869 $ 62,243 $ 51,462 $ 88 =========== ========= ========== ========== Securities Held-to-Maturity: Amortized Estimated Gross Unrealized Cost Fair Gains Losses Value ----------- --------- ---------- ---------- (In Thousands) U.S. Government and federal agency securities $ 244,903 $ 245,367 $ 464 $ - CMOs, net 104,040 104,270 295 65 MBS: GNMA 3,640 3,944 304 - FNMA 106 115 9 - Freddie Mac 278 300 22 - ----------- --------- ---------- ---------- Total MBS, net 4,024 4,359 335 - ----------- --------- ---------- ---------- Total $ 352,967 $ 353,996 $ 1,094 $ 65 =========== ========= ========== ==========
*Definitions: GNMA - Government National Mortgage Association; FNMA - Federal National Mortgage Association; Freddie Mac - Federal Home Loan Mortgage Corporation CMOs represent participating interests in pools of long-term first mortgage loans originated and serviced by the issuers of the securities. All of the CMOs held by the Company consist of First Tranche-Planned Amortization Class Bonds collateralized by FNMA, Freddie Mac and GNMA mortgage-backed securities, which in turn are collateralized by whole loans. MBS represent securities issued by governmental mortgage agencies and collateralized by mortgage loans. There were no sales of securities during 1998. During 1997, the Bank sold or redeemed marketable equity securities with a cost of $823,000, realizing gross gains of $6,991,000 and no losses. During 1996, the Bank sold or redeemed marketable equity securities totaling $30,000, realizing gross gains of $4,000 and gross losses of $2,000. Presented in the table below is the contractual maturity distribution for debt securities held-to-maturity at December 31, 1998: Amortized Estimated Cost Fair Value (In Thousands) Within 1 year $110,013 $110,044 After 1 year through 5 years 4,864 4,913 After 5 years through 10 years 81,730 82,046 After 10 years 11,850 11,903 ------ ------ Total $208,457 $208,906 ======== ======== Actual maturities of CMOs and MBS may differ substantially from the presentation, due to prepayment activity. The table reflects the balance of the entire security in the category in which the final contractual payment is due. The Company loans securities to specified brokerage houses. These loaned securities are collateralized at a minimum of 102% of their fair value with government securities and/or cash. To protect the Company's investment, the agreements contain provisions to increase the collateral obtained, should the fair value of the collateral decline or the fair value of the security loaned increase. Upon termination of the agreement, securities loaned are returned to the Company. The following table reflects the carrying value of securities loaned and their estimated fair value and the estimated fair value of the collateral at December 31: 1998 1997 ---- ---- (In Thousands) Amortized cost - Securities loaned $ 9,996 $79,970 = ===== ======= Estimated fair value - Securities loaned $10,034 $80,188 ======= ======= Estimated fair value - Collateral $10,422 $82,069 ======= ======= Note (4) Other Investments Other investments at December 31, 1998 and 1997 were as follows: 1998 1997 ---- ---- Estimated Estimated Carrying Fair Carrying Fair Value Value Value Value (In Thousands) Investment required by law* $8,892 $8,892 $7,615 $7,615 Other stock 30 30 30 30 -- -- -- -- Total other investments $8,922 $8,922 $7,645 $7,645 ====== ====== ====== ====== * The Bank is required to hold shares of the FHLB-NY. Note (5) Loans Loans are summarized as follows: December 31, 1998 1997 ---- ---- (In Thousands) Mortgage loans: Multi-family $ 702,914 $563,205 Underlying cooperative* 302,494 267,942 One-to four-family 75,773 73,757 Commercial 69,001 71,839 Construction 5,176 3,067 ----- ----- Total mortgage loans 1,155,358 979,810 --------- ------- Deferred loan fees and unearned discounts (2,702) (3,332) Allowance for possible loan losses (5,741) (5,741) ------ ------ Total mortgage loans, net $1,146,915 $970,737 ========== ======== Other loans: Property improvement $ 10,652 $10,744 --------- ------- Loans secured by deposit accounts 8,166 8,189 Consumer 3,754 4,775 Overdraft loans 202 227 Student 153 5,213 --------- ----- Total other loans 22,927 29,148 --------- ------ Unearned discounts - (1) Allowance for possible loan losses (183) (139) --------- ------ Total other loans, net $ 22,744 $29,008 ========= ======= * Underlying cooperative loans are first liens on cooperative apartment buildings and are senior to loans on the individual units commonly called cooperative share loans. Note (6) Loan Delinquencies Information regarding loans delinquent 90 days or more at December 31, 1998 and 1997 is summarized as follows:
1998 1997 ---------------------- -------------------- Number Principal Number Principal of balance of balance loans of loans loans of loans -------- --------- ------- -------- (Dollars in Thousands) Delinquent loans: $ $ Guaranteed* 10 233 82 500 Non-guaranteed 5 216 5 12,769 -------- --------- ------- -------- Total delinquencies $ over 90 days 15 449 87 $ 13,269 ======== ========= ======= ======== Ratio of loans 90 days .04% 1.32% or more past due to total gross loans * These loans are guaranteed by the Federal Housing Administration, the Veterans Administration or the New York State Higher Education Services Corporation. Impaired and Non-accrual loans At December 31, 1998, the Bank had one impaired mortgage loan with a $213,000 balance and a $27,000 specific valuation allowance. The Bank had a net investment in this loan of $186,000, which comprised total non-accrual loans at December 31, 1998. At December 31, 1997, the Bank had one impaired mortgage loan, secured by a cooperative apartment building, with a balance of $12,754,000 and no related valuation allowance. This loan comprised the total balance of non-accrual loans at December 31, 1997. If all non-accrual loans had been performing in accordance with their original terms, the Company would have recorded interest income, with respect to such loans, of $509,000, $1,180,000 and $1,180,000 for the years ended December 31, 1998, 1997 and 1996, respectively. This compares to $397,000 of actual payments recorded for 1998, no interest income was recognized with respect to such loans for 1997 and 1996. On May 28, 1998, the $12,754,000 underlying cooperative mortgage loan, discussed above, was satisfied. Upon satisfaction, $4,346,000 of previously unrecorded prior years' interest and legal fees, as well as late charges, were recovered and included in non-interest income. The average balance of impaired loans for calendar 1998, 1997 and 1996 was $5,491,000, $12,754,000 and $12,754,000, respectively. At December 31, 1998 and 1997, loans restructured in a TDR, all of which are performing in accordance with their contractual terms and therefore not considered impaired, were $1,842,000 and $1,840,000, respectively. Interest forfeited attributable to these loans was $73,000, $62,000 and $62,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Note (7) Allowance for Possible Loan Losses Activity in the allowance for possible loan losses for the years ended December 31, 1998, 1997 and 1996 is summarized as follows: Mortgage loans ----------------------------- 1998 1997 1996 -------- ------- -------- (In Thousands) Balance at beginning of period $ 5,741 $ 5,176 $ 4,575 Provision for possible loan losses - 600 600 Loans charged off - (35) - Recoveries of loans previously charged off - - 1 -------- ------- -------- Balance at end of period $ 5,741 $ 5,741 $ 5,176 ======== ======= ======== Other loans ------------------------- 1998 1997 1996 ------- ------- ------- (In Thousands) Balance at beginning of period $ 139 $ 151 $ 122 Provisions for possible loan losses 51 48 40 Loans charged off (25) (72) (33) Recoveries of loans previously charged off 18 12 22 ------- ------- ------- Balance at end of period $ 183 $ 139 $ 151 ======= ======= ======= Note (8) Mortgage Loan Servicing A summary of principal balances, servicing income and the number of loans serviced for others by the Bank at and for the years ended December 31, 1998, 1997 and 1996 were as follows: 1998 1997 1996 ------- ------- ------- (Dollars in Thousands) Principal balance $16,509 $14,467 $16,016 ======= ======= ======= Servicing income $ 40 $ 46 $ 59 ======= ======= ======= Number of loans 534 906 1,494 ======= ======= ======= The balance of loans sold with full recourse was $4,414,000 and $5,441,000 at December 31, 1998 and 1997, respectively. The Bank has not sold any loans with recourse since 1985. The Bank sold mortgage loans without recourse during 1998 and 1997, receiving proceeds of $4,821,000 and $1,636,000, respectively. The Bank retained servicing for these loans, which did not result in the recording of any servicing assets. Note (9) Premises and Equipment Premises and equipment at December 31, 1998 and 1997 consisted of the following: 1998 1997 ---------- ---------- (In Thousands) Banking houses and land $ 22,253 $ 21,709 Furniture, fixtures and equipment 19,813 16,911 Safe deposit vaults 1,016 1,016 ---------- ---------- 43,082 39,636 Less accumulated depreciation and amortization 24,742 22,607 ---------- ---------- Premises and equipment, net $ 18,340 $ 17,029 ========== ========== Depreciation and amortization expense for the years ended December 31, 1998, 1997 and 1996 was $2,213,000, $1,891,000 and $1,826,000, respectively. Note (10) Interest Due and Accrued Interest due and accrued at December 31, 1998 and 1997 consisted of the following: 1998 1997 ---------- ---------- (In Thousands) U.S. Government and federal agencies $ 1,042 $ 2,354 CMOs 489 540 MBS 23 36 Mortgage and other loans 7,219 6,348 ---------- ---------- Total interest due and accrued $ 8,773 $ 9,278 ========== ========== Note (11) Real Estate Held-for-Investment On June 30, 1997, management reclassified all real estate held-for-investment to held-for-sale. There has been no real estate held-for-investment subsequent to this reclassification and accordingly, no results of operations for 1998 are presented. A commercial office tower located at 1995 Broadway, New York, was sold in October 1997, subsequent to its reclassification to held-for-sale, resulting in a pre-tax gain of $9,163,000. (See Note 12.) The summarized statements of operations for the Bank's wholly-owned subsidiaries that comprised real estate held-for-investment, for the years ended December 31, 1997 and 1996 were as follows: 1997 1996 ---------- ---------- (In Thousands) Rental income $ 1,478 $ 4,020 Net interest income 2 4 Other income 17 652 ---------- ---------- Total income 1,497 4,676 ---------- ---------- Real estate taxes 246 566 Operating and other expenses 647 3,087 ---------- ---------- Total expenses 893 3,653 ---------- ---------- Income from real estate $ 604 $ 1,023 held-for-investment ========== ========== Note (12) Real Estate Held-for-Sale and ORE The following summarizes real estate properties owned by the Bank through its real estate subsidiaries at December 31: 1998 1997 ---------- ---------- (In Thousands) Real Estate Held-for-Sale:1 - 2,752 Condominium property 2 $ $ Land 130 130 Buildings 50 140 Accrued interest and other assets 641 372 Liabilities (313) (417) ---------- ---------- Net Assets 508 2,977 ---------- ---------- ORE: Cooperative apartments 277 473 ---------- ---------- Total Real Estate Held-for-Sale and ORE $ 785 $ 3,450 ========== ========== 1 On June 30, 1997, all real estate held-for-investment was reclassified to held-for-sale. (See Note 11.) In addition to the cooperative apartments that comprised ORE, several of the Bank's wholly-owned subsidiaries own cooperative apartments in various buildings, which are carried at zero cost and are included in Real Estate Held-for-Sale. At December 31, 1998 and 1997, 126 and 138 such cooperative apartments remained held-for-sale, respectively. 2 The condominium property resulted from a joint venture formed in the 1980's to construct and subsequently sell an 84 unit condominium complex. The property became troubled and the Bank ultimately attained 100% ownership of the unsold units. Sales of the units were accounted for under the full cost recovery method. During 1998, 28 units were sold, which resulted in the full recovery of amounts invested and $299,000 of realized gains. At December 31, 1998, the 6 units held-for-sale were carried at zero cost, compared to 34 units at December 31, 1997. NOTE (13) Real Estate Operations, Net Results of real estate operations for the years ended December 31, 1998, 1997 and 1996 were as follows: 1998 1997 1996 -------- ------- -------- (In Thousands) Income from real estate held-for-investment, net (See Note 11.) $ - $ 604 $ 1,023 -------- ------- -------- Real estate held-for-sale: Rental income, net of expenses 23 (154) 173 Gain on sale1 691 9,992 571 -------- ------- -------- 714 9,838 744 -------- ------- -------- Real estate operations, net $ 714 $ 10,442 $ 1,767 ======== ======= ======== 1 Includes gains on the sale of cooperative apartments, owned by various of the Bank's wholly-owned subsidiaries, which are carried at zero cost. The 1997 gains include a $9,163,000 pre-tax gain on the sale of an office tower. (See Note 11.) NOTE (14) Income Taxes The 1998, 1997 and 1996 provisions for income tax were comprised of the following amounts: 1998 1997 1996 ------- ------- ------- (In Thousands) Current: Federal $ 8,791 $18,877 $12,870 State and local 3,597 5,652 5,630 ------- ------- ------- 12,388 24,529 18,500 ------- ------- ------- Deferred: Federal 465 66 703 State and local 435 30 349 ------- ------- ------- 900 96 1,052 ------- ------- ------- Provision for income taxes $13,288 $24,625 $19,552 ======= ======= ======= For the years ended December 31, 1998, 1997 and 1996, the Company recognized tax benefits relating to its stock option and other stock benefit plans of $3,222,000, $688,000 and $599,000, respectively, which were credited directly to stockholders' equity. A reconciliation of the statutory U.S. federal income tax provision and rate, to the actual tax provision and effective rate for the years ended December 31, 1998, 1997 and 1996 were as follows:
1998 1997 1996 ----------------- ------------------ ----------------- % of % of % of Pre Tax Pre Tax Pre Tax Amount Earnings Amount Earnings Amount Earnings ----------------- -------- -------- -------- -------- (Dollars in Thousands) Statutory Federal rate $20,187 35.00% $ 21,600 35.00% $ 16,197 35.00% Dividends received exclusion (247) (.43) (246) (.40) (235) (.51) State and local income taxes, net of Federal income tax benefit 2,621 4.54 3,693 5.98 3,886 8.40 Benefits realized from realignment of operating subsidiary (10,667) .49) - - - - Other, net 1,394 2.42 (422) (.68) (296) (.64) ------------------- -------- -------- -------- -------- Provision for income taxes $ 13,288 23.04 $24,625 39.90% $ 19,552 42.25% =================== ======== ======== ======== ========
At December 31, 1998 and 1997, deferred tax assets and liabilities were comprised of the following: 1998 1997 ---------- ---------- (In Thousands) Deferred Tax Assets: Deferred profits on unsold cooperative shares $ 1,582 $ 1,955 Allowance for possible loan losses 2,594 2,621 Benefit plan costs 4,684 4,400 Loan fees and mortgage discounts 294 415 Other 657 561 ---------- --------- Deferred tax assets 9,811 9,952 ---------- --------- Deferred Tax Liabilities: Securities available-for-sale (31,852) (22,905) Benefit plan costs (3,435) (2,570) Other - (105) ---------- ---------- Deferred tax liabilities (35,287) (25,580) ---------- ---------- Deferred tax liability, net $ (25,476) $ (15,628) ========== ========== Pursuant to SFAS No. 109 "Accounting for Income Taxes", the Bank is generally not required to provide deferred taxes for the difference between book and tax bad debt expense taken in years prior to, or ending at December 31, 1987, referred to as base year reserves. The Bank did not have any post 1987 tax reserves. The base year reserves of $85,107,000 and supplemental reserve are frozen, not forgiven. These reserves continue to be segregated as they are subject to recapture penalty if one of the following occurs: (a) the Bank's retained earnings represented by this reserve are used for purposes other than to absorb losses on loans, including excess dividends or distributions in liquidation; (b) the Bank redeems its stock; (c) the Bank fails to meet the definition provided by the Code for a Bank. Future changes in the Federal tax law, could of course further affect the status of the base year reserve. (See Note 18.) New York State and the City of New York adopted legislation to reform the franchise taxation of thrift reserves for loan losses. The legislation applies to taxable years beginning after December 31, 1995. The legislation, among other things, retained the reserve method for bad debt deductions. The New York State and the City of New York bad debt deduction is no longer predicated on the Federal deduction which is now computed on the direct charge-off method. NOTE (15) Earnings Per Share The following is a reconciliation of the denominators of basic and diluted EPS computations for net income. The numerator for calculating both basic and diluted earnings per share for the Company is net income. For the Year Ended December 31, --------------------------------- 1998 1997 1996 ---------- -------- -------- (In Thousands, Except EPS Amounts) Net Income - (Numerator) $ 44,388 $ 37,090 $ 26,725 Basic EPS: (Denominator) Weighted Average Shares 9,793 9,858 10,062 Basic EPS $ 4.53 $ 3.76 $ 2.66 ========== ======== ======== Diluted EPS: (Denominator) Weighted Average Shares 9,793 9,858 10,062 Incremental shares-options 281 332 374 ---------- -------- -------- Weighted Average and Incremental 10,074 10,190 10,436 Shares Diluted EPS $ 4.41 $ 3.64 $ 2.56 ========== ======== ======== NOTE (16) Deposits Deposits at December 31, 1998 and 1997 are summarized as follows: 1998 1997 --------------------------- -------------------------- Stated Stated rate Amount Percent rate Amount Percent --------------------------- -------- -------- ------- (Dollars in Thousands) Balance by interest rate: Demand - % $ 47,152 4.20% - % $ 33,662 3.00% Negotiable order of withdrawal ("NOW") 1.24 37,005 3.29 2.47 35,401 3.16 Money market 2.32 62,747 5.58 2.96 77,477 6.92 Passbook 2.22 522,671 46.49 2.71 546,447 48.74 Lease security 2.22 21,031 1.87 2.71 18,683 1.66 Certificates: 4.07 - 5.00 200,635 17.85 4.67 - 5.00 44,646 3.98 5.01 - 6.00 213,121 18.96 5.01 - 6.00 343,864 30.67 6.01 - 6.82 19,804 1.76 6.01 - 6.82 21,023 1.87 --------------- -------- ------ 433,560 38.57 409,533 36.52 ----------------- -------- ------ Total deposits 1,124,166 100.00% $1,121,203 100.00% ================= ================== At December 31, 1998 and 1997, the scheduled maturities of certificate accounts were as follows: 1998 1997 ----------------------- --------------------- Amount Percent Amount Percent ----------- ----------- ---------- --------- (Dollars in Thousands) 12 months or less $ 367,226 84.70% $ 344,893 84.22% 13 to 24 months 37,388 8.62 35,437 8.65 25 to 36 months 10,832 2.50 14,573 3.56 37 to 48 months 9,134 2.11 14,630 3.57 49 to 60 months 8,980 2.07 -- -- ----------- ----------- ---------- --------- $ 433,560 100.00% $ 409,533 100.00% =========== =========== ========== ========= At December 31, 1998 and 1997, certificate accounts in excess of $100,000, were $48,517,000 and $41,551,000, respectively. The Federal Deposit Insurance Corporation, an agency of the U.S. Government, generally insures each depositor's savings up to $100,000 through the Bank Insurance Fund. Interest expense on deposit balances is summarized as follows for the years ended December 31, 1998, 1997 and 1996: 1998 1997 1996 ---------- -------- -------- (In Thousands) NOW $ 733 $ 880 $ 899 Money market 2,092 2,549 2,819 Passbook 13,011 15,186 16,267 Lease security 482 491 455 Certificates 21,973 20,768 19,777 ---------- -------- -------- Total interest expense $ 38,291 $ 39,874 $ 40,217 ========== ======== ======== NOTE (17) FHLB-NY Advances On December 8, 1998, the Bank borrowed $50.0 million from the FHLB-NY at a fixed rate of 5.62% for ten years. Interest expense on FHLB-NY advances for the year ended December 31, 1998 was $185,000. Prior to 1998, the Bank had not borrowed funds for its direct activities since 1984. Pursuant to a blanket collateral agreement with the FHLB-NY, advances are secured by qualifying mortgage loans owned by the Bank in an amount at least equal to 110% of the advances outstanding. NOTE (18) Retained Income, Substantially Restricted In the unlikely event of a complete liquidation of the Bank (and only in such an event) eligible depositors who continue to maintain accounts shall be entitled to receive a distribution from the liquidation account, which was established in connection with the Company's initial public stock offering. The total amount of the liquidation account is decreased if the balances of eligible deposits decrease on the annual determination dates. The balance of the liquidation account was $57,358,000 at December 31, 1998 and $63,709,000 at December 31, 1997. The Bank is not permitted to declare or pay a cash dividend on, or repurchase any of its stock if the effect thereof would cause its net worth to be reduced below either (i) the amount required for the liquidation account or (ii) the amount of applicable regulatory capital requirements. Retained income at December 31, 1998 and 1997 includes $85,107,000, which has been segregated for federal income tax purposes as a bad debt reserve. Any use of this amount for purposes other than to absorb losses on loans may result in taxable income, under federal regulations, at current rates. The Bank did not recognize any tax bad debt deductions during the years ended December 31, 1998 or 1997, and recognized $661,000 for the year ended December 31, 1996. (See Note 14.) Note (19) Commitments and Contingencies Lease Commitments The Bank occupies premises covered by noncancellable leases with expiration dates through October 31, 2002 (exclusive of renewal options). Rental expense under these leases for the years ended December 31, 1998, 1997 and 1996 was $270,000, $272,000 and $267,000, respectively. At December 31, 1998 the projected minimum rental payments (exclusive of possible rent escalation charges and normal recurring charges for maintenance, insurance and taxes) were as follows for the years ended December 31: Amount (In Thousands) 1999 $ 191 2000 166 2001 100 2002 50 Thereafter - Total $ 507 Loan Commitments At December 31, 1998, commitments to originate mortgage loans, all of which were at fixed rates, were $40,915,000 with stated rates ranging from 6.125% to 7.25%. At December 31, 1998, deposit account overdraft lines available were $832,000, with stated rates ranging from 10.00% to 12.00% and unused business lines of credit were $16,000, with a stated rate of 15.00%. At December 31, 1998, there were $175,000 of mortgage loans held-for-sale. Security Purchase Commitments At December 31, 1998, there were commitments to purchase $40,000,000 of federal agency securities at par with a three month term to maturity and a stated yield of 4.87%. There was a commitment to purchase $10,000,000 of CMOs at 101.07 of par. This security had a stated rate of 6.00% and a contractual maturity of approximately eight years. The anticipated maturity of this CMO is approximately forty-eight months and the anticipated yield is approximately 5.50%. Litigation The Bank is a defendant in several lawsuits arising out of the normal conduct of business. In the opinion of management and after consultation with legal counsel, the ultimate outcome of these matters is not expected to have a material adverse effect on the Company's results of operations, business operations or the consolidated financial condition of the Company. NOTE (20) Pension Plans and Other Postretirement Benefit Plans The Bank sponsors a trusteed non-contributory defined benefit pension plan (the "Pension Plan") covering substantially all of its full-time employees. It is the policy of the Bank to fund current and past service pension costs accrued. In addition, the Bank sponsors a pension benefit restoration plan ("Pension Restore Plan") to provide retirement benefits which would have been provided under the Pension Plan except for limitations imposed by Section 415 and 401(a)(17) of the Internal Revenue Code. Payments under the Pension Restore Plan will be paid out of the general assets of the Bank. The Bank's life insurance benefit plan provides for continued coverage for retirees with fifteen years of credited service. The coverage at the time of retirement, or age 65, whichever comes first, is reduced by 20% per year over a five year period to a minimum coverage of $5,000, which remains in force until death. The retiree has the option each time the coverage is reduced to convert all or part of the reduction to whole-life coverage at the retiree's cost. In accordance with SFAS No. 106, costs of postretirement benefits are accrued during an employee's active working career. In accordance with Statement 132, the following tables set forth the Bank's benefit obligations, fair values of plan assets and funded status recognized in the Company's consolidated financial statements for the Pension Plan and Pension Restore Plan, as combined, and other postretirement benefit plans at December 31: Pension Benefits Other Benefits ------------------ ------------------ 1998 1997 1998 1997 -------- -------- --------- -------- (In Thousands) Change in benefit obligation Balance at beginning of year $ 47,133 $ 41,308 $ 1,596 $ 1,527 Service cost 1,239 998 24 24 Interest cost 2,624 2,568 96 96 Actuarial (gain)/loss (1,150) 3,930 - - Benefits paid (1,745) (1,671) (53) (51) -------- -------- --------- -------- Balance at the end of year $ 48,101 $ 47,133 $ 1,663 $ 1,596 ======== ======== ========= ======== Change in plan assets Balance at beginning of year $ 63,711 $ 52,873 $ - $ - Actual return on plan assets, net of expenses 9,020 12,475 - - Employer contribution 34 34 53 51 Benefits paid (1,745) (1,671) (53) (51) -------- -------- --------- -------- Balance at end of year $ 71,020 $ 63,711 $ - $ - ======== ======== ========= ======== Funded status 22,919 16,578 (1,663) (1,596) Unrecognized net asset (2,885) (3,340) - - Unrecognized prior service cost 1,428 1,572 - - Unrecognized actuarial (gain)/loss) (17,658) (12,948) - - -------- -------- --------- -------- Net amount recognized $ 3,804 $ 1,862 $ (1,663)$ (1,596) Amounts recognized in the statement of Financial position consist of: Prepaid benefit cost $ 7,917 $ 5,763 - - Accrued benefit liability (4,113) (4,036) (1,663) (1,596) Accumulated other comprehensive income - 135 - - -------- -------- --------- -------- Net amount recognized $ 3,804 $ 1,862 (1,663) (1,596) ======== ======== ========= ======== Weighted-average assumptions were as follows as of December 31: Pension Benefits Other Benefits ---------------------------- ------------------------- 1998 1997 1996 1998 1997 1996 -------- ------- ------ ------- ------- ------ Discount rate 5.75% 5.75% 6.50% 8.00% 8.00% 8.00% Expected return on 8.00% 8.00% 8.00% N/A N/A N/A plan assets Rate of compensation 6.50% 6.50% 6.50% 6.50% 6.50% 6.50% increase The components of net periodic benefit cost were as follows for the years ended December 31: Pension Benefits Other Benefits ------------------------ ----------------------- 1998 1997 1996 1998 1997 1996 ------- ------ ------- ------- ------- ------ (In Thousands) Service cost $ 1,239 $ 998 $ 1,078 $ 24 $ 24 $24 Interest cost 2,624 2,568 2,513 96 96 97 Expected return on plan assets (5,032) (4,167) (3,719) - - - Amortization of unrecognized net asset (454) (454) (454) - - - Amortization of prior service cost 145 145 145 - - - Recognized actuarial (gain)/loss (429) (228) 253 - - - ------- ------ ------- ------- ------- ------ Net periodic benefit cost $(1,907) $(1,138)$ (184) $ 120 $ 120 $ 121 ======= ====== ======= ======= ======= ====== The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plan with accumulated benefit obligations (i.e. the Pension Restore Plan) in excess of plan assets were $4,043,000, $3,544,000 and $0, respectively, as of December 31, 1998, and $4,728,000, $4,036,000 and $0, respectively, as of December 31, 1997. Note (21) Incentive Savings Plan The Incentive Savings Plan (the "Savings Plan") is a defined contribution and thrift savings plan subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended. Prior to the suspension of the Savings Plan during 1990, all full-time employees were eligible for voluntary participation after one year of continuous service. The Savings Plan continues to earn income on the Savings Plan's investments. The Bank bears the costs of administering the Savings Plan. In connection with the Bank's adoption of an Employee Stock Ownership Plan ("ESOP") during 1990, in order to comply with the limitations set forth by the Internal Revenue Code regarding qualified plans, no further contributions have been made to the Savings Plan. Management has determined to continue the ESOP and that contributions to the Savings Plan will remain suspended indefinitely. Note (22) Stock Option Plans Effective upon the conversion of the Bank, in 1990, from mutual to stock form of ownership, the Company adopted the Incentive Stock Option Plan (the "Stock Option Plan") and the Option Plan for Outside Directors (the "Directors' Option Plan"). Stock Option Plan. Pursuant to the Stock Option Plan, 1,430,000 common stock options (which expire ten years from the date of grant, June 27, 1990) were granted to the executive officers and employees of the Company and its subsidiary, the Bank. Each option entitles the holder to purchase one share of the Company's common stock at an exercise price equal to $10.00 per share (the initial public offering price). Options became exercisable on a cumulative basis in equal installments at a rate of 20% per year commencing one year from the date of grant. Simultaneously with the grant of these options, "limited rights" with respect to the shares covered by the options were granted. Limited rights granted are subject to terms and conditions and can be exercised only in the event of a change in control of the Company. Upon exercise of a limited right, the holder shall receive from the Company a cash payment equal to the difference between the exercise price of the option ($10.00) and the fair market value of the underlying shares of common stock. During the years ended December 31, 1998, 1997 and 1996, 98,046, 122,646 and 121,256 options granted under the Stock Option Plan were exercised, respectively. At December 31, 1998, the remaining 226,094 options granted under the Stock Option Plan were exercisable. Directors' Option Plan. Each member of the Board of Directors, who is neither an officer nor an employee of the Company or the Bank, was granted nonstatutory common stock options to purchase 25,000 shares of the common stock. In addition, active Directors Emeritus were each granted nonstatutory common stock options to purchase 10,000 shares of the common stock. In the aggregate, members of the Board of Directors and active Directors Emeritus of the Company were granted options, with limited rights, to purchase 170,000 shares of the common stock of the Company at an exercise price equal to $10.00 per share, the initial public offering price. All options granted, including limited rights attached thereto, under the Directors' Option Plan expire upon the earlier of 10 years following the date of grant or one year following the date the optionee ceases to be a Director. During the years ended December 31, 1998, 1997 and 1996, 106,250, 6,250, and 2,000 options granted under the Directors' Option Plan were exercised. At December 31, 1998, 40,500 options granted under the Directors' Option Plan were exercisable. The 1996 Stock Option Plan. The JSB Financial, Inc. 1996 Stock Option Plan (the "1996 Option Plan"), became effective January 1, 1996, subject to stockholder approval, which was obtained on May 14, 1996. The Company reserved 800,000 shares of common stock of the Company for issuance upon the exercise of options. The 1996 Option Plan provides for: (1) the grant of stock options to directors on an annual basis pursuant to a specified formula; (2) the grant of stock options to officers at the discretion of the Employee Benefits Committee of the Bank; (3) if certain events, which are likely to lead to a change in control of the Company or the Bank, should occur, stock options relating to any shares of the Company reserved for issuance that were not previously made subject to options, will be granted to all current directors and officers who were previously granted stock options under the 1996 Option Plan; (4) the grant of limited rights relating to all of the foregoing options, which shall be exercisable only upon a change of control; and (5) the grant of dividend equivalent rights ("DER") relating to all of the foregoing options, which may provide for a cash payment to the optionee upon exercise of the option, based on the difference between the percentage of earnings per share paid by the Company as cash dividends compared to the percentage of earnings per share paid as cash dividends by the twenty-five largest stock owned thrift institutions in the United States, calculated on an annual basis. Pursuant to the 1996 Option Plan, each of the Company's Directors, who is neither an officer nor an employee of the Company or the Bank, is granted annually, nonstatutory common stock options to purchase 4,000 shares of the common stock, each active Director Emeritus is granted 2,000 options and individuals who become directors are granted 5,000 options. Options granted under the 1996 Option Plan are granted at an exercise price equal to the market closing price of the Company's common stock on the business day prior to grant. The option period during which an individual granted options may exercise such option will commence six months after the date of grant and will expire no later than ten years from the date of the grant. There were no options exercised from the 1996 Option Plan during 1998. During 1997, 8,000 options granted from the 1996 Option Plan were exercised. At December 31, 1998, all of the 496,000 options outstanding under the 1996 Option Plan were exercisable. Effective January 1, 1999, an additional 154,000 options were granted at an exercise of $54.375 per share. The following table presents option transactions summarized for all of the Company's stock option plans for the years ended December 31, 1996, 1997 and 1998. Weighted Number Average of Exercise Shares Price --------- ---------- Options outstanding at December 31, 1995 727,971 $10.00 1996 Grants 165,000 31.63 1996 Forfeitures (4,929) 10.00 1996 Exercises (123,256) 10.00 --------- Options outstanding at December 31, 1996 764,786 14.67 1997 Grants 175,000 38.48 1997 Forfeitures -- -- 1997 Exercises (136,896) 11.45 Options outstanding at December 31, 1997 802,890 20.40 1998 Grants 164,000 50.06 1998 Forfeitures -- -- 1998 Exercises (204,296) 10.00 --------- -------- Options outstanding at December 31, 1998 762,594 $29.57 ========= ======= Options exercisable at December 31, 1998 762,594 $29.57 ========= ======= The range of exercise prices on options outstanding were $10.00 to $50.06, $10.00 to $47.88, and $10.00 to $31.63, for the years ended December 31, 1998, 1997 and 1996, respectively. The weighted average remaining contractual life for all stock options outstanding at December 31, 1998 was 5.4 years. In accordance with Statement 123, the Company used the Black-Scholes option-pricing model to determine the fair value of the 1998, 1997 and 1996 option grants, using the following weighted average assumptions: 1998 1997 1996 ----------- ------------ ----------- Dividend yield 3.07% 3.63% 3.63% Expected volatility 20.75 20.93 21.92 Risk-free interest rate 5.74 6.28 5.44 Expected option lives 5.7 Years 6 Years 6 Years On a pro forma basis, had compensation expense for the Company's 1996 Stock Option Plan been determined based on the fair value at the grant dates for awards made under that plan, in accordance with the expense method of Statement 123, the Company's net income and earnings per share would have been reduced as follows for the years ended December 31: 1998 1997 1996 ----------- ------------ ----------- Net income (as reported) $44,388 $37,090 $26,725 Pro forma net income $43,378 $36,288 26,188 Basic EPS (as reported) $4.53 $3.76 $2.66 Pro forma Basic EPS $4.43 $3.68 $2.60 Diluted EPS (as reported) $4.41 $3.64 $2.56 Pro forma Diluted EPS $4.31 $3.56 $2.51 The pro forma results presented above may not be representative of the effects reported in pro forma net income for future years, because Statement 123 was not applied to all outstanding, non-vested awards, as Statement 123 does not apply to awards prior to January 1, 1996. The Company modified the 1996 Stock Option Plan, as originally adopted, to allow for the cash payment for the DER to option holders; rather than have the DER reduce the exercise price of the option. This change separated the cost of the DER from the cost of the option, and is expected to result in less expense volatility. The Company recognized $270,000, $73,000 and $99,000 of expense related to the DER for the years ended December 31, 1998, 1997 and 1996, respectively. For 1996 the Company recognized $330,000 in expense for the difference in market closing price between the option grant date and date of stockholder approval. Note (23) Stock Plans Employee Stock Ownership Plan. Since 1990 the Bank has maintained an ESOP. For 1996, 1997 and 1998, the Board of Directors authorized contributions to the ESOP, to purchase shares, based on approximately 6.0% of employees' base salary. ESOP benefits generally become 20% vested after each year of credited service, becoming 100% vested after five years of service with the Bank. Forfeited shares are reallocated among participating employees in the same proportion as contributions. Benefits are payable upon death, retirement, early retirement, disability or separation from service and may be payable in cash or stock. The Bank recorded a net expense of $574,000, $566,000 and $550,000 related to the ESOP for the years ended December 31, 1998, 1997 and 1996, respectively. There were eight and three unallocated shares in the ESOP Plan at December 31, 1998 and 1997, respectively, and none at December 31, 1996. The trustee for the ESOP must vote all allocated stock held in the ESOP trust in accordance with the instructions of the participants. Common stock allocated to participants was 12,451, 15,342 and 17,633 for the years ended December 31, 1998, 1997 and 1996, respectively. The Bank bears the cost of administering the ESOP. Directors' Stock Program. To further align the outside Directors' interest with those of the Company's stockholders, on December 9, 1997, the Board of Directors of the Company authorized the issuance of up to 20,000 shares of the Company's common stock to the Company's non-employee directors, pursuant to the Jamaica Savings Bank FSB Directors' Stock Program (the "Directors' Stock Program"). Pursuant to the Directors' Stock Program, each year, non-employee Directors of the Bank will receive shares of the Company's common stock having a fair market value equal to approximately one-third of the annual directorship fees during such year. The stock will be issued in lieu of a cash payment of such fees. Shares distributed thereunder will be from the Company's treasury stock. The operation of the Directors' Stock Program is automatic, with the determination of the appropriate number of shares to be issued to each director based on the fair market value of the common stock at the close of business prior to the date of issuance. Directors do not have the option to receive cash rather than stock in payment of the portion of their fees subject to the Directors' Stock Program. During 1998, the Company issued 1,800 shares pursuant to this program. Note (24) Benefit Restoration Plan The Bank maintains a non-qualified Benefit Restoration Plan (the "Restore Plan"), to compensate participants in the Bank's benefit plans that are limited by Section 415 of the Internal Revenue Code. With certain exceptions, the Restore Plan is unfunded. However, in connection with the ESOP, which entitles participants to shares of the Company's common stock and the Savings Plan, which entitles participants to direct amounts, if any, invested in the Company's stock, the Bank established a trust. The purpose of this trust is to purchase, on an ongoing basis, shares of the Company's common stock to which participants of the Restore Plan are entitled. By establishing this trust, the Bank fixed the amount of cash expended for benefits payable in shares of common stock of the Company or its equivalent cash value at the time of payout. The shares of common stock held by the trust are reflected as contra-equity and additional paid-in capital on the Consolidated Statements of Financial Condition of the Company. At December 31, 1998 and 1997, the trust held 193,723 and 188,323 shares of common stock, respectively, at an aggregate cost of $4,477,000 and $4,199,000, respectively. The expense recognized for the Restore Plan in connection with the ESOP for 1998, 1997 and 1996 was $7,000, $113,000 and $105,000, respectively. Note (25) Fair Value of Financial Instruments SFAS No. 107 "Disclosures about Fair Value of Financial Instruments" ("Statement 107") defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. Statement 107 provides limited guidance for calculating fair value estimates when quoted prices are not available, therefore the Company has disclosed the valuation approach and the material assumptions which have been made. The relevance and reliability of the estimates of fair values presented are limited, given the dynamic nature of market conditions, including changes in interest rates, the real estate market, existing borrowers' financial condition and numerous other factors over time. The following methods and assumptions were utilized by management to estimate the fair value of each class of financial instruments at December 31, 1 98 and 1997: Cash and cash equivalents, interest due and accrued: The carrying values approximate fair value because of the short-term nature of these instruments. Securities available-for-sale, securities held-to-maturity and other investments: The estimated fair values are based on quoted market prices at the reporting date for those or similar investments, except for FHLB-NY stock, which is reflected at cost. Mortgage and other loans: For certain homogeneous categories of loans, such as some residential mortgages and student loans, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. In addition, it is assumed that one-to four-family fixed rate mortgage loans are FNMA qualifying, and could therefore be packaged into a MBS. The estimated fair value for the remainder of the mortgage and other loan portfolios was computed by discounting the contractual future cash flows at rates offered by the Bank, which approximate market rates, at December 31, 1998 and 1997 on loans with terms similar to the remaining term to maturity and to borrowers with similar credit quality. The estimated fair value of non-performing loans, if material, are calculated on an individual basis, applying a discount commensurate with the credit risk. Techniques for estimating fair value are extremely sensitive to the assumptions and estimates used. While management has attempted to use assumptions and estimates which it believes are most reflective of the loan portfolio and the current market, a greater degree of subjectivity is inherent in these values than those determined in formal trading marketplaces. As such, readers are cautioned in using this information for purposes of evaluating the financial condition and/or value of the Company in and of itself or in comparison with any other company. Deposits: All deposits, except certificates, are subject to rate changes at any time, and therefore are considered to be carried at fair value. The estimates of fair value for certificates reflect the present value of the contractual future cash flow for each certificate. The present value rates utilized were the rates offered by the Bank (which approximate market rates) at December 31, 1998 and 1997, respectively, on a certificate with an initial term to maturity equal to the remaining term to maturity of the existing certificates. FHLB-NY Advances: Fair value estimates are based on discounted contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities. Commitments: Commitments to originate loans and purchase securities are derived by applying the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit worthiness of the counterparties. For fixed-rate loan commitments, estimated fair value also considers the difference between interest rates on the reporting date and the committed rates. The estimated fair value of lines of credit is based on the fees charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting dates. The commitments existing at December 31, 1998 and 1997, would have been offered at substantially the same rates and under substantially the same terms that would have been offered at December 31, 1998 and 1997 to the counterparties; therefore the estimated fair value of the commitments was zero at those dates. The following table presents carrying values and estimated fair values of financial instruments at December 31:
1998 1997 ------------------------ -------------------------- Estimated Carrying Estimated Carrying Fair Value Fair Value Value Value ----------- ----------- ------------ ------------- (In Thousands) Financial assets Cash and cash equivalents $ 112,849 $ 112,849 $ 74,924 $ 74,924 Securities available-for-sale 83,592 83,592 62,243 62,243 Securities held-to-maturity 208,457 208,906 352,967 353,996 Other investments 8,922 8,922 7,645 7,645 Mortgage loans, gross 1,155,358 1,197,873 979,810 1,031,586 Other loans, gross 22,927 22,915 29,148 29,256 Interest due and accrued 8,773 8,773 9,278 9,278 Financial liabilities Deposits $ 1,124,166 $ 1,126,151 $ 1,121,203 $ 1,121,903 FHLB-NY advances 50,000 50,249 - -
NOTE (26) Regulatory Capital The Bank is subject to various regulatory capital requirements established by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. (See also Note 18.) Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum capital amounts and ratios. The most recent notification from the Office of Thrift Supervision ("OTS"), as of March 31, 1998, categorized the Bank as "well capitalized" under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's "well capitalized" status. The following table sets forth the required ratios and amounts and the Bank's actual capital ratios and amounts at December 31:
To be Well Capitalized Under Prompt For Capital Corrective Adequacy Action Provisions Actual Purposes ----------------- ----------------- ------------------ Amount Ratio Amount Ratio Amount Ratio -------- -------- -------- -------- --------- -------- (Dollars in Thousands) 1998 Total risk-based capital (to risk weighted assets) $ 302,663 98,362 122,953 24.62% $ 8.00% $ 10.00% Tangible capital (to tangible assets) 276,364 18.25 22,717 1.50 N/A N/A Tier I leverage (core) capital (to adjusted tangible assets) 276,364 18.25 45,434 3.00 75,723 5.00 1997 Total risk-based capital (to risk weighted assets) $ 224,444 21.66% 82,889 8.00% 103,612 10.00% Tangible capital (to tangible assets) 229,168 16.35 21,020 1.50 N/A N/A Tier I leverage (core) capital (to adjusted tangible assets) 229,168 16.35 42,040 3.00 51,806 5.00
The OTS regulatory capital requirements incorporate an interest rate risk ("IRR") component. Savings institutions with "above normal" IRR exposure are subject to a deduction from regulatory capital for purposes of calculating their risk-based capital requirements. Implementation of the IRR component has been delayed by the OTS. OTS regulations generally require that institutions deduct from capital their investment in and advances to subsidiaries engaged, as principal, in activities not permissible for national banks, such as real estate development. OTS regulations also require that all equity and direct investments including all loans and advances in which a legally binding commitment existed at April 12, 1989 be deducted from capital for the purposes of computing regulatory capital ratios. As a result of this regulation, the Bank excluded from its regulatory capital $4,588,000 and $6,827,000 at December 31, 1998 and 1997, respectively. Distributions charged against an institution's capital accounts, such as, the upstreaming of funds to holding companies are subject to certain limitations under OTS regulations. An institution, such as the Bank, which meets its fully phased-in capital requirements is able to pay dividends to the Company, upon 30 days notice to the OTS, in an amount that would reduce its surplus capital ratio by one-half at the beginning of the year, plus all of its net income determined on the basis of generally accepted accounting principles for that calendar year. The institution must continue to meet all fully phased-in capital requirements after the proposed capital distribution. Note (27) Parent Only Financial Information The following condensed statements of financial condition at December 31, 1998 and 1997 and the condensed statements of operations and cash flows for the years ended December 31, 1998, 1997 and 1996, for JSB Financial, Inc. (parent company-only) present the Company's investment in its wholly-owned subsidiary, the Bank, using the equity method of accounting. Condensed Statements of Financial Condition December 31, 1998 and 1997 (In Thousands) 1998 1997 ---------- ----------- ASSETS Cash and cash equivalents $ 21,102 $ 17,164 Securities held-to-maturity, net (estimated 40,000 70,000 fair value of $39,995 and $70,000, respectively) Mortgage loans, net -- 15,195 Other assets, net 410 726 Investment in subsidiary 321,155 264,464 ---------- ----------- Total Assets $ 382,667 $ 367,549 ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities, net $ 30 $ 35 Stockholders' equity 382,637 367,514 ---------- ----------- Total Liabilities and Stockholders' Equity $ 382,667 $ 367,549 ========== =========== Condensed Statements of Operations For the Years Ended December 31, (In Thousands) 1998 1997 1996 --------- --------- --------- Dividends from subsidiary $ -- $ -- $ 20,000 Interest income 4,596 6,080 6,589 Other income 1,087 13 18 --------- --------- --------- Total income 5,683 6,093 26,607 --------- --------- --------- Expenses 661 531 451 --------- --------- --------- Income Before Income Taxes and Equity in Undistributed Earnings of the Bank 5,022 5,562 26,156 Provision for Income Taxes 1,542 1,781 2,100 --------- --------- --------- Income Before Equity in Undistributed Earnings of the Bank 3,480 3,781 24,056 Equity in Undistributed Earnings of the Bank, Net of Provision for Income Taxes 40,908 33,309 2,669 --------- --------- --------- Net Income $ 44,388 $ 37,090 $ 26,725 ========= ========= ========= Condensed Statements of Cash Flows For the Years Ended December 31, (In Thousands) 1998 1997 1996 --------- --------- --------- Cash flows from operating activities: Net income $ 44,388 $ 37,090 $ 26,725 Adjustments to reconcile net income to cash provided by operating activities: Equity in undistributed earnings of the Bank (40,908) (33,309) (2,669) Decrease (increase) in other assets 316 (11) 697 Other 88 (2) -- --------- --------- --------- Net cash provided by operating activities 3,884 3,768 24,753 --------- --------- --------- Cash flows from investing activities: Purchases of securities held-to-maturity (205,000) (260,000) $(205,021) Proceeds from maturities of securities held-to-maturity 235,000 270,000 $ 215,000 Principal payments on mortgage loans 15,195 44 $ 40 Accretion of discount in excess of amortization of premium on debt securities -- 7 $ 14 --------- --------- --------- Net cash provided by investing activities 45,195 10,051 $ 10,033 --------- --------- --------- Cash flows from financing activities: Cash dividends paid to common stockholders (15,716) (13,805) $ (12,090) Payments to repurchase common stock (31,466) -- $ (27,650) Proceeds upon exercise of common stock options 2,041 1,568 $ 1,233 --------- --------- --------- Net cash used by financing activities (45,141) (12,237) $ (38,507) --------- --------- --------- Net increase (decrease) in cash and cash equivalents 3,938 1,582 $ 19,303 Cash and cash equivalents at beginning of year 17,164 15,582 $ (3,721) --------- --------- --------- Cash and cash equivalents at end of year $ 21,102 $ 17,164 $ 15,582 ========= ========= ========= -----END PRIVACY-ENHANCED MESSAGE-----